Table of Contents

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 10-Q

 

x

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE QUARTER ENDED MARCH 31, 2010

 

o

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

COMMISSION FILE NUMBER: 814-00237

 

GLADSTONE CAPITAL CORPORATION

(Exact name of registrant as specified in its charter)

 

MARYLAND

 

54-2040781

(State or other jurisdiction of incorporation or organization)

 

(I.R.S. Employer Identification No.)

 

1521 WESTBRANCH DRIVE, SUITE 200

MCLEAN, VIRGINIA 22102

(Address of principal executive office)

 

(703) 287-5800

(Registrant’s telephone number, including area code)

 

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No o.

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o  No o

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting company.  See the definitions of “large accelerated filer,” “accelerated filer,” and “smaller reporting company” in Rule 12 b-2 of the Exchange Act.

 

Large accelerated filer o

 

Accelerated filer x

 

 

 

Non-accelerated filer o

 

Smaller reporting company o.

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o  No x.

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.  The number of shares of the issuer’s Common Stock, $0.001 par value, outstanding as of May 4, 2010 was 21,039,242.

 

 

 



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Assets and Liabilities as of March 31, 2010 and September 30, 2009

2

 

Condensed Consolidated Schedules of Investments as of March 31, 2010 and September 30, 2009

3

 

Condensed Consolidated Statements of Operations for the three and six months ended March 31, 2010 and 2009

11

 

Condensed Consolidated Statements of Changes in Net Assets for the six months ended March 31, 2010 and 2009

12

 

Condensed Consolidated Statements of Cash Flows for the six months ended March 31, 2010 and 2009

13

 

Financial Highlights for the three and six months ended March 31, 2010 and 2009

14

 

Notes to Condensed Consolidated Financial Statements

16

 

 

 

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

32

 

Overview

32

 

Results of Operations

35

 

Liquidity and Capital Resources

43

 

 

 

Item 3.

Quantitative and Qualitative Disclosure About Market Risk

53

 

 

 

Item 4.

Controls and Procedures

54

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

55

 

 

 

Item 1A.

Risk Factors

55

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

57

 

 

 

Item 3.

Defaults Upon Senior Securities

57

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

57

 

 

 

Item 5.

Other Information

58

 

 

 

Item 6.

Exhibits

58

 

 

 

SIGNATURES

58

 

1



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

 

March 31,

 

September 30,

 

 

 

2010

 

2009

 

ASSETS

 

 

 

 

 

Non-Control/Non-Affiliate investments (Cost 3/31/10: $274,627; 9/30/09: $312,043)

 

$

256,227

 

$

286,997

 

Control investments (Cost 3/31/10: $55,467; 9/30/09: $52,350)

 

35,524

 

33,972

 

Total investments at fair value (Cost 3/31/10: $330,094; 9/30/09: $364,393)

 

291,751

 

320,969

 

Cash

 

4,261

 

5,276

 

Interest receivable – investments in debt securities

 

2,387

 

3,048

 

Interest receivable – employees (Refer to Note 4)

 

91

 

85

 

Due from custodian

 

10,571

 

3,059

 

Due from Adviser (Refer to Note 4)

 

 

69

 

Deferred financing fees

 

1,610

 

1,230

 

Prepaid assets

 

288

 

341

 

Receivable from portfolio companies, less allowance for uncollectible receivables of $177 and $0 at March 31, 2010 and September 30, 2009, respectively

 

367

 

1,528

 

Other assets

 

312

 

305

 

TOTAL ASSETS

 

$

311,638

 

$

335,910

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Accounts payable

 

$

 

$

67

 

Interest payable

 

244

 

378

 

Fee due to Administrator (Refer to Note 4)

 

176

 

216

 

Due to Adviser (Refer to Note 4)

 

2,365

 

834

 

Borrowings under line of credit at fair value (Cost 3/31/10: $53,000; 9/30/09: $83,000)

 

53,000

 

83,350

 

Accrued expenses and deferred liabilities

 

1,203

 

1,800

 

Funds held in escrow

 

101

 

189

 

TOTAL LIABILITIES

 

57,089

 

86,834

 

NET ASSETS

 

$

254,549

 

$

249,076

 

 

 

 

 

 

 

ANALYSIS OF NET ASSETS

 

 

 

 

 

Common stock, $0.001 par value, 50,000,000 shares authorized and 21,039,242 and 21,087,574 shares issued and outstanding at March 31, 2010 and September 30, 2009, respectively

 

$

21

 

$

21

 

Capital in excess of par value

 

327,709

 

328,203

 

Notes receivable — employees (Refer to Note 4)

 

(8,503

)

(9,019

)

Net unrealized depreciation on investments

 

(38,343

)

(43,425

)

Net unrealized appreciation on borrowings under line of credit

 

 

(350

)

Accumulated Net Realized Losses

 

(26,335

)

(26,354

)

TOTAL NET ASSETS

 

$

254,549

 

$

249,076

 

NET ASSETS PER SHARE

 

$

12.10

 

$

11.81

 

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

2



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS

AS OF MARCH 31, 2010

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

NON-CONTROL/NON-AFFILIATE INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-syndicated Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Access Television Network, Inc.

 

Service-cable airtime (infomercials)

 

Senior Term Debt (14.5%, Due 12/2009) (5) (11)

 

$

963

 

$

794

 

 

 

 

 

 

 

 

 

Allison Publications, LLC

 

Service-publisher of consumer oriented magazines

 

Senior Term Debt (10.5%, Due 9/2012) (5)

 

9,399

 

8,779

 

 

 

 

Senior Term Debt (13.0%, Due 12/2010) (5)

 

195

 

191

 

 

 

 

 

 

 

 

 

Anitox Acquisition Company

 

Manufacturing-preservatives for animal feed

 

Line of Credit, $3,000 available (4.5%, Due 1/2011) (5)

 

1,950

 

1,950

 

 

 

 

Senior Term Debt (8.5%, Due 1/2012) (5)

 

2,603

 

2,596

 

 

 

 

Senior Term Debt (10.5%, Due 1/2012) (3) (5)

 

3,688

 

3,660

 

 

 

 

 

 

 

 

 

BAS Broadcasting

 

Service-radio station operator

 

Senior Term Debt (11.5%, Due 7/2013) (5)

 

7,435

 

6,766

 

 

 

 

 

 

 

 

 

Chinese Yellow Pages Company

 

Service-publisher of Chinese language directories

 

Line of Credit, $700 available (7.3%, Due 9/2010) (5)

 

450

 

432

 

 

 

 

Senior Term Debt (7.3%, Due 9/2010) (5)

 

425

 

407

 

 

 

 

 

 

 

 

 

CMI Acquisition, LLC

 

Service-recycling

 

Senior Subordinated Term Debt (10.3%, Due 11/2012) (5)

 

6,240

 

6,061

 

 

 

 

 

 

 

 

 

Doe & Ingalls Management LLC

 

Distributor-specialty chemicals

 

Senior Term Debt (8.0%, Due 11/2010) (5)

 

1,900

 

1,881

 

 

 

 

Senior Term Debt (9.0%, Due 11/2010) (3) (5)

 

4,343

 

4,299

 

 

 

 

 

 

 

 

 

Finn Corporation

 

Manufacturing-landscape equipment

 

Common Stock Warrants (7) (8)

 

37

 

651

 

 

 

 

 

 

 

 

 

GFRC Holdings LLC

 

Manufacturing-glass-fiber reinforced concrete

 

Senior Term Debt (9.0%, Due 12/2012) (5)

 

6,405

 

6,333

 

 

 

 

Senior Subordinated Term Debt (11.5%, Due 12/2012) (3) (5)

 

6,649

 

6,516

 

 

 

 

 

 

 

 

 

Global Materials Technologies, Inc.

 

Manufacturing-steel wool products and metal fibers

 

Senior Term Debt (14.0%, Due 6/2010) (3) (5)

 

4,310

 

3,232

 

 

 

 

 

 

 

 

 

Heartland Communications Group

 

Service-radio station operator

 

Senior Term Debt (10.0%, Due 5/2011) (5)

 

4,559

 

2,272

 

 

 

 

 

 

 

 

 

Interfilm Holdings, Inc.

 

Service-slitter and distributor of plastic films

 

Senior Term Debt (12.3%, Due 10/2012) (5)

 

4,924

 

4,796

 

 

 

 

 

 

 

 

 

International Junior Golf Training Acquisition Company

 

Service-golf training

 

Line of Credit, $1,500 available (9.0%, Due 5/2010) (5) (13)

 

1,500

 

1,487

 

 

 

 

Senior Term Debt (8.5%, Due 5/2012) (5)

 

1,854

 

1,823

 

 

 

 

Senior Term Debt (10.5%, Due 5/2012) (3) (5)

 

2,500

 

2,438

 

 

 

 

 

 

 

 

 

KMBQ Corporation

 

Service-AM/FM radio broadcaster

 

Line of Credit, $200 available (11.0%, Due 7/2010) (5)

 

162

 

32

 

 

 

 

Senior Term Debt (11.0%, Due 7/2010) (5)

 

1,921

 

384

 

 

 

 

 

 

 

 

 

Legend Communications of Wyoming LLC

 

Service-operator of radio stations

 

Line of Credit, $500 available (12.0%, Due 6/2011) (5)

 

497

 

430

 

 

 

 

Senior Term Debt (12.0%, Due 6/2013) (5)

 

9,373

 

8,107

 

 

 

 

 

 

 

 

 

Newhall Holdings, Inc.

 

Service-distributor of personal care products and supplements

 

Line of Credit, $1,350 available (5.0%, Due 5/2010) (5)

 

1,000

 

934

 

 

 

Senior Term Debt (5) (5.0%, Due 5/2012) (5)

 

3,870

 

3,614

 

 

 

 

Senior Term Debt (5.0%, Due 5/2012) (3) (5)

 

4,648

 

4,294

 

 

 

 

Preferred Equity (7) (8)

 

 

 

 

 

 

Common Stock (7) (8)

 

 

 

 

 

 

 

 

 

 

 

Northern Contours, Inc.

 

Manufacturing-veneer and laminate components

 

Senior Subordinated Term Debt (13.0%, Due 9/2012) (5)

 

6,388

 

5,781

 

3



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

AS OF MARCH 31, 2010

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

Northstar Broadband, LLC

 

Service-cable TV franchise owner

 

Senior Term Debt (0.7%, Due 12/2012) (5)

 

$

143

 

$

120

 

 

 

 

 

 

 

 

 

Pinnacle Treatment Centers, Inc.

 

Service-Addiction treatment centers

 

Senior Term Debt (10.5%, Due 12/2011) (5)

 

2,350

 

2,332

 

 

 

 

Senior Term Debt (10.5%, Due 12/2011) (3) (5)

 

7,500

 

7,359

 

 

 

 

 

 

 

 

 

Precision Acquisition Group Holdings, Inc.

 

Manufacturing-consumable components for the aluminum industry

 

Equipment Note (13.0%, Due 10/2010) (5)

 

1,000

 

975

 

 

 

Senior Term Debt (13.0%, Due 10/2010) (5)

 

4,125

 

4,022

 

 

 

 

Senior Term Debt (13.0%, Due 10/2010) (3) (5)

 

4,053

 

3,952

 

 

 

 

 

 

 

 

 

PROFITSystems Acquisition Co.

 

Service-design and develop ERP software

 

Line of Credit, $350 available (4.5%, Due 7/2010)

 

 

 

 

 

 

Senior Term Debt (8.5%, Due 7/2011) (5)

 

1,300

 

1,216

 

 

 

 

Senior Term Debt (10.5%, Due 7/2011) (3) (5)

 

2,900

 

2,686

 

 

 

 

 

 

 

 

 

RCS Management Holding Co.

 

Service-healthcare supplies

 

Senior Term Debt (8.5%, Due 1/2011) (3) (5)

 

2,187

 

2,179

 

 

 

 

Senior Term Debt (10.5%, Due 1/2011) (4) (5)

 

3,060

 

3,037

 

 

 

 

 

 

 

 

 

Reliable Biopharmaceutical Holdings, Inc.

 

Manufacturing-pharmaceutical and biochemical intermediates

 

Line of Credit, $5,000 available (9.0%, Due 10/2010) (5)

 

700

 

698

 

 

 

Mortgage Note (9.5%, Due 10/2014) (5) 

 

7,293

 

7,284

 

 

 

 

Senior Term Debt (9.0%, Due 10/2012) (5) 

 

1,305

 

1,302

 

 

 

 

Senior Term Debt (11.0%, Due 10/2012) (3) (5) 

 

11,753

 

11,635

 

 

 

 

Senior Subordinated Term Debt (12.0%, Due 10/2013) (5) 

 

6,000

 

5,873

 

 

 

 

Common Stock Warrants (7) (8) 

 

209

 

 

 

 

 

 

 

 

 

 

Saunders & Associates

 

Manufacturing-equipment provider for frequency control devices

 

Senior Term Debt (9.8%, Due 5/2013) (5)

 

9,558

 

9,534

 

 

 

 

 

 

 

 

 

SCI Cable, Inc.

 

Service-cable, internet, voice provider

 

Senior Term Debt (non-accrual, Due 10/2008) (5) (10) (13)

 

3,031

 

379

 

 

 

 

 

 

 

 

 

Sunburst Media - Louisiana, LLC

 

Service-radio station operator

 

Senior Term Debt (10.5%, Due 6/2011) (5)

 

6,401

 

5,961

 

 

 

 

 

 

 

 

 

Sunshine Media Holdings

 

Service-publisher regional B2B trade magazines

 

Line of credit, $2,000 available (9.0%, Due 2/2011) (5)

 

799

 

751

 

 

 

 

Senior Term Debt (10.5%, Due 5/2012) (5)

 

16,948

 

15,931

 

 

 

 

Senior Term Debt (13.3%, Due 5/2012) (3) (5)

 

10,700

 

9,898

 

 

 

 

 

 

 

 

 

Thibaut Acquisition Co.

 

Service-design and disbribute wall covering

 

Line of Credit, $1,000 available (9.0%, Due 1/2011) (5)

 

1,000

 

957

 

 

 

 

Senior Term Debt (8.5%, Due 1/2011) (5)

 

1,413

 

1,352

 

 

 

 

Senior Term Debt (12.0%, Due 1/2011) (3) (5)

 

3,000

 

2,839

 

 

 

 

 

 

 

 

 

VantaCore

 

Service-acquisition of aggregate quarries

 

Senior Subordinated Term Debt (12.0%, Due 8/2013) (14)

 

13,590

 

13,590

 

 

 

 

 

 

 

 

 

Viapack, Inc.

 

Manufacturing-polyethylene film

 

Senior Real Estate Term Debt (10.0%, Due 3/2011) (5)

 

725

 

719

 

 

 

 

Senior Term Debt (13.0%, Due 3/2011) (3) (5)

 

4,058

 

4,022

 

 

 

 

 

 

 

 

 

Westlake Hardware, Inc.

 

Retail-hardware and variety

 

Senior Subordinated Term Debt (10.3%, Due 1/2011) (5)

 

15,000

 

14,700

 

 

 

 

Senior Subordinated Term Debt (11.5%, Due 1/2011) (5)

 

10,000

 

9,700

 

 

 

 

 

 

 

 

 

Winchester Electronics

 

Manufacturing-high bandwidth connectors and cables

 

Senior Term Debt (5.2%, Due 12/2010) (5)

 

1,250

 

1,244

 

 

 

 

Senior Term Debt (5.7%, Due 5/2013) (5)

 

1,686

 

1,648

 

 

 

 

Senior Subordinated Term Debt (14.0%, Due 6/2013) (5)

 

9,900

 

9,529

 

 

 

 

 

 

 

 

 

Subtotal — Non-syndicated loans

 

 

 

 

 

265,125

 

248,364

 

4



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

AS OF MARCH 31, 2010

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

Syndicated Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Puerto Rico Cable Acquisition Company, Inc.

 

Service-telecommunications

 

Senior Subordinated Term Debt (7.8%, Due 1/2012) (6)

 

$

7,167

 

$

6,284

 

 

 

 

 

 

 

 

 

WP Evenflo Group Holdings Inc.

 

Manufacturing-infant and juvenile products

 

Senior Term Debt (8.0%, Due 2/2013) (6)

 

1,891

 

1,579

 

 

 

 

Senior Preferred Equity (7) (8) 

 

333

 

 

 

 

 

Junior Preferred Equity (7) (8) 

 

111

 

 

 

 

 

Common Stock (7) (8) 

 

 

 

 

 

 

 

 

 

 

 

Subtotal - Syndicated loans

 

 

 

 

 

9,502

 

7,863

 

 

 

 

 

 

 

 

 

Total Non-Control/Non-Affiliate Investments

 

 

 

 

 

$

274,627

 

$

256,227

 

 

 

 

 

 

 

 

 

CONTROL INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BERTL, Inc.

 

Service-web-based evaluator of digital imaging products

 

Line of Credit, $1,023 available (non-accrual, Due 10/2010) (7)(10)(12)

 

$

996

 

$

232

 

 

 

 

Common Stock (7) (8)

 

423

 

 

 

 

 

 

 

 

 

 

Clinton Holdings, LLC

 

Distribution-aluminum sheets and stainless steel

 

Senior Subordinated Term Debt (12.0%, Due 1/2013) (5)

 

17,140

 

12,855

 

 

 

 

Common Stock Warrants (7) (8)

 

109

 

 

 

 

 

 

 

 

 

 

Defiance Integrated Technologies, Inc.

 

Manufacturing-trucking parts

 

Senior Term Debt (11.0%, Due 4/2013) (3) (5)

 

8,324

 

8,325

 

 

 

 

Common Stock (7) (8)

 

1

 

 

 

 

 

Guaranty ($250)

 

 

 

 

 

 

 

 

 

 

 

 

 

Lindmark Acquisition, LLC

 

Service-advertising

 

Senior Subordinated Term Debt (non-accrual, Due 10/2012) (5) (9) (10)

 

10,000

 

8,825

 

 

 

 

Senior Subordinated Term Debt (non-accrual, Due 12/2010) (5) (9) (10)

 

2,000

 

1,765

 

 

 

 

Senior Subordinated Term Debt (non-accrual, Due Upon Demand) (5)(9)(10)

 

1,788

 

1,274

 

 

 

 

Common Stock (7) (8)

 

1

 

 

 

 

 

 

 

 

 

 

LYP Holdings Corp.

 

Service-yellow pages publishing

 

Line of credit, $1,850 available (10.0%, Due 12/2010) (7)

 

1,698

 

1,698

 

 

 

 

Senior Term Debt (12.5%, Due 2/2012) (7)

 

325

 

325

 

 

 

 

Line of Credit, $3,000 available (non-accrual, Due 6/2010) (7) (10)

 

1,170

 

64

 

 

 

 

Senior Term Debt (non-accrual, Due 6/2011) (7) (10)

 

2,688

 

 

 

 

 

Senior Term Debt (non-accrual, Due 6/2011) (3) (7) (10)

 

2,750

 

 

 

 

 

Common Stock Warrants (7) (8)

 

 

 

 

 

 

 

 

 

 

 

U.S. Healthcare Communications, Inc.

 

Service-magazine publisher/operator

 

Line of credit, $400 available (non-accrual, Due 12/2010) (7) (10)

 

269

 

161

 

 

 

 

Line of credit, $450 available (non-accrual, Due 12/2010) (7) (10)

 

450

 

 

 

 

 

Common Stock (7) (8)

 

2,470

 

 

 

 

 

 

 

 

 

 

Western Directories, Inc.

 

Service-directory publisher

 

Line of credit, $1,280 available (non-accrual, Due 12/2010) (7) (10)

 

1,280

 

 

 

 

 

Preferred Stock (7) (8)

 

1,584

 

 

 

 

 

Common Stock (7) (8)

 

1

 

 

 

 

 

 

 

 

 

 

Total Control Investments

 

 

 

 

 

$

55,467

 

$

35,524

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

 

$

330,094

 

$

291,751

 

5



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

AS OF MARCH 31, 2010

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 


(1)

Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.

(2)

Percentage represents interest rates in effect at March 31, 2010 and due date represents the contractual maturity date.

(3)

Last Out Tranche of senior debt, meaning if the portfolio company is liquidated, the holder of the Last Out Tranche is paid after the senior debt.

(4)

Last Out Tranche of senior debt, meaning if the portfolio company is liquidated, the holder of the Last Out Tranche is paid after the senior debt, however, the debt is also junior to another Last Out Tranche.

(5)

Fair value was based on opinions of value submitted by Standard & Poor’s Securities Evaluations, Inc.

(6)

Security valued based on the indicative bid price on or near March 31, 2010, offered by the respective syndication agent’s trading desk or secondary desk.

(7)

Fair value was based on the total enterprise value of the portfolio company using a liquidity waterfall approach. The Company also considered discounted cash flow methodologies.

(8)

Security is non-income producing.

(9)

Lindmark’s loan agreement was amended in March 2009 such that any unpaid current interest accrues at a success fee rate.  The success fee is to be paid upon certain conditions being met and is not recorded until paid. Please refer to Note 2, “Summary of Significant Accounting Policies — Interest Income Recognition.” For the three and six months ended March 31, 2010, the Company recorded $0 of interest income.

(10)

BERTL, Lindmark, SCI Cable, U.S. Healthcare, Western Directories and a portion of LYP Holdings are currently past due on interest payments and are on non-accrual.

(11)

Access TV’s loan matured in December 2009. The Company is actively working to recover amounts due under this loan, however, there is no assurance that there will be any recovery of amounts past due.

(12)

ACE Expediters’ interest and BERTL’s interest include paid in kind interest. Please refer to Note 2, “Summary of Significant Accounting Policies.”

(13)

Subsequent to March 31, 2010, International Junior Golf’s line of credit was extended to May 2011 and SCI Cable’s senior term debt was amended with a maturity date of October 2012.

(14)

VantaCore’s fair value was based on the full repayment subsequent to March 31, 2010. Please refer to Note 10, “Subsequent Events.”

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

6



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

AS OF SEPTEMBER 30, 2009

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

NON-CONTROL/NON-AFFILIATE INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Non-syndicated Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Access Television Network, Inc.

 

Service-cable airtime (infomercials)

 

Senior Term Debt (14.5%, Due 12/2009) (5) (9)

 

$

963

 

$

868

 

 

 

 

 

 

 

 

 

ACE Expediters, Inc

 

Service-over-the-ground logistics

 

Senior Term Debt (13.5%, Due 9/2014) (5) (13)

 

5,106

 

4,864

 

 

 

 

Common Stock Warrants (8) 

 

200

 

564

 

 

 

 

 

 

 

 

 

ActivStyle Acquisition Co.

 

Service-medical products distribution

 

Senior Term Debt (13.0%, Due 4/2014) (3) (5)

 

4,000

 

3,940

 

 

 

 

 

 

 

 

 

Allison Publications, LLC

 

Service-publisher of consumer oriented magazines

 

Senior Term Debt (10.0%, Due 9/2012) (5)

 

9,709

 

8,746

 

 

 

 

Senior Term Debt (13.0%, Due 12/2010) (5)

 

260

 

246

 

 

 

 

 

 

 

 

 

Anitox Acquisition Company

 

Manufacturing-preservatives for animal feed

 

Line of Credit, $3,000 available (4.5%, Due 1/2010) (5)

 

1,700

 

1,681

 

 

 

 

Senior Term Debt (8.5%, Due 1/2012) (5)

 

2,877

 

2,823

 

 

 

 

Senior Term Debt (10.5%, Due 1/2012) (3) (5)

 

3,688

 

3,582

 

 

 

 

 

 

 

 

 

BAS Broadcasting

 

Service-radio station operator

 

Senior Term Debt (11.5%, Due 7/2013) (5)

 

7,300

 

5,840

 

 

 

 

Senior Term Debt (12.0%, Due 7/2009) (3) (5) (12)

 

950

 

475

 

 

 

 

 

 

 

 

 

CCS, LLC

 

Service-cable TV franchise owner

 

Senior Term Debt (non-accrual, Due 8/2008) (5) (10) (12)

 

631

 

126

 

 

 

 

 

 

 

 

 

Chinese Yellow Pages Company

 

Service-publisher of Chinese language directories

 

Line of Credit, $700 available (7.3%, Due 9/2010) (5)

 

450

 

427

 

 

 

 

Senior Term Debt (7.3%, Due 9/2010) (5)

 

518

 

488

 

 

 

 

 

 

 

 

 

CMI Acquisition, LLC

 

Service-recycling

 

Senior Subordinated Term Debt (10.3%, Due 11/2012) (5)

 

6,233

 

5,890

 

 

 

 

 

 

 

 

 

Doe & Ingalls Management LLC

 

Distributor-specialty chemicals

 

Senior Term Debt (6.8%, Due 11/2010) (5)

 

2,300

 

2,266

 

 

 

 

Senior Term Debt (7.8%, Due 11/2010) (3) (5)

 

4,365

 

4,267

 

 

 

 

 

 

 

 

 

Finn Corporation

 

Manufacturing-landscape equipment

 

Common Stock Warrants (8) 

 

37

 

1,223

 

 

 

 

 

 

 

 

 

GFRC Holdings LLC

 

Manufacturing-glass-fiber reinforced concrete

 

Line of Credit, $2,000 available (4.5%, Due 12/2010)

 

 

 

 

 

 

Senior Term Debt (9.0%, Due 12/2012) (5)

 

6,599

 

6,450

 

 

 

 

Senior Subordinated Term Debt (11.5%, Due 12/2012) (3) (5)

 

6,665

 

6,432

 

 

 

 

 

 

 

 

 

Global Materials Technologies, Inc.

 

Manufacturing-steel wool products and metal fibers

 

Senior Term Debt (13.0%, Due 6/2010) (3) (5)

 

4,410

 

3,528

 

 

 

 

 

 

 

 

 

Heartland Communications Group

 

Service-radio station operator

 

Senior Term Debt (10.0%, Due 5/2011) (5)

 

4,567

 

2,726

 

 

 

 

 

 

 

 

 

Interfilm Holdings, Inc.

 

Service-slitter and distributor of plastic films

 

Senior Term Debt (12.3%, Due 10/2012) (5)

 

4,950

 

4,715

 

 

 

 

 

 

 

 

 

International Junior Golf Training Acquisition Company

 

Service-golf training

 

Line of Credit, $1,500 available (9.0%, Due 5/2010) (5)

 

700

 

690

 

 

 

 

Senior Term Debt (8.5%, Due 5/2012) (5)

 

2,120

 

2,036

 

 

 

 

Senior Term Debt (10.5%, Due 5/2012) (3) (5)

 

2,500

 

2,366

 

 

 

 

 

 

 

 

 

KMBQ Corporation

 

Service-AM/FM radio broadcaster

 

Line of Credit, $200 available (11.0%, Due 3/2010) (5)

 

153

 

69

 

 

 

 

Senior Term Debt (11.0%, Due 3/2010) (5)

 

1,785

 

801

 

 

 

 

 

 

 

 

 

Legend Communications of Wyoming LLC

 

Service-operator of radio stations

 

Line of Credit, $500 available (12.0%, Due 6/2011) (5)

 

497

 

450

 

 

 

 

Senior Term Debt (12.0%, Due 6/2013) (5)

 

9,373

 

8,482

 

 

 

 

 

 

 

 

 

Newhall Holdings, Inc.

 

Service-distributor of personal care products and supplements

 

Line of Credit, $3,000 available (11.3%, Due 5/2010) (5)

 

1,000

 

945

 

 

 

Senior Term Debt (5) (11.3%, Due 5/2012) (5)

 

3,870

 

3,657

 

 

 

 

Senior Term Debt (14.3%, Due 5/2012) (3) (5)

 

4,410

 

4,112

 

7



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2009

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

Northern Contours, Inc.

 

Manufacturing-veneer and laminate components

 

Senior Subordinated Term Debt (10.0%, Due 5/2010) (5)

 

$

6,562

 

$

5,414

 

 

 

 

 

 

 

 

 

Pinnacle Treatment Centers, Inc.

 

Service-Addiction treatment centers

 

Line of Credit, $500 available (4.5%, Due 12/2009)

 

 

 

 

 

 

Senior Term Debt (10.5%, Due 12/2011) (5)

 

2,750

 

2,633

 

 

 

 

Senior Term Debt (10.5%, Due 12/2011) (3) (5)

 

7,500

 

7,059

 

 

 

 

 

 

 

 

 

Precision Acquisition Group Holdings, Inc.

 

Manufacturing-consumable components for the aluminum industry

 

Equipment Note (8.5%, Due 10/2011) (5)

 

1,000

 

988

 

 

 

Senior Term Debt (8.5%, Due 10/2010) (5)

 

4,250

 

4,192

 

 

 

 

Senior Term Debt (11.5%, Due 10/2010) (3) (5)

 

4,074

 

4,023

 

 

 

 

 

 

 

 

 

PROFITSystems Acquisition Co.

 

Service-design and develop ERP software

 

Line of Credit, $350 available (4.5%, Due 7/2010)

 

 

 

 

 

 

Senior Term Debt (8.5%, Due 7/2011) (5)

 

1,600

 

1,468

 

 

 

 

Senior Term Debt (10.5%, Due 7/2011) (3) (5)

 

2,900

 

2,632

 

 

 

 

 

 

 

 

 

RCS Management Holding Co.

 

Service-healthcare supplies

 

Senior Term Debt (8.5%, Due 1/2011) (3) (5)

 

2,437

 

2,383

 

 

 

 

Senior Term Debt (10.5%, Due 1/2011) (4) (5)

 

3,060

 

2,949

 

 

 

 

 

 

 

 

 

Reliable Biopharmaceutical Holdings, Inc.

 

Manufacturing-pharmaceutical and biochemical intermediates

 

Line of Credit, $5,000 available (9.0%, Due 10/2010) (5)

 

800

 

788

 

 

 

Mortgage Note (9.5%, Due 10/2014) (5) 

 

7,335

 

7,261

 

 

 

 

Senior Term Debt (9.0%, Due 10/2012) (5) 

 

1,530

 

1,507

 

 

 

 

Senior Term Debt (11.0%, Due 10/2012) (3) (5) 

 

11,813

 

11,518

 

 

 

 

Senior Subordinated Term Debt (12.0%, Due 10/2013) (5) 

 

6,000

 

5,640

 

 

 

 

Common Stock Warrants (8) 

 

209

 

282

 

 

 

 

 

 

 

 

 

Saunders & Associates

 

Manufacturing-equipment provider for frequency control devices

 

Senior Term Debt (9.8%, Due 5/2013) (5)

 

10,780

 

10,618

 

 

 

 

 

 

 

 

 

SCI Cable, Inc.

 

Service-cable, internet, voice provider

 

Senior Term Debt (9.3%, Due 10/2008) (5) (12)

 

2,881

 

576

 

 

 

 

 

 

 

 

 

Sunburst Media - Louisiana, LLC

 

Service-radio station operator

 

Senior Term Debt (10.5%, Due 6/2011) (5)

 

6,411

 

5,817

 

 

 

 

 

 

 

 

 

Sunshine Media Holdings

 

Service-publisher regional B2B trade magazines

 

Senior Term Debt (11.0%, Due 5/2012) (5)

 

16,948

 

15,973

 

 

 

 

Senior Term Debt (13.5%, Due 5/2012) (3) (5)

 

10,700

 

9,978

 

 

 

 

 

 

 

 

 

Thibaut Acquisition Co.

 

Service-design and disbribute wall covering

 

Line of Credit, $1,000 available (9.0%, Due 1/2011) (5)

 

1,000

 

933

 

 

 

 

Senior Term Debt (8.5%, Due 1/2011) (5)

 

1,487

 

1,387

 

 

 

 

Senior Term Debt (12.0%, Due 1/2011) (3) (5)

 

3,000

 

2,745

 

 

 

 

 

 

 

 

 

Tulsa Welding School

 

Service-private welding school

 

Line of credit, $750 available (9.5%, Due 9/2011)

 

 

 

 

 

 

Senior Term Debt (9.5%, Due 9/2013) (5)

 

4,144

 

4,144

 

 

 

 

Senior Term Debt (12.8%, Due 9/2013) (5)

 

7,960

 

7,950

 

 

 

 

 

 

 

 

 

VantaCore

 

Service-acquisition of aggregate quarries

 

Senior Subordinated Term Debt (12.0%, Due 8/2013) (5)

 

13,726

 

13,589

 

 

 

 

 

 

 

 

 

Viapack, Inc.

 

Manufacturing-polyethylene film

 

Senior Real Estate Term Debt (10.0%, Due 3/2011) (5)

 

775

 

743

 

 

 

 

Senior Term Debt (13.0%, Due 3/2011) (3) (5)

 

4,061

 

3,893

 

 

 

 

 

 

 

 

 

Visual Edge Technology, Inc.

 

Service-office equipment distribution

 

Line of credit, $3,000 available (10.8%, Due 9/2011) (5)

 

2,981

 

2,340

 

 

 

 

Senior Subordinated Term Debt (15.5%, Due 8/2011) (5)

 

5,000

 

3,925

 

 

 

 

 

 

 

 

 

Westlake Hardware, Inc.

 

Retail-hardware and variety

 

Senior Subordinated Term Debt (9.0%, Due 1/2011) (5)

 

15,000

 

14,269

 

 

 

 

Senior Subordinated Term Debt (10.3%, Due 1/2011) (5)

 

10,000

 

9,400

 

 

 

 

 

 

 

 

 

Winchester Electronics

 

Manufacturing-high bandwidth connectors and cables

 

Senior Term Debt (5.3%, Due 5/2013) (5)

 

1,147

 

1,136

 

 

 

 

Senior Term Debt (5.7%, Due 5/2013) (5)

 

1,690

 

1,642

 

 

 

 

Senior Subordinated Term Debt (14.0%, Due 6/2013) (5)

 

9,925

 

9,478

 

 

 

 

 

 

 

 

 

Subtotal - Non-syndicated loans

 

 

 

 

 

298,322

 

277,048

 

8



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2009

(DOLLAR AMOUNTS IN THOUSANDS)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

Syndicated Loans:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

GTM Holdings, Inc.

 

Manufacturing-socks

 

Senior Subordinated Term Debt (11.8%, Due 4/2014) (6)

 

$

500

 

$

220

 

 

 

 

 

 

 

 

 

Kinetek Acquisition Corp.

 

Manufacturing-custom engineered motors & controls

 

Senior Term Debt (3.6%, Due 11/2013) (7)

 

1,438

 

925

 

 

 

 

 

 

 

 

 

Puerto Rico Cable Acquisition Company, Inc.

 

Service-telecommunications

 

Senior Subordinated Term Debt (7.8%, Due 1/2012) (6)

 

7,174

 

5,713

 

 

 

 

 

 

 

 

 

Wesco Holdings, Inc.

 

Service-aerospace parts and distribution

 

Senior Subordinated Term Debt (6.0%, Due 3/2014) (7)

 

2,264

 

1,856

 

 

 

 

 

 

 

 

 

WP Evenflo Group Holdings Inc.

 

Manufacturing-infant and juvenile products

 

Senior Term Debt (8.0%, Due 2/2013) (6)

 

1,901

 

1,235

 

 

 

 

Senior Preferred Equity (8) 

 

333

 

 

 

 

 

Junior Preferred Equity (8) 

 

111

 

 

 

 

 

Common Stock (8) 

 

 

 

 

 

 

 

 

 

 

 

Subtotal - Syndicated loans

 

 

 

 

 

13,721

 

9,949

 

 

 

 

 

 

 

 

 

Total Non-Control/Non-Affiliate Investments

 

 

 

 

 

$

312,043

 

$

286,997

 

 

 

 

 

 

 

 

 

CONTROL INVESTMENTS

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

BERTL, Inc.

 

Service-web-based evaluator of digital imaging products

 

Line of Credit, $842 available (non-accrual, Due 10/2009) (10)(13)(15)

 

$

930

 

$

 

 

 

 

Common Stock (8) (15)

 

424

 

 

 

 

 

 

 

 

 

 

Clinton Holdings, LLC

 

Distribution-aluminum sheets and stainless steel

 

Senior Subordinated Term Debt (12.0%, Due 1/2013) (5) (14)

 

15,500

 

12,013

 

 

 

 

Escrow Funding Note (12.0%, Due 1/2013) (5) (14)

 

640

 

496

 

 

 

 

Common Stock Warrants (8) (15)

 

109

 

 

 

 

 

 

 

 

 

 

Defiance Integrated Technologies, Inc.

 

Manufacturing-trucking parts

 

Senior Term Debt (11.0%, Due 4/2010) (3) (11)

 

6,005

 

6,005

 

 

 

 

Senior Term Debt (11.0%, Due 4/2010) (3) (11)

 

1,178

 

1,178

 

 

 

 

Common Stock (8) (15)

 

1

 

816

 

 

 

 

Guaranty ($250)

 

 

 

 

 

 

 

 

 

 

 

 

 

Lindmark Acquisition, LLC

 

Service-advertising

 

Senior Subordinated Term Debt (11.3%, Due 10/2012) (5) (16)

 

12,000

 

10,410

 

 

 

 

Senior Subordinated Term Debt (13.0%, Due Upon Demand) (5) (16)

 

                      1,553

 

                      1,049

 

 

 

 

Common Stock (8) (15)

 

1

 

 

 

 

 

 

 

 

 

 

LYP Holdings Corp.

 

Service-yellow pages publishing

 

Line of credit, $1,250 available (10.0%, Due 7/2010) (15)

 

1,168

 

1,168

 

 

 

 

Senior Term Debt (12.5%, Due 2/2012) (15)

 

325

 

325

 

 

 

 

Line of Credit, $3,000 available (non-accrual, Due 6/2010) (10) (15)

 

1,170

 

421

 

 

 

 

Senior Term Debt (non-accrual, Due 6/2011) (10) (15)

 

2,688

 

 

 

 

 

Senior Term Debt (non-accrual, Due 6/2011) (3) (10) (15)

 

2,750

 

 

 

 

 

Common Stock Warrants (8) (15)

 

 

 

 

 

 

 

 

 

 

 

U.S. Healthcare Communications, Inc.

 

Service-magazine publisher/operator

 

Line of credit, $200 available (non-accrual, Due 3/2010) (10) (15)

 

169

 

91

 

 

 

 

Line of credit, $450 available (non-accrual, Due 3/2010) (10) (15)

 

450

 

 

 

 

 

Common Stock (8) (15)

 

2,470

 

 

 

 

 

 

 

 

 

 

Western Directories, Inc.

 

Service-directory publisher

 

Line of credit, $1,250 available (non-accrual, Due 12/2009) (10) (15)

 

1,234

 

 

 

 

 

Preferred Stock (8) (15)

 

1,584

 

 

 

 

 

Common Stock (8) (15)

 

1

 

 

 

 

 

 

 

 

 

 

Total Control Investments

 

 

 

 

 

$

52,350

 

$

33,972

 

 

 

 

 

 

 

 

 

Total Investments

 

 

 

 

 

$

364,393

 

$

320,969

 

9



Table of Contents

 


(1)

Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.

(2)

Percentage represents interest rates in effect at September 30, 2009 and due date represents the contractual maturity date.

(3)

Last Out Tranche of senior debt, meaning if the portfolio company is liquidated, the holder of the Last Out Tranche is paid after the senior debt.

(4)

Last Out Tranche of senior debt, meaning if the portfolio company is liquidated, the holder of the Last Out Tranche is paid after the senior debt, however, the debt is also junior to another Last Out Tranche.

(5)

Fair value was based on opinions of value submitted by Standard & Poor’s Securities Evaluations, Inc.

(6)

Security valued based on the indicative bid price on or near September 30, 2009, offered by the respective syndication agent’s trading desk or secondary desk.

(7)

Security valued based on the transaction sale price subsequent to September 30, 2009.

(8)

Security is non-income producing.

(9)

Access Television includes a success fee with a fair value of $1.

(10)

BERTL, CCS, U.S. Healthcare, Western Directories and a portion of LYP Holdings are currently past due on interest payments and are on non-accrual. BERTL’s loan matured in October 2009 and the Company is actively working to recover amounts due under this loan. However, there is no assurance that there will be any recovery of amounts past due.

(11)

Fair value of security estimated to be equal to cost due to recent recapitalization.

(12)

BAS Broadcasting’s loan matured in July 2009, CCS’ loan matured in August 2008 and SCI Cable’s loan matured in October 2008. The Company is actively working to recover amounts due under these loans, however, there is no assurance that there will be any recovery of amounts past due.

(13)

ACE Expediters’ interest and BERTL’s interest include paid in kind interest. Please refer to Note 2, “Summary of Significant Accounting Policies.”

(14)

Subsequent to September 30, 2009, Clinton’s senior subordinated term debt and escrow funding note were combined into one term note, with an interest rate of 12.0% and maturity date of January 2013. In addition, a term loan was entered into for $320, with an interest rate of 12.0% and maturity date of January 2013.

(15)

Fair value was based on the total enterprise value of the portfolio company using a liquidity waterfall approach.  The Company also considered discounted cash flow methodologies.

(16)

Lindmark’s loan agreement was amended in March 2009 such that any unpaid current interest accrues at a success fee rate.  The success fee is to be paid upon certain conditions being met and is not recorded until paid. Please refer to Note 2, “Summary of Significant Accounting Policies — Interest Income Recognition.” For the period from April 2009 through September 2009, the Company recorded $0 of interest income.

 

THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.

 

10



Table of Contents

 

GLADSTONE CAPITAL CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

 

 

 

Three Months Ended March 31,

 

Six Months Ended March 31,

 

 

 

2010

 

2009

 

2010

 

2009

 

INVESTMENT INCOME

 

 

 

 

 

 

 

 

 

Interest income — Non-Control/Non-Affiliate investments

 

$

8,523

 

$

10,329

 

$

17,432

 

$

21,990

 

Interest income — Control investments

 

709

 

482

 

1,477

 

502

 

Interest income — Cash

 

 

1

 

 

11

 

Interest income — Notes receivable from employees (Refer to Note 4)

 

108

 

117

 

221

 

235

 

Prepayment fees and other income

 

474

 

 

488

 

 

Total investment income

 

9,814

 

10,929

 

19,618

 

22,738

 

 

 

 

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

 

 

 

 

Interest expense

 

1,136

 

2,016

 

2,671