Gladstone Investment Corporation Reports Financial Results for the Second Quarter Ended September 30, 2008

-- Net Investment Income was $3.8 million or $0.17 per common share

-- Net Increase in Net Assets Resulting from Operations was $1.0 million or $0.04 per common share

MCLEAN, Va.--(BUSINESS WIRE)--

Gladstone Investment Corp. (NASDAQ: GAIN) (the "Company") today announced earnings for the second quarter ended September 30, 2008. All per share references are per basic and diluted weighted average common shares outstanding, unless otherwise noted.

Net Investment Income for the quarter ended September 30, 2008 was $3.8 million, or $0.17 per common share, as compared to $3.0 million, or $0.18 per common share, for the quarter ended September 30, 2007, an increase in Net Investment Income of 26.7%, but a decrease of 5.5% per common share. Net Investment Income for the six months ended September 30, 2008 was $6.8 million, or $0.33 per common share, as compared to $5.9 million, or $0.35 per common share, for the six months ended September 30, 2007, an increase in Net Investment Income of 15.3%, but a decrease of 5.7% per common share. Net Investment Income increased primarily due to lower interest expense on decreased outstanding borrowings under the credit facility as compared to the prior year period, partially offset by reductions in interest rates in the U.S. financial markets (LIBOR rates). The per share results were adversely impacted by the issuance of new shares in a rights offering during the quarter ended June 30, 2008, the proceeds of which were not fully invested in income-producing investments for the entire three and six months ended September 30, 2008.

Net Increase in Net Assets Resulting from Operations for the quarter ended September 30, 2008 was $1.0 million, or $0.04 per share, as compared to the Net Decrease in Net Assets Resulting from Operations of $4.4 million, or ($0.26) per share, for the quarter ended September 30, 2007. The primary reason for the net increase in net assets resulting from operations for the quarter was related to the decrease in net unrealized depreciation on the Company's investment portfolio, which was driven by the unrealized appreciation of the equity of certain of the Company's Control and Affiliate investments, partially offset by the realized loss on a syndicated loan. The per share results were adversely impacted by the increase in weighted average shares as a result of a rights offering completed during the quarter ended June 30, 2008.

Net Decrease in Net Assets Resulting from Operations for the six months ended September 30, 2008 was $3.5 million, or ($0.17) per share, as compared to Net Increase in Net Assets Resulting from Operations of $3.9 million, or $0.24 per share, for the six months ended September 30, 2007. The primary reason for the net decrease in net assets resulting from operations for the six month period was related to an increase in net unrealized depreciation on the Company's investment portfolio from the debt of certain of the Control and Affiliate investments, coupled with realized losses on certain syndicated loans, most notably on the settlement of the Lexicon deal. The per share results were adversely impacted by the increase in weighted average shares as a result of the rights offering completed during the quarter ended June 30, 2008.

Net loss on investments for the three and six months ended September 30, 2008 was $2.8 and $10.4 million, respectively, as compared to $7.4 and $2.0 million for the three and six months ended September 30, 2007, respectively. The Company's investment portfolio was valued as of September 30, 2008 at a depreciated value due primarily to the general instability of the loan markets. The value of the Company's portfolio is determined quarterly by its Board of Directors based, in part, on opinions of value provided by Standard and Poor's Securities Evaluations, Inc. ("SPSE"). The aggregate depreciation of the Company's investment portfolio depreciated only by a nominal amount during the quarter, and the entire portfolio is fair valued at approximately 94% of cost as of September 30, 2008. All but two of the loans in the Company's portfolio were paying as agreed as of September 30, 2008. The unrealized depreciation of the Company's investments does not have an impact on the Company's current ability to pay distributions to stockholders.

Total assets were $365.3 million at September 30, 2008, as compared to $352.3 million at March 31, 2008. Net asset value was $10.57 per actual common share outstanding at September 30, 2008, as compared to $12.47 per actual common share outstanding at March 31, 2008.

The annualized weighted average yield on the Company's portfolio of investments, excluding cash and cash equivalents, was 7.98% for the three months ended September 30, 2008, as compared to 9.08% for the three months ended September 30, 2007. The annualized weighted average yield on the Company's portfolio for the six months ended September 30, 2008 was 7.81%, as compared to 9.12% for the six months ended September 30, 2007. The primary reason for the decrease in the annualized weighted average yield was related to the decrease in the U.S. financial markets (LIBOR rates), partially offset by an increase in the Company's aggregate portfolio size.

During the second quarter ended September 30, 2008, the Company recorded the following significant activity:

    --  Invested approximately $21.4 million in Galaxy Tool
        Corporation, including $17.2 million in senior subordinated
        term debt and $4.2 million in preferred and common stock;

    --  Recorded a realized loss of approximately $2.5 million on the
        settlement of two syndicated loans;

    --  Received $6.0 million in repayment of one syndicated loan
        participation due to a third-party acquisition and recorded a
        nominal realized loss of $16,000;

    --  Received a repayment of approximately $7.0 million and
        acquired a 4.5% equity interest in connection with the
        restructuring of the Company's investment in Quench Holdings
        Corporation, which resulted in the re-classification of the
        investment from a Control to an Affiliate investment; and

    --  Paid monthly dividends of $0.08 per share for each of the
        months of July, August, and September.

At September 30, 2008, the Company held 35 Non-Control/Non-Affiliate investments, six Control investments, and five Affiliate investments, with an aggregate cost basis of approximately $347.6 million and an aggregate fair value of approximately $326.3 million, as noted in the following table.


                                                September 30, 2008
                                            --------------------------
                                                Cost       Fair Value
                                            ------------  ------------
                                                  (in thousands)

Senior Term Debt                            $   234,082   $   206,400
Senior Subordinated Term Debt                    71,924        61,952
Preferred & Common Equity Securities             41,597        57,904
                                            ------------  ------------
Total Investments                           $   347,603   $   326,256
                                            ============  ============

"Our investing activity continues to provide junior capital in partnership with and support of equity sponsors, where we provide mezzanine financing, including equity co-investments. We are also pursuing our efforts in the control investment category, as evidenced by our investment of $21.4 million in Galaxy Tool Holding Corporation, consisting of debt, preferred and common equity during the quarter," said Dave Dullum, President.

    Subsequent to September 30, 2008, the Company:

    --  Renewed its credit facility with Deutsche Bank. The credit
        facility, which previously provided a maximum of $200 million,
        was renewed to provide for an aggregate of $125 million of
        borrowings with a maturity date of April 16, 2009. Any
        advances under the credit facility will generally bear
        interest at the commercial paper rate plus 3.5% per annum,
        with a commitment fee of 0.75% per annum on the undrawn
        amounts. No fee was paid in connection with the renewal.

    --  Declared monthly cash dividends of $0.08 per common share for
        each of the months of October, November and December 2008.

The financial statements below are without footnotes. The Company has filed a Form 10-Q on November 4, 2008 for the second quarter ended September 30, 2008 with the Securities and Exchange Commission (the "SEC"), which can be retrieved from the SEC's website at www.sec.gov or from the Company's web site at www.GladstoneInvestment.com. A paper copy can be obtained free of charge by writing to us at 1521 Westbranch Drive, Suite 200, McLean, VA 22102.

The Company will hold a conference call on Wednesday, November 5, 2008 at 8:30 am ET to discuss fiscal second quarter earnings. Please call (877) 407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions.

A replay of the conference call will be available through December 5, 2008. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 299198. The replay will be available approximately two hours after the call concludes.

The live audio broadcast of Gladstone Investment's quarterly conference call will be available online at www.GladstoneInvestment.com and www.investorcalendar.com. The online replay will follow shortly after the call and will be available for replay on the Company's website through February 5, 2009.

Gladstone Investment Corporation is a publicly traded business development company that seeks to make debt and equity investments in small and mid-sized businesses in the United States in connection with acquisitions, changes in control and recapitalizations. Additional information can be found at http://www.GladstoneInvestment.com.

For further information, contact Kerry Finnegan at 703-287-5893.

This press release may include statements that may constitute "forward-looking statements," including statements with regard to the future performance of the Company. Words such as "should," "believes," "feel," "expects," "projects," "strive," "goals," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans that are believed to be reasonable as of the date of this press release. Factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements include, among others, those factors listed under the caption "Risk Factors" of the Company's Annual Report on Form 10-K for the year ended March 31, 2008, as filed with the SEC on May 21, 2008 and the Company's Quarterly Report on Form 10-Q for the quarter ended September 30, 2008, as filed on November 4, 2008. The risk factors set forth in the Form 10-K and Form 10-Q under the caption "Risk Factors" are specifically incorporated by reference into this press release. The Company undertakes no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.


                CONSOLIDATED STATEMENTS OF OPERATIONS
         (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
                             (UNAUDITED)


                      Three Months Ended         Six Months Ended
                         September 30,             September 30,
                   ------------------------- -------------------------
                       2008         2007         2008         2007
                   ------------ ------------ ------------ ------------
INVESTMENT INCOME
  Interest income
    Non-Control /
     Non-Affiliate
     investments   $     2,134  $     4,080  $     4,458  $     7,329
    Control
     investments         2,735        2,612        5,304        5,177
    Affiliate
     investments         1,349          375        2,460          801
    Cash and cash
     equivalents            22           61           46          114
                   ------------ ------------ ------------ ------------
    Total interest
     income              6,240        7,128       12,268       13,421
  Other income             576           28          586           35
                   ------------ ------------ ------------ ------------
    Total
     investment
     income              6,816        7,156       12,854       13,456
                   ------------ ------------ ------------ ------------

EXPENSES
  Loan servicing
   fee                   1,258        1,260        2,511        2,454
  Base management
   fee                     435          453          861          812
  Administration
   fee                     212          228          447          436
  Interest expense       1,084        2,023        2,186        3,438
  Amortization of
   deferred
   finance costs           140          216          278          426
  Professional
   fees                    183          110          314          266
  Stockholder
   related costs           200          157          301          195
  Insurance
   expense                  55           73          108          136
  Directors fees            48           68           95          122
  Taxes and
   licenses                 24           41           67           83
  General and
   administrative
   expenses                 90           35          122           92
                   ------------ ------------ ------------ ------------
    Expenses
     before credit
     from Adviser        3,729        4,664        7,290        8,460
                   ------------ ------------ ------------ ------------
Credits to base
 management fee           (696)        (503)      (1,270)        (887)
                   ------------ ------------ ------------ ------------
    Total expenses
     net of credit
     to base
     management
     fee                 3,033        4,161        6,020        7,573
                   ------------ ------------ ------------ ------------
NET INVESTMENT
 INCOME                  3,783        2,995        6,834        5,883
                   ------------ ------------ ------------ ------------

REALIZED AND
 UNREALIZED (LOSS)
 GAIN ON
 INVESTMENTS
  Realized loss on
   sale of Non-
   Control / Non-
   Affiliate
   investments          (2,498)          (3)      (4,215)         (52)
  Net unrealized
   depreciation of
   Non-Control /
   Non-Affiliate
   investments          (5,191)      (7,308)        (726)      (7,836)
  Net unrealized
   appreciation of
   Control
   investments          10,840          180        5,973        5,454
  Net unrealized
   (depreciation)
   appreciation of
   Affiliate
   investments          (5,978)        (231)     (11,393)         454
                   ------------ ------------ ------------ ------------
    Net (loss)
     gain on
     investments        (2,827)      (7,362)     (10,361)      (1,980)
                   ------------ ------------ ------------ ------------

NET INCREASE
 (DECREASE) IN NET
 ASSETS RESULTING
 FROM OPERATIONS   $       956  $    (4,367) $    (3,527) $     3,903
                   ============ ============ ============ ============

NET INCREASE
 (DECREASE) IN NET
 ASSETS RESULTING
 FROM OPERATIONS
 PER COMMON SHARE:
    Basic and
     Diluted       $      0.04  $     (0.26) $     (0.17) $      0.24
                   ============ ============ ============ ============

SHARES OF COMMON
 STOCK
 OUTSTANDING:
    Basic and
     diluted
     weighted
     average
     shares         22,080,133   16,560,100   21,011,740   16,560,100


                   GLADSTONE INVESTMENT CORPORATION
          CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
         (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
                             (UNAUDITED)


                                        September 30,     March 31,
                                             2008            2008
                                        --------------  --------------
ASSETS
Non-Control/Non-Affiliate investments
 (Cost 9/30/08: $139,536; Cost 3/31/08:
 $166,416)                              $     115,133   $     142,739
Control investments (Cost 9/30/08:
 $144,221; Cost 3/31/08: $138,354)            157,246         145,407
Affiliate investments (Cost 9/30/08:
 $63,846; Cost 3/31/08: $46,035)               53,877          47,458
                                        --------------  --------------
Total investments at fair value (Cost
 9/30/08: $347,603; Cost 3/31/08:
 $350,805)                                    326,256         335,604
Cash and cash equivalents                      33,900           9,360
Interest receivable                             1,353           1,662
Prepaid insurance                                 204              90
Deferred finance costs                             46             324
Due from Custodian                              3,048           4,399
Due from Adviser                                    -              89
Other assets                                      456             765
                                        --------------  --------------
TOTAL ASSETS                            $     365,263   $     352,293
                                        ==============  ==============

LIABILITIES
Fee due to Administrator                $         212   $         208
Fee due to Adviser                                 27               -
Borrowings under line of credit               130,965         144,835
Accrued expenses                                  549             716
Other liabilities                                 102              89
                                        --------------  --------------
TOTAL LIABILITIES                             131,855         145,848
                                        --------------  --------------
NET ASSETS                              $     233,408   $     206,445
                                        ==============  ==============

ANALYSIS OF NET ASSETS:
Common stock, $0.001 par value,
 100,000,000 shares authorized,
 22,080,133 and 16,560,100 shares
 issued and outstanding at September
 30, 2008 and March 31, 2008,
 respectively                           $          22   $          17
Capital in excess of par value                264,814         224,173
Net unrealized depreciation of
 investment portfolio                         (21,346)        (15,201)
Net unrealized depreciation of
 derivative                                       (53)            (53)
Accumulated net investment loss               (10,029)         (2,491)
                                        --------------  --------------
TOTAL NET ASSETS                        $     233,408   $     206,445
                                        ==============  ==============
NET ASSETS PER SHARE                    $       10.57   $       12.47
                                        ==============  ==============


                   GLADSTONE INVESTMENT CORPORATION
                  CONSOLIDATED FINANCIAL HIGHLIGHTS
         (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
                             (UNAUDITED)


                      Three Months Ended         Six Months Ended
                         September 30,             September 30,
                   ------------------------- -------------------------
                       2008         2007         2008         2007
                   ------------ ------------ ------------ ------------
Per Share Data (1)
------------------
Balance at
 beginning of
 period            $     10.77  $     13.73  $     12.47  $     13.46

Income from
 investment
 operations:
  Net investment
   income (2)             0.17         0.18         0.33         0.35
  Realized loss on
   sale of
   investments (2)       (0.11)           -        (0.20)           -
  Net unrealized
   depreciation of
   investments (2)       (0.02)       (0.44)       (0.30)       (0.12)
                   ------------ ------------ ------------ ------------
Total from
 investment
 operations               0.04        (0.26)       (0.17)        0.23
                   ------------ ------------ ------------ ------------

Distributions
 from:
  Net investment
   income                (0.24)       (0.23)       (0.48)       (0.45)
                   ------------ ------------ ------------ ------------
Total
 distributions (3)       (0.24)       (0.23)       (0.48)       (0.45)

Rights offering
 costs                       -            -        (0.03)           -
Effect on
 distribution of
 stock rights
 offering after
 record date (4)             -            -        (1.22)           -
                   ------------ ------------ ------------ ------------
  Net asset value
   at end of
   period          $     10.57  $     13.24  $     10.57  $     13.24
                   ============ ============ ============ ============

Per share market
 value at
 beginning of
 period            $      6.38  $     14.21  $      9.32  $     14.87
Per share market
 value at end of
 period            $      6.88        12.84  $      6.88  $     12.84
Total Return (5)         14.79%       -8.04%      -21.39%      -10.73%
Shares outstanding
 at end of period   22,080,133   16,560,100   22,080,133   16,560,100

Statement of
 Assets and
 Liabilities Data:
------------------
Net assets at end
 of period         $   233,408  $   219,238  $   233,408  $   219,238
Average net assets
 (6)               $   234,165  $   223,254  $   238,410  $   223,091

Senior Securities
 Data:
------------------
Borrowings under
 line of credit    $   130,965  $   146,050  $   130,965  $   146,050
Asset coverage
 ratio (7)                 279%         251%         279%         251%
Asset coverage per
 unit (8)          $     3,644  $     3,653  $     3,644  $     3,653

Ratios /
 Supplemental
 Data:
------------------
Ratio of expenses
 to average net
 assets (9), (10)         6.37%        8.36%        6.11%        7.58%
Ratio of net
 expenses to
 average net
 assets (9), (11)         5.18%        7.46%        5.05%        6.79%
Ratio of net
 investment income
 to average net
 assets (9)               6.46%        5.37%        5.73%        5.27%


1  Based on actual shares outstanding at the end of the corresponding
    period.
2  Based on weighted average basic per share data.
3  Distributions are determined based on taxable income calculated in
    accordance with income tax regulations which may differ from
    amounts determined under accounting principles generally accepted
    in the United States of America.
4  The effect of distributions from the stock rights offering after
    the record date represents the effect on net asset value of
    issuing additional shares after the record date of a distribution.
5  Total return equals the change in the market value of the Company's
    common stock from the beginning of the period taking into account
    dividends reinvested in accordance with the terms of our dividend
    reinvestment plan.
6  Calculated using the average of the ending monthly net assets for
    the respective periods.
7  As a business development company, we are generally required to
    maintain a ratio of at least 200% of total assets to total
    borrowings.
8  Asset coverage per unit is the ratio of the carrying value of our
    total consolidated assets, less all liabilities and indebtedness
    not represented by senior securities, to the aggregate amount of
    senior securities representing indebtedness. Asset coverage per
    unit is expressed in terms of dollar amounts per $100 of
    indebtedness.
9  Amounts are annualized.
10 Ratio of expenses to average net assets is computed using expenses
    before credit from the Adviser.
11 Ratio of net expenses to average net assets is computed using total
    expenses net of credits to the management fee.

Source: Gladstone Investment Corporation