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 JUNE 30, 2008

 

 

o

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

 

COMMISSION FILE NUMBER: 000-51233

 

GLADSTONE INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)

 

DELAWARE

(State or other jurisdiction of incorporation or organization)

 

83-0423116

(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 ý 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 ý  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 ý .

 

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 August 6, 2008 were 22,080,133.

 

 

 



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

 

TABLE OF CONTENTS

 

PART I.

FINANCIAL INFORMATION

 

 

 

 

Item 1.

Financial Statements (Unaudited)

 

 

 

 

 

Condensed Consolidated Statements of Assets and Liabilities as of June 30, 2008 and March 31, 2008

 

 

Condensed Consolidated Schedules of Investments as of June 30, 2008 and March 31, 2008

 

 

Condensed Consolidated Statements of Operations for the three months ended June 30, 2008 and 2007

 

 

Condensed Consolidated Statements of Changes in Net Assets for the three months ended June 30, 2008 and 2007

 

 

Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2008 and 2007

 

 

Financial Highlights for the three months ended June 30, 2008 and 2007

 

 

Notes to Condensed Consolidated Financial Statements

 

 

 

 

Item 2.

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

 

 

Overview

 

 

Results of Operations

 

 

Liquidity and Capital Resources

 

 

 

 

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

 

 

 

 

Item 4.

Controls and Procedures

 

 

 

 

PART II.

OTHER INFORMATION

 

 

 

 

Item 1.

Legal Proceedings

 

 

 

 

Item 1A.

Risk Factors

 

 

 

 

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

 

 

 

 

Item 3.

Defaults Upon Senior Securities

 

 

 

 

Item 4.

Submission of Matters to a Vote of Security Holders

 

 

 

 

Item 5.

Other Information

 

 

 

 

Item 6.

Exhibits

 

 

 

 

SIGNATURES

 

 

2



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

 

 

June 30,

 

March 31,

 

 

 

2008

 

2008

 

ASSETS

 

 

 

 

 

Non-Control/Non-Affiliate investments (Cost 6/30/08: $149,976; Cost 3/31/08:166,416)

 

$

130,764

 

$

142,741

 

Control investments (Cost 6/30/08: $138,855; Cost 3/31/08: $138,354)

 

141,042

 

145,407

 

Affiliate investments (Cost 6/30/08: $52,486; Cost 3/31/08: $46,035)

 

48,493

 

47,456

 

Total investments at fair value (Cost 6/30/08: $341,317; Cost 3/31/08: $350,805)

 

320,299

 

335,604

 

Cash and cash equivalents

 

42,580

 

9,360

 

Interest receivable

 

1,340

 

1,662

 

Prepaid insurance

 

37

 

91

 

Deferred finance costs

 

185

 

324

 

Due from Custodian

 

2,895

 

4,398

 

Due from Adviser (Refer to Note 4)

 

 

89

 

Other assets

 

565

 

765

 

TOTAL ASSETS

 

$

367,901

 

$

352,293

 

 

 

 

 

 

 

LIABILITIES

 

 

 

 

 

Fee due to Administrator (Refer to Note 4)

 

$

235

 

$

208

 

Fee due to Adviser (Refer to Note 4)

 

139

 

 

Borrowings under line of credit

 

129,285

 

144,835

 

Accrued expenses

 

385

 

716

 

Other liabilities

 

101

 

89

 

TOTAL LIABILITIES

 

130,145

 

145,848

 

NET ASSETS

 

$

237,756

 

$

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 June 30, 2008 and March 31, 2008, respectively

 

$

22

 

$

17

 

Capital in excess of par value

 

264,819

 

224,173

 

Net unrealized depreciation of investment portfolio

 

(21,018

)

(15,201

)

Net unrealized depreciation of derivative

 

(53

)

(53

)

Accumulated net investment loss

 

(6,014

)

(2,491

)

TOTAL NET ASSETS

 

$

237,756

 

$

206,445

 

NET ASSETS PER SHARE

 

$

10.77

 

$

12.47

 

 

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

 

3



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS

AS OF JUNE 30, 2008

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

NON-CONTROL/NON-AFFILIATE INVESTMENTS

 

 

 

 

 

 

 

Syndicated Loans:

 

 

 

 

 

 

 

 

 

Activant Solutions, Inc.

 

Service - enterprise software and services

 

Senior Term Debt (4.7%, Due 5/2013) (3)

 

$

1,733

 

$

1,517

 

Advanced Homecare Holdings, Inc.

 

Service - home health nursing services

 

Senior Term Debt (6.6%, Due 8/2014) (3)

 

2,970

 

2,762

 

Aeroflex, Inc.

 

Service - provider of highly specialized electronic equipment

 

Senior Term Debt (5.9%, Due 8/2014) (3)

 

1,897

 

1,866

 

Compsych Investments Corp.

 

Service - employee assistance programs

 

Senior Term Debt (5.5%, Due 2/2012) (3) (5)

 

3,361

 

3,065

 

CRC Health Group, Inc.

 

Service - substance abuse treatment

 

Senior Term Debt (5.1%, Due 2/2012) (3)

 

7,841

 

7,168

 

Critical Homecare Solutions, Inc.

 

Service - home therapy and respiratory treatment

 

Senior Term Debt (5.7%, Due 1/2012) (3) (5)

 

4,476

 

4,429

 

Generac Acquisition Corp.

 

Manufacturing - standby power products

 

Senior Term Debt (5.2%, Due 11/2013) (3) (5)

 

6,868

 

5,877

 

Graham Packaging Holdings Company

 

Manufacturing - plastic containers

 

Senior Term Debt (5.0%, Due 10/2011) (3)

 

3,417

 

3,149

 

Hargray Communications Group, Inc.

 

Service - triple-play (cable, phone, internet) provider

 

Senior Term Debt (5.1%, Due 6/2014) (3)

 

911

 

830

 

HMTBP Acquisition II Corp.

 

Service - aboveground storage tanks

 

Senior Term Debt (5.1%, Due 5/2014) (3) (5)

 

3,869

 

3,549

 

Hudson Products Holdings, Inc.

 

Manufacturing - heat transfer solutions

 

Senior Term Debt (5.8%, Due 12/2013) (3)

 

6,004

 

5,688

 

Huish Detergents, Inc.

 

Manufacturing - household cleaning products

 

Senior Term Debt (4.8%, Due 4/2014) (3)

 

1,981

 

1,792

 

Hyland Software, Inc.

 

Service - provider of enterprise content management software

 

Senior Term Debt (5.7%, Due 7/2013) (3)

 

3,937

 

3,573

 

Interstate Fibernet, Inc.

 

Service - provider of voice and data telecommunications services

 

Senior Term Debt (6.8%, Due 7/2013) (3)

 

9,909

 

9,652

 

KIK Custom Products, Inc.

 

Manufacturing - consumer products

 

Senior Term Debt (5.2%, Due 5/2014) (3)

 

3,971

 

2,978

 

Kronos, Inc.

 

Service - workforce management solutions

 

Senior Term Debt (5.1%, Due 6/2014) (3)

 

1,966

 

1,818

 

Lexicon Marketing USA, Inc.

 

Service - marketing to Hispanic community

 

Senior Term Debt (non-accrual) (3) (5)

 

2,947

 

412

 

Local TV Finance, LLC

 

Service - television station operator

 

Senior Term Debt (4.9%, Due 5/2013) (3)

 

992

 

859

 

LVI Services, Inc.

 

Service - asbestos and mold remediation

 

Senior Term Debt (7.9%, Due 11/2010) (3) (5)

 

5,967

 

4,762

 

MedAssets, Inc.

 

Service - pharmaceuticals and healthcare GPO

 

Senior Term Debt (6.7%, Due 10/2013) (3) (5)

 

3,994

 

3,952

 

Network Solutions, LLC

 

Service - internet domain solutions

 

Senior Term Debt (5.2%, Due 3/2014) (3)

 

8,803

 

7,306

 

Open Solutions, Inc.

 

Service - software outsourcing for financial institutions

 

Senior Term Debt (5.1%, Due 1/2014) (3)

 

2,670

 

2,350

 

Ozburn-Hessey Holding Co. LLC

 

Service - third party logistics

 

Senior Term Debt (6.2%, Due 8/2012) (3)

 

7,601

 

6,829

 

Pinnacle Foods Finance, LLC

 

Manufacturing - branded food products

 

Senior Term Debt (5.4%, Due 4/2014) (3)

 

1,965

 

1,823

 

PTS Acquisition Corp.

 

Manufacturing - drug delivery and packaging technologies

 

Senior Term Debt (5.1%, Due 4/2014) (3)

 

6,930

 

6,194

 

QTC Acquisition, Inc.

 

Service - outsourced disability evaluations

 

Senior Term Debt (4.7%, Due 11/2012) (3)

 

1,925

 

1,655

 

Radio Systems Corporation

 

Service - design electronic pet containment products

 

Senior Term Debt (5.2%, Due 9/2013) (3)

 

1,886

 

1,773

 

Rally Parts, Inc.

 

Manufacturing - aftermarket motorcycle parts and accessories

 

Senior Term Debt (5.3%, Due 11/2013) (3)

 

2,479

 

1,970

 

RPG Holdings, Inc.

 

Manufacturing and design - greeting cards

 

Senior Term Debt (9.8%, Due 12/2011) (3)

 

4,553

 

2,048

 

SafeNet, Inc.

 

Service - chip encryption products

 

Senior Term Debt (5.5%, Due 4/2014) (3)

 

2,972

 

2,599

 

SGS International, Inc.

 

Service - digital imaging and graphics

 

Senior Term Debt (5.3%, Due 12/2011) (3)

 

1,590

 

1,458

 

Survey Sampling, LLC

 

Service - telecommunications-based sampling

 

Senior Term Debt (8.3%, Due 5/2011) (3) (5)

 

2,806

 

2,448

 

Triad Laboratory Alliance, LLC

 

Service - regional medical laboratories

 

Senior Term Debt (5.9%, Due 12/2011) (3) (5)

 

4,887

 

4,290

 

Wastequip, Inc.

 

Service - process and transport waste materials

 

Senior Term Debt (5.1%, Due 2/2013) (3)

 

2,915

 

2,375

 

WaveDivision Holdings, LLC

 

Service - cable

 

Senior Term Debt (5.4%, Due 6/2014) (3) (5)

 

1,920

 

1,810

 

West Corporation

 

Service - business process outsourcing

 

Senior Term Debt (5.1%, Due 10/2013) (3)

 

3,348

 

3,047

 

Subtotal - Syndicated Loans

 

 

 

 

 

$

138,261

 

$

119,673

 

 

 

 

 

 

 

 

 

 

 

Non-syndicated Loans

 

 

 

 

 

 

 

 

 

B-Dry, LLC

 

Service - basement waterproofer

 

Revolving Credit Facility (6.7%, Due 10/2008) (7)

 

$

750

 

$

729

 

 

 

 

 

Senior Term Debt (10.0%, Due 5/2014)

 

6,715

 

6,530

 

 

 

 

 

Senior Term Debt (10.0%, Due 5/2014)

 

3,950

 

3,832

 

 

 

 

 

Common Stock Warrants (4)

 

300

 

 

 

 

 

 

 

 

11,715

 

11,091

 

Total Non-Control/Non-Affiliate Investments

 

 

 

$

149,976

 

$

130,764

 

 

4



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS

AS OF JUNE 30, 2008

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

CONTROL INVESTMENTS

 

 

 

 

 

 

 

 

 

A. Stucki Holding Corp.

 

Manufacturing - railroad freight car products

 

Senior Term Debt (7.0%, Due 3/2012)

 

$

12,855

 

$

12,855

 

 

 

 

 

Senior Term Debt (9.2%, Due 3/2012) (6)

 

10,863

 

10,863

 

 

 

 

 

Senior Subordinated Term Debt (13% Due 3/2014)

 

5,486

 

5,486

 

 

 

 

 

Preferred Stock (4)

 

4,387

 

4,842

 

 

 

 

 

Common Stock (4)

 

130

 

9,577

 

 

 

 

 

 

 

33,721

 

43,623

 

 

 

 

 

 

 

 

 

 

 

Acme Cryogenics, Inc.

 

Manufacturing - manifolds and pipes for industrial gasses

 

Senior Subordinated Term Debt (11.5% Due 3/2013)

 

14,500

 

14,500

 

 

 

 

 

Redeemable Preferred Stock (4)

 

6,984

 

7,960

 

 

 

 

 

Common Stock (4)

 

1,045

 

2,123

 

 

 

 

 

Common Stock Warrants (4)

 

25

 

142

 

 

 

 

 

 

 

22,554

 

24,725

 

ASH Holdings Corp.

 

Retail and Service - school buses and parts

 

Revolver (non-accrual, Due 3/2010) (8)

 

1,600

 

 

 

 

 

 

Senior Subordinated Term Debt (non-accrual, Due 1/2012)

 

5,250

 

 

 

 

 

 

Preferred Stock (4)

 

2,500

 

 

 

 

 

 

Common Stock Warrants (4)

 

4

 

 

 

 

 

 

 

 

9,354

 

 

 

 

 

 

 

 

 

 

 

 

Cavert II Holding Corp.

 

Manufacturing - bailing wire

 

Revolving Credit Facility (8.0%, Due 10/2010) (9)

 

2,700

 

2,700

 

 

 

 

 

Senior Term Debt (8.3%, Due 10/2012)

 

6,175

 

6,175

 

 

 

 

 

Senior Term Debt (10.0%, Due 10/2012) (6)

 

3,000

 

3,000

 

 

 

 

 

Senior Subordinated Term Debt (13%, Due 10/2014)

 

4,671

 

4,671

 

 

 

 

 

Preferred Stock (4)

 

4,110

 

4,334

 

 

 

 

 

Common Stock (4)

 

69

 

776

 

 

 

 

 

 

 

20,725

 

21,656

 

 

 

 

 

 

 

 

 

 

 

Chase II Holdings Corp.

 

Manufacturing - traffic doors

 

Revolving Credit Facility (6.5% Due 3/2008) (10)

 

3,900

 

3,900

 

 

 

 

 

Senior Term Debt (8.8%, Due 3/2011)

 

9,625

 

9,625

 

 

 

 

 

Senior Term Debt (12.0% Due 3/2011) (6)

 

7,800

 

7,800

 

 

 

 

 

Subordinated Term Debt (13.0% Due 3/2013)

 

6,168

 

6,169

 

 

 

 

 

Redeemable Preferred Stock (4)

 

6,961

 

8,665

 

 

 

 

 

Common Stock (4)

 

61

 

4,701

 

 

 

 

 

 

 

34,515

 

40,860

 

 

 

 

 

 

 

 

 

 

 

Quench Holdings Corp.

 

Service - sales, installation and service of water coolers

 

Revolving Credit Facility (6.5%, Due 3/2009) (11)

 

1,500

 

1,395

 

 

 

 

 

Senior Term Debt (6.5%, Due 3/2011)

 

4,000

 

3,720

 

 

 

 

 

Senior Subordinated Term Debt (11.5%, Due 3/2011)

 

7,775

 

3,888

 

 

 

 

 

Equipment Line Note (12)

 

1,264

 

1,175

 

 

 

 

 

Preferred Stock (4)

 

3,000

 

 

 

 

 

 

Common Stock Warrants (4)

 

447

 

 

 

 

 

 

 

 

17,986

 

10,178

 

Total Control Investments

 

 

 

 

 

$

138,855

 

$

141,042

 

 

 

 

 

 

 

 

 

 

 

AFFILIATE INVESTMENTS

 

 

 

 

 

 

 

 

 

Danco Acquisition Corp.

 

Manufacturing - machining and sheet metal work

 

Revolving Credit Facility (9.3%, Due 10/2010) (13)

 

$

1,000

 

$

970

 

 

 

 

 

Senior Term Debt (9.3%, Due 10/2012)

 

5,325

 

5,191

 

 

 

 

 

Senior Term Debt (11.5%, Due 4/2013)

 

8,557

 

8,299

 

 

 

 

 

Redeemable Preferred Stock (4)

 

2,500

 

2,627

 

 

 

 

 

Common Stock Warrants (4)

 

3

 

840

 

 

 

 

 

 

 

17,385

 

17,927

 

 

 

 

 

 

 

 

 

 

 

Mathey Investments, Inc.

 

Manufacturing - pipe-cutting and pipe-fitting equipment

 

Revolving Credit Facility (9.0%, Due 3/2011) (14) (15)

 

 

 

 

 

 

 

Senior Term Debt (9.0%, Due 3/2013)

 

2,467

 

2,461

 

 

 

 

 

Senior Term Debt (12.0% Due 3/2014) (6)

 

7,280

 

7,262

 

 

 

 

 

Common Stock (4) (16)

 

500

 

545

 

 

 

 

 

Common Stock Warrants (4) (16)

 

277

 

318

 

 

 

 

 

 

 

10,524

 

10,586

 

 

 

 

 

 

 

 

 

 

 

Noble Logistics, Inc.

 

Service - aftermarket auto parts delivery

 

Revolving Credit Facility (6.5%, Due 12/2009) (14)

 

2,000

 

1,840

 

 

 

 

 

Senior Term Debt (8.5%, Due 12/2011)

 

6,077

 

5,591

 

 

 

 

 

Senior Term Debt (10.5% Due 3/2011) (6)

 

7,000

 

6,300

 

 

 

 

 

Senior Subordinated Term Debt (6.5%, Due 7/2008)

 

500

 

499

 

 

 

 

 

Preferred Stock (4)

 

1,750

 

 

 

 

 

 

Common Stock (4)

 

1,500

 

 

 

 

 

 

 

 

18,827

 

14,230

 

 

 

 

 

 

 

 

 

Tread Corp.

 

Service - regional medical laboratories

 

Senior Term Debt (12.5%, Due 5/2013) (15)

 

5,000

 

5,000

 

 

 

 

 

Preferred Stock (4) (15)

 

750

 

750

 

 

 

 

 

 

 

5,750

 

5,750

 

Total Affiliate Investments

 

 

 

 

 

$

52,486

 

$

48,493

 

Total Investments

 

 

 

 

 

$

341,317

 

$

320,299

 

 

5



Table of Contents

 


(1)

 

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

(2)

 

Percentage represents the weighted average interest rates in effect at June 30, 2008 and due date represents the contractual maturity date.

(3)

 

Marketable securities are valued based on the indicative bid price, on or near June 30, 2008, offered by the respective syndication agent’s trading desk, or secondary desk.

(4)

 

Security is non-income producing.

(5)

 

Valued using Standard & Poor’s Securities Evaluations, Inc. opinions of value at June 30, 2008.

(6)

 

Last out tranche of senior debt, meaning if the portfolio company is liquidated then the holder of the last out tranche is paid after the senior debt.

(7)

 

Total available under the revolving credit facility is $750 which was fully drawn at June 30, 2008.

(8)

 

Total available under the revolving credit facility is $2,000 of which $400 remains undrawn at June 30, 2008.

(9)

 

Total available under the revolving credit facility is $3,000 of which $300 remains undrawn at June 30, 2008.

(10)

 

Total available under the revolving credit facility is $4,500 of which $600 remains undrawn at June 30, 2008.

(11)

 

Total available under the revolving credit facility is $1,500 which was fully drawn at June 30, 2008.

(12)

 

Total available for future borrowing for the purposes of purchasing equipment is $1,500. The undrawn amount of $236 may be drawn to purchase additional equipment through 10/31/2010. The interest rate on all amounts drawn on the equipment line note is 12% except for one draw of $188 whose interest rate is 15%. Each draw on the equipment line note is subject to its own amortization and maturity, typically over a period of 20-24 months. At June 30, 2008, the last amortization payment due under current amounts drawn under the equipment line note is 11/2009.

(13)

 

Total available under the revolving credit facility is $3,000 of which $2,000 was undrawn at June 30, 2008.

(14)

 

Total available under the revolving credit facility is $2,000 which was fully drawn at June 30, 2008.

(15)

 

Valued at cost due to recent acquisition.

 

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

 

6



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS

AS OF MARCH 31, 2008

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

NON-CONTROL/NON-AFFILIATE INVESTMENTS

 

 

 

 

 

 

 

Syndicated Loans:

 

 

 

 

 

 

 

 

 

Activant Solutions, Inc.

 

Service - enterprise software and services

 

Senior Term Debt (6.7%, Due 5/2013) (3)

 

$

1,734

 

$

1,478

 

Advanced Homecare Holdings, Inc.

 

Service - home health nursing services

 

Senior Term Debt (6.4%, Due 8/2014) (3)

 

2,978

 

2,829

 

Aeroflex, Inc.

 

Service - provider of highly specialized electronic equipment

 

Senior Term Debt (6.4%, Due 8/2014) (3)

 

1,898

 

1,851

 

Compsych Investments Corp.

 

Service - employee assistance programs

 

Senior Term Debt (5.5%, Due 2/2012) (3) (5)

 

3,421

 

2,966

 

CRC Health Group, Inc.

 

Service - substance abuse treatment

 

Senior Term Debt (4.9%, Due 2/2012) (3)

 

9,878

 

8,536

 

Critical Homecare Solutions, Inc.

 

Service - home therapy and respiratory treatment

 

Senior Term Debt (6.1%, Due 1/2012) (3) (5)

 

4,505

 

4,480

 

Dealer Computer Services, Inc.

 

Manufacturing & Service - systems for automotive retailers

 

Senior Term Debt (6.8%, Due 9/2013) (3)

 

1,799

 

1,595

 

Generac Acquisition Corp.

 

Manufacturing - standby power products

 

Senior Term Debt (7.2%, Due 11/2013) (3) (5)

 

6,874

 

5,435

 

Graham Packaging Holdings Company

 

Manufacturing - plastic containers

 

Senior Term Debt (5.9%, Due 10/2011) (3)

 

5,420

 

4,938

 

Hargray Communications Group, Inc.

 

Service - triple-play (cable, phone, internet) provider

 

Senior Term Debt (4.9%, Due 6/2014) (3)

 

963

 

860

 

HMTBP Acquisition II Corp.

 

Service - aboveground storage tanks

 

Senior Term Debt (4.9%, Due 5/2014) (3) (5)

 

3,879

 

3,529

 

Hudson Products Holdings, Inc.

 

Manufacturing - heat transfer solutions

 

Senior Term Debt (7.0%, Due 12/2013) (3)

 

6,020

 

5,283

 

Huish Detergents, Inc.

 

Manufacturing - household cleaning products

 

Senior Term Debt (4.7%, Due 4/2014) (3)

 

1,986

 

1,653

 

Hyland Software, Inc.

 

Service - provider of enterprise content management software

 

Senior Term Debt (5.9%, Due 7/2013) (3)

 

3,955

 

3,671

 

Interstate Fibernet, Inc.

 

Service - provider of voice and data telecommunications services

 

Senior Term Debt (6.7%, Due 7/2013) (3)

 

9,932

 

9,676

 

KIK Custom Products, Inc.

 

Manufacturing - consumer products

 

Senior Term Debt (4.9%, Due 5/2014) (3)

 

3,981

 

2,746

 

Kronos, Inc.

 

Service - workforce management solutions

 

Senior Term Debt (5.0%, Due 6/2014) (3)

 

1,971

 

1,577

 

Lexicon Marketing USA, Inc.

 

Service - marketing to Hispanic community

 

Senior Term Debt (non-accrual) (3) (5)

 

2,947

 

412

 

Local TV Finance, LLC

 

Service - television station operator

 

Senior Term Debt (5.2%, Due 5/2013) (3)

 

995

 

824

 

LVI Services, Inc.

 

Service - asbestos and mold remediation

 

Senior Term Debt (7.5%, Due 11/2010) (3) (5)

 

6,369

 

5,083

 

MedAssets, Inc.

 

Service - pharmaceuticals and healthcare GPO

 

Senior Term Debt (5.2%, Due 10/2013) (3) (5)

 

4,004

 

3,702

 

National Mentor Holdings, Inc.

 

Service - home health care

 

Senior Term Debt (4.8%, Due 6/2013) (3)

 

1,968

 

1,672

 

Network Solutions, LLC

 

Service - internet domain solutions

 

Senior Term Debt (5.2%, Due 3/2014) (3)

 

9,196

 

7,355

 

NPC International Inc.

 

Service - Pizza Hut franchisee

 

Senior Term Debt (4.7%, Due 5/2013) (3)

 

2,895

 

2,537

 

Open Solutions, Inc.

 

Service - software outsourcing for financial institutions

 

Senior Term Debt (5.8%, Due 1/2014) (3)

 

2,678

 

2,196

 

Ozburn-Hessey Holding Co. LLC

 

Service - third party logistics

 

Senior Term Debt (6.3%, Due 8/2012) (3)

 

7,628

 

5,979

 

Pinnacle Foods Finance, LLC

 

Manufacturing - branded food products

 

Senior Term Debt (7.4%, Due 4/2014) (3)

 

3,971

 

3,454

 

PTS Acquisition Corp.

 

Manufacturing - drug delivery and packaging technologies

 

Senior Term Debt (7.1%, Due 4/2014) (3)

 

6,948

 

5,697

 

QTC Acquisition, Inc.

 

Service - outsourced disability evaluations

 

Senior Term Debt (5.4%, Due 11/2012) (3)

 

1,930

 

1,638

 

Radio Systems Corporation

 

Service - design electronic pet containment products

 

Senior Term Debt (5.5%, Due 9/2013) (3)

 

1,966

 

1,807

 

Rally Parts, Inc.

 

Manufacturing - aftermarket motorcycle parts and accessories

 

Senior Term Debt (5.2%, Due 11/2013) (3)

 

2,486

 

2,074

 

RPG Holdings, Inc.

 

Manufacturing and design - greeting cards

 

Senior Term Debt (8.8%, Due 12/2011) (3)

 

4,553

 

3,869

 

SafeNet, Inc.

 

Service - chip encryption products

 

Senior Term Debt (7.1%, Due 4/2014) (3)

 

2,980

 

2,382

 

SGS International, Inc.

 

Service - digital imaging and graphics

 

Senior Term Debt (6.9%, Due 12/2011) (3)

 

1,594

 

1,430

 

Stolle Machinery Company

 

Manufacturing - can-making equipment and parts

 

Senior Term Debt (7.8%, Due 9/2012) (3)

 

494

 

458

 

Survey Sampling, LLC

 

Service - telecommunications-based sampling

 

Senior Term Debt (5.2%, Due 5/2011) (3) (5)

 

2,931

 

2,527

 

Synagro Technologies, Inc.

 

Service - waste treatment and recycling

 

Senior Term Debt (5.1%, Due 3/2014) (3)

 

498

 

422

 

Triad Laboratory Alliance, LLC

 

Service - regional medical laboratories

 

Senior Term Debt (5.9%, Due 12/2011) (3) (5)

 

4,900

 

4,154

 

United Surgical Partners International, Inc.

 

Service - outpatient surgical provider

 

Senior Term Debt (5.4%, Due 4/2014) (3)

 

1,320

 

1,152

 

Wastequip, Inc.

 

Service - process and transport waste materials

 

Senior Term Debt (4.9%, Due 2/2013) (3)

 

2,922

 

2,337

 

WaveDivision Holdings, LLC

 

Service - cable

 

Senior Term Debt (6.7%, Due 6/2014) (3) (5)

 

1,925

 

1,814

 

West Corporation

 

Service - business process outsourcing

 

Senior Term Debt (5.3%, Due 10/2013) (3)

 

3,355

 

2,929

 

Subtotal - Syndicated Loans

 

 

 

 

 

$

154,647

 

$

131,007

 

 

 

 

 

 

 

 

 

 

 

Non-syndicated Loans

 

 

 

 

 

 

 

 

 

B-Dry, LLC

 

Service - basement waterproofer

 

Revolving Credit Facility (7.3%, Due 10/2008) (7)

 

750

 

750

 

 

 

 

 

Senior Term Debt (10.0%, Due 5/2014)

 

6,749

 

6,749

 

 

 

 

 

Senior Term Debt (10.0%, Due 5/2014)

 

3,970

 

3,970

 

 

 

 

 

Common Stock Warrants (4)

 

300

 

265

 

 

 

 

 

 

 

11,769

 

11,734

 

Total Non-Control/Non-Affiliate Investments

 

 

 

$

166,416

 

$

142,741

 

 

 

7



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS

AS OF MARCH 31, 2008

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

Company (1)

 

Industry

 

Investment (2)

 

Cost

 

Fair Value

 

 

 

 

 

 

 

 

 

 

 

CONTROL INVESTMENTS

 

 

 

 

 

 

 

 

 

A. Stucki Holding Corp.

 

Manufacturing - railroad freight car products

 

Senior Term Debt (7.6%, Due 3/2012)

 

$

13,391

 

$

13,391

 

 

 

 

 

Senior Term Debt (9.8%, Due 3/2012) (6)

 

11,000

 

11,000

 

 

 

 

 

Senior Subordinated Term Debt (13% Due 3/2014)

 

5,486

 

5,486

 

 

 

 

 

Preferred Stock (4)

 

4,387

 

4,748

 

 

 

 

 

Common Stock (4)

 

130

 

10,062

 

 

 

 

 

 

 

34,394

 

44,687

 

 

 

 

 

 

 

 

 

 

 

Acme Cryogenics, Inc.

 

Manufacturing - manifolds and pipes for industrial gasses

 

Senior Subordinated Term Debt (11.5% Due 3/2013)

 

14,500

 

14,500

 

 

 

 

 

Redeemable Preferred Stock (4)

 

6,984

 

7,795

 

 

 

 

 

Common Stock (4)

 

1,045

 

2,977

 

 

 

 

 

Common Stock Warrants (4)

 

25

 

291

 

 

 

 

 

 

 

22,554

 

25,563

 

 

 

 

 

 

 

 

 

 

 

ASH Holdings Corp.

 

Retail and Service - school buses and parts

 

Revolver (non-accrual, Due 3/2010) (8)

 

750

 

 

 

 

 

 

Senior Subordinated Term Debt (non-accrual, Due 1/2012)

 

5,250

 

 

 

 

 

 

Preferred Stock (4)

 

2,500

 

 

 

 

 

 

Common Stock Warrants (4)

 

4

 

 

 

 

 

 

 

 

8,504

 

 

 

 

 

 

 

 

 

 

 

 

Cavert II Holding Corp.

 

Manufacturing - bailing wire

 

Revolving Credit Facility (8.0%, Due 10/2010) (9)

 

2,400

 

2,400

 

 

 

 

 

Senior Term Debt (8.3%, Due 10/2012)

 

6,338

 

6,338

 

 

 

 

 

Senior Term Debt (10.0%, Due 10/2012) (6)

 

3,000

 

3,000

 

 

 

 

 

Senior Subordinated Term Debt (13%, Due 10/2014)

 

4,671

 

4,671

 

 

 

 

 

Preferred Stock (4)

 

4,110

 

4,251

 

 

 

 

 

Common Stock (4)

 

69

 

688

 

 

 

 

 

 

 

20,588

 

21,348

 

 

 

 

 

 

 

 

 

 

 

Chase II Holdings Corp.

 

Manufacturing - traffic doors

 

Revolving Credit Facility (7.1% Due 3/2008) (10)

 

3,280

 

3,280

 

 

 

 

 

Senior Term Debt (8.8%, Due 3/2011)

 

9,900

 

9,900

 

 

 

 

 

Senior Term Debt (12.0% Due 3/2011) (6)

 

7,840

 

7,840

 

 

 

 

 

Subordinated Term Debt (13.0% Due 3/2013)

 

6,168

 

6,167

 

 

 

 

 

Redeemable Preferred Stock (4)

 

6,959

 

8,455

 

 

 

 

 

Common Stock (4)

 

61

 

3,508

 

 

 

 

 

 

 

34,208

 

39,150

 

 

 

 

 

 

 

 

 

 

 

Quench Holdings Corp.

 

Service - sales, installation and service of water coolers

 

Revolving Credit Facility (7.1%, Due 3/2009) (11)

 

1,500

 

1,500

 

 

 

 

 

Senior Term Debt (7.1%, Due 3/2011)

 

4,250

 

4,250

 

 

 

 

 

Senior Subordinated Term Debt (11.5%, Due 3/2011)

 

7,820

 

7,820

 

 

 

 

 

Equipment Line Note (12)

 

1,089

 

1,089

 

 

 

 

 

Preferred Stock (4)

 

3,000

 

 

 

 

 

 

Common Stock Warrants (4)

 

447

 

 

 

 

 

 

 

 

18,106

 

14,659

 

Total Control Investments

 

 

 

 

 

$

138,354

 

$

145,407

 

 

 

 

 

 

 

 

 

 

 

AFFILIATE INVESTMENTS

 

 

 

 

 

 

 

 

 

Danco Acquisition Corp.

 

Manufacturing - machining and sheet metal work

 

Revolving Credit Facility (9.3%, Due 10/2010) (13)

 

$

600

 

$

600

 

 

 

 

 

Senior Term Debt (9.3%, Due 10/2012)

 

5,550

 

5,550

 

 

 

 

 

Senior Term Debt (11.5%, Due 4/2013)

 

8,578

 

8,577

 

 

 

 

 

Redeemable Preferred Stock (4)

 

2,500

 

2,576

 

 

 

 

 

Common Stock Warrants (4)

 

3

 

1,045

 

 

 

 

 

 

 

17,231

 

18,348

 

 

 

 

 

 

 

 

 

 

 

Mathey Investments, Inc.

 

Manufacturing - pipe-cutting and pipe-fitting equipment

 

Revolving Credit Facility (9.0%, Due 3/2011) (15)

 

 

 

 

 

 

 

Senior Term Debt (9.0%, Due 3/2013) (15)

 

2,500

 

2,500

 

 

 

 

 

Senior Term Debt (12.0% Due 3/2014) (15)

 

7,300

 

7,300

 

 

 

 

 

Common Stock (4) (15)

 

500

 

500

 

 

 

 

 

Common Stock Warrants (4) (15)

 

277

 

277

 

 

 

 

 

 

 

10,577

 

10,577

 

 

 

 

 

 

 

 

 

 

 

Noble Logistics, Inc.

 

Service - aftermarket auto parts delivery

 

Revolving Credit Facility (7.1%, Due 12/2009) (14)

 

1,900

 

1,900

 

 

 

 

 

Senior Term Debt (8.5%, Due 12/2011)

 

6,077

 

6,076

 

 

 

 

 

Senior Term Debt (10.5% Due 3/2011) (6)

 

7,000

 

7,000

 

 

 

 

 

Preferred Stock (4)

 

1,750

 

2,108

 

 

 

 

 

Common Stock (4)

 

1,500

 

1,447

 

 

 

 

 

 

 

18,227

 

18,531

 

Total Affiliate Investments

 

 

 

 

 

$

46,035

 

$

47,456

 

Total Investments

 

 

 

 

 

$

350,805

 

$

335,604

 

 

 

8



Table of Contents

 


(1)

 

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

(2)

 

Percentage represents the weighted average interest rates in effect at March 31, 2008 and due date represents the contractual maturity date.

(3)

 

Marketable securities are valued based on the indicative bid price, on or near March 31, 2008, offered by the respective syndication agent’s trading desk, or secondary desk.

(4)

 

Security is non-income producing.

(5)

 

Valued using Standard & Poor’s Securities Evaluations, Inc. opinions of value at March 31, 2008.

(6)

 

Last out tranche of senior debt, meaning if the portfolio company is liquidated then the holder of the last out tranche is paid after the senior debt.

(7)

 

Total available under the revolving credit facility is $750 which was fully drawn at March 31, 2008.

(8)

 

Total available under the revolving credit facility is $2,000 of which $1,250 remains undrawn at March 31, 2008.

(9)

 

Total available under the revolving credit facility is $3,000 of which $600 remains undrawn at March 31, 2008.

(10)

 

Total available under the revolving credit facility is $3,500 of which $220 remains undrawn at March 31, 2008.

(11)

 

Total available under the revolving credit facility is $1,500, which was fully drawn at March 31, 2008.

(12)

 

Total available for future borrowing for the purposes of purchasing equipment is $1,500. The undrawn amount of $411 may be drawn to purchase additional equipment through 10/31/2010. The interest rate on all amounts drawn on the equipment line note is 12% except for one draw of $188 whose interest rate is 15%. Each draw on the equipment line note is subject to its own amortization and maturity, typically over a period of 20-24 months. At March 31, 2008, the last amortization payment due under current amounts drawn under the equipment line note is 11/2009.

(13)

 

Total available under the revolving credit facility is $3,000 of which $2,400 was undrawn at March 31, 2008.

(14)

 

Total available under the revolving credit facility is $2,000 of which $100 was undrawn at March 31, 2008.

(15)

 

Valued at cost due to recent acquisition.

 

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

 

9



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

 

 

Three Months Ended

 

 

 

June 30,

 

 

 

2008

 

2007

 

INVESTMENT INCOME

 

 

 

 

 

Interest income

 

 

 

 

 

Non-Control/Non-Affiliate investments

 

$

2,324

 

$

3,249

 

Control investments

 

2,569

 

2,565

 

Affiliate investments

 

1,111

 

426

 

Cash and cash equivalents

 

24

 

54

 

Total interest income

 

6,028

 

6,294

 

Other income

 

10

 

6

 

Total investment income

 

6,038

 

6,300

 

 

 

 

 

 

 

EXPENSES

 

 

 

 

 

Base management fee (Refer to Note 4)

 

426

 

360

 

Loan servicing fee (Refer to Note 4)

 

1,254

 

1,194

 

Administration fee (Refer to Note 4)

 

235

 

208

 

Interest expense

 

1,102

 

1,414

 

Amortization of deferred finance costs

 

139

 

210

 

Professional fees

 

131

 

156

 

Stockholder related costs

 

100

 

38

 

Insurance expense

 

53

 

63

 

Directors fees

 

47

 

55

 

Taxes and licenses

 

43

 

42

 

General and administrative expenses

 

31

 

56

 

Expenses before credit from Adviser

 

3,561

 

3,796

 

Credits to base management fee (Refer to Note 4)

 

(574

)

(384

)

Total expenses net of credit to base management fee

 

2,987

 

3,412

 

NET INVESTMENT INCOME

 

3,051

 

2,888

 

 

 

 

 

 

 

REALIZED AND UNREALIZED (LOSS) GAIN ON INVESTMENTS

 

 

 

 

 

Realized loss on sale of Non-Control/Non-Affiliate investments

 

(1,718

)

(48

)

Net unrealized appreciation (depreciation) of Non-Control/Non-Affiliate investments

 

4,465

 

(529

)

Net unrealized (depreciation) appreciation of Control investments

 

(4,867

)

5,274

 

Net unrealized (depreciation) appreciation of Affiliate investments

 

(5,415

)

685

 

Net (loss) gain on investments

 

(7,535

)

5,382

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

 

$

(4,484

)

$

8,270

 

 

 

 

 

 

 

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:

 

 

 

 

 

Basic and Diluted

 

$

(0.22

)

$

0.50

 

 

 

 

 

 

 

SHARES OF COMMON STOCK OUTSTANDING:

 

 

 

 

 

Basic and diluted weighted average shares

 

19,943,346

 

16,560,100

 

 

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

 

10



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

 

2008

 

2007

 

Operations:

 

 

 

 

 

Net investment income

 

$

3,051

 

$

2,888

 

Realized loss on sale of investments

 

(1,718

)

(48

)

Net unrealized (depreciation) appreciation of portfolio

 

(5,817

)

5,430

 

Net (decrease) increase in net assets from operations

 

(4,484

)

8,270

 

 

 

 

 

 

 

Capital transactions:

 

 

 

 

 

Issuance of common stock

 

41,290

 

 

Shelf offering registration costs

 

(637

)

(29

)

Distributions to stockholders

 

(4,858

)

(3,726

)

Increase (decrease) in net assets from capital transactions

 

35,795

 

(3,755

)

 

 

 

 

 

 

Total increase in net assets

 

31,311

 

4,515

 

 

 

 

 

 

 

Net Assets

 

 

 

 

 

Beginning of period

 

206,445

 

222,819

 

End of period

 

$

237,756

 

$

227,334

 

 

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

 

11



Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

 

2008

 

2007

 

CASH FLOWS FROM OPERATING ACTIVITIES

 

 

 

 

 

Net (decrease) increase in net assets resulting from operations

 

$

(4,484

)

$

8,270

 

Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash (used in) provided by operating activities:

 

 

 

 

 

Purchase of investments

 

(8,978

)

(72,601

)

Principal repayments of investments

 

3,493

 

21,358

 

Proceeds from the sale of investments

 

13,246

 

5,809

 

Net unrealized depreciation (appreciation) of investment portfolio

 

5,817

 

(5,430

)

Net unrealized depreciation of derivative

 

 

 

Net realized loss on sales of investments

 

1,718

 

48

 

Net amortization of premiums and discounts

 

9

 

137

 

Amortization of deferred finance costs

 

139

 

210

 

Increase (decrease) in interest receivable

 

322

 

(533

)

Decrease in due from custodian

 

1,504

 

8,305

 

Decrease (increase) in prepaid assets

 

333

 

(39

)

Increase (decrease) in other assets

 

(79

)

39

 

Increase in other liabilities

 

11

 

13

 

Increase in administration fee payable to Administrator (See Note 4)

 

27

 

46

 

Increase in base management fee payable to Adviser (See Note 4)

 

236

 

279

 

Increase in loan servicing fee payable to Adviser (See Note 4)

 

(7

)

27

 

(Decrease) increase in accrued expenses

 

(331

)

230

 

Net cash provided by (used in) operating activities

 

12,976

 

(33,832

)

 

 

 

 

 

 

CASH FLOWS FROM FINANCING ACTIVITIES

 

 

 

 

 

Net proceeds from the issuance of common stock

 

40,652

 

 

Borrowings from line of credit

 

52,750

 

89,100

 

Repayments of line of credit

 

(68,300

)

(54,700

)

Distributions paid

 

(4,858

)

(3,726

)

Other

 

 

(34

)

Net cash provided by financing activities

 

20,244

 

30,640

 

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

 

33,220

 

(3,192

)

CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD

 

9,360

 

37,789

 

CASH AND CASH EQUIVALENTS, END OF PERIOD

 

$

42,580

 

$

34,597

 

 

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

 

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GLADSTONE INVESTMENT CORPORATION

FINANCIAL HIGHLIGHTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)

 

 

 

Three Months Ended June 30,

 

 

 

2008

 

2007

 

Per Share Data (1)

 

 

 

 

 

Balance at beginning of period

 

$

12.47

 

$

13.46

 

 

 

 

 

 

 

Income from investment operations:

 

 

 

 

 

Net investment income (2)

 

0.15

 

0.17

 

Realized loss on sale of investments (2)

 

(0.08

)

 

Net unrealized (depreciation) appreciation of investments (2)

 

(0.29

)

0.33

 

Total from investment operations

 

(0.22

)

0.50

 

 

 

 

 

 

 

Distributions from:

 

 

 

 

 

Net investment income

 

(0.24

)

(0.23

)

Total distributions (3)

 

(0.24

)

(0.23

)

Shelf registration offering costs

 

(0.03

)

 

Effect on distribution of stock rights offering after record date (4)

 

(1.21

)

 

Net asset value at end of period

 

$

10.77

 

$

13.73

 

 

 

 

 

 

 

Per share market value at beginning of period

 

$

9.41

 

$

14.87

 

Per share market value at end of period

 

$

6.43

 

$

14.21

 

Total Return (5)

 

-29.57

%

-2.93

%

Shares outstanding at end of period

 

22,080,133

 

16,560,100

 

 

 

 

 

 

 

Statement of Assets and Liabilities Data:

 

 

 

 

 

Net assets at end of period

 

$

237,756

 

$

227,334

 

Average net assets (6)

 

$

242,655

 

$

222,928

 

 

 

 

 

 

 

Senior Securities Data:

 

 

 

 

 

Borrowings under line of credit

 

$

129,285

 

$

134,400

 

Asset coverage ratio (7)

 

284

%

270

%

Asset coverage per unit (8)

 

$

3,670

 

$

3,617

 

 

 

 

 

 

 

Ratios/Supplemental Data:

 

 

 

 

 

Ratio of expenses to average net assets (9) (10)

 

5.87

%

6.81

%

Ratio of net expenses to average net assets (9) (11)

 

4.93

%

6.12

%

Ratio of net investment income to average net assets (9)

 

5.03

%

5.18

%

 


(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 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.

 

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

 

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Table of Contents

 

GLADSTONE INVESTMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)

JUNE 30, 2008

(UNAUDITED)

 

NOTE 1. ORGANIZATION

 

Gladstone Investment Corporation (the “Company”) was incorporated under the General Corporation Laws of the State of Delaware on February 18, 2005, and completed an initial public offering on June 22, 2005. The Company is a closed-end, non-diversified management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, the Company has elected to be treated for tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). The Company’s investment objectives are to achieve a high level of current income and capital gains by investing in debt and equity securities of established private businesses.

 

Gladstone Business Investment, LLC (“Business Investment”) a wholly-owned subsidiary of the Company, was established on August 11, 2006, for the sole purpose of owning the Company’s portfolio of investments in connection with the establishment of its line of credit facility with Deutsche Bank AG. The financial statements of Business Investment are consolidated with those of the Company.

 

The Company is externally managed by Gladstone Management Corporation (the “Adviser”), an unconsolidated affiliate of the Company.

 

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

 

Unaudited Interim Financial Statements

 

Interim financial statements of the Company are prepared in accordance with accounting principles generally accepted in the United States of America (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company’s Form 10-K for the fiscal year ended March 31, 2008, as filed with the Securities and Exchange Commission (“SEC”) on May 21, 2008.

 

The year-end condensed consolidated balance sheet data was derived from audited financial statements, but does not include all of the disclosures required by GAAP.

 

Reclassifications

 

Certain amounts in the prior year’s financial statements have been reclassified to conform to the current year presentation with no effect to net (decrease) increase in net assets resulting from operations.

 

Investment Valuation

 

In September 2006, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 157—Fair Value Measurements (“SFAS 157”), which, for financial assets, is effective for fiscal years beginning after November 15, 2007, with early adoption permitted. The Company adopted SFAS 157 on April 1, 2008. In part, SFAS 157 defines fair value, establishes a framework for measuring fair value, and expands disclosures about assets and liabilities measured at fair value. The new standard provides a consistent definition of fair value that focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. The standard also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.

 

 

 

·

 

Level 1 —inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;

 

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·

 

Level 2 —inputs to the valuation methodology include quoted prices for similar assets and liabilities in active markets, and inputs that are observable for the asset or liability, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices vary substantially over time or among brokered market makers; and

 

 

 

 

 

 

 

·

 

Level 3 —inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect the Company’s own assumptions that market participants would use to price the asset or liability based upon the best available information.

 

The following table presents the financial instruments carried at fair value as of June 30, 2008, by caption on the accompanying condensed consolidated statement of assets and liabilities for each of the three levels of hierarchy established by SFAS 157:

 

 

 

As of June 30, 2008

 

 

 

 

 

 

 

 

 

Total Fair Value

 

 

 

 

 

 

 

 

 

Reported in Condensed

 

 

 

 

 

 

 

 

 

Consolidated Statement of

 

 

 

Level 1

 

Level 2

 

Level 3

 

Assets and Liabilities

 

Non-Control/Non-Affiliate investments

 

$

 

$

 

$

130,764

 

$

130,764

 

Control investments

 

 

 

141,042

 

141,042

 

Affiliate investments

 

 

 

48,493

 

48,493

 

Total investments at fair value

 

$

 

$

 

$

320,299

 

$

320,299

 

 

Changes in Level 3 Fair Value Measurements

 

The following table provides a roll-forward in the changes in fair value from March 31, 2008 to June 30, 2008, for all investments for which the Company determines fair value using unobservable (Level 3) factors. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, the determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable or Level 3 components, observable components (that is, components that are actively quoted and can be validated to external sources). Accordingly, the gains and losses in the table below include changes in fair value due in part to observable factors that are part of the valuation methodology.

 

Fair value measurements using unobservable data inputs (Level 3)

 

 

 

Non-Control/

 

 

 

 

 

 

 

 

 

Non-Affiliate

 

Control

 

Affiliate

 

 

 

 

 

Investments

 

Investments

 

Investments

 

Total

 

Fair value at March 31, 2008

 

$

142,741

 

$

145,407

 

$

47,456

 

$

335,604

 

Total realized/unrealized losses (a)

 

2,747

 

(4,867

)

(5,415

)

(7,535

)

New investments, repayments, settlements net

 

(14,724

)

502

 

6,452

 

(7,770

)

Transfer in (out) of Level 3

 

 

 

 

 

Fair value as of June 30, 2008

 

$

130,764

 

$