10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

¨ (Do not check if a smaller reporting company)

Smaller reporting company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2015

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

For the transition period from to

Commission file number: 814-00704

GLADSTONE INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)


DELAWARE		83-0423116
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
1521 WESTBRANCH DRIVE, SUITE 100 MCLEAN, VIRGINIA		22102
(Address of principal executive office)		(Zip Code)

(703) 287-5800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year, if changed since last report)

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 ¨

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 ¨ No ¨

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. (Check one):

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ 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 per share, outstanding as of October 28, 2015, was 30,270,958.

GLADSTONE INVESTMENT CORPORATION

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)

	Condensed Consolidated Statements of Assets and Liabilities as of September 30 and March 31, 2015	2
	Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2015 and 2014	3
	Condensed Consolidated Statements of Changes in Net Assets for the six months ended September 30, 2015 and 2014	4
	Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2015 and 2014	5
	Condensed Consolidated Schedules of Investments as of September 30 and March 31, 2015	6
	Notes to Condensed Consolidated Financial Statements	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Overview	36
	Results of Operations	41
	Liquidity and Capital Resources	51

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	57

Item 4.	Controls and Procedures	57

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	58

Item 1A.	Risk Factors	58

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58

Item 3.	Defaults Upon Senior Securities	58

Item 4.	Mine Safety Disclosures	58

Item 5.	Other Information	58

Item 6.	Exhibits	58

SIGNATURES		59

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	September 30,			March 31,
	2015			2015
ASSETS
Investments at fair value
Non-Control/Non-Affiliate investments (Cost of $183,536 and $162,598, respectively)	$	191,830		$	174,373
Affiliate investments (Cost of $314,967 and $310,628, respectively)		284,040			271,050
Control investments (Cost of $31,532 and $32,032 respectively)		14,765			20,630

Total investments at fair value (Cost of $530,035 and $505,258, respectively)		490,635			466,053
Cash and cash equivalents		5,694			4,921
Restricted cash and cash equivalents		648			260
Interest receivable		2,743			1,867
Due from custodian		1,696			4,512
Deferred financing costs		5,297			4,529
Other assets, net		1,479			1,379

TOTAL ASSETS	$	508,192		$	483,521

LIABILITIES
Borrowings:
Line of credit at fair value (Cost of $103,500 and $118,800, respectively)	$	103,500		$	118,800
Secured borrowing		5,096			5,096

Total borrowings		108,596			123,896
Mandatorily redeemable preferred stock, $0.001 par value, $25 liquidation preference; 4,956,000 and 3,610,000 shares authorized, respectively; 4,866,000 and 3,256,000 shares issued and outstanding, respectively		121,650			81,400
Accounts payable and accrued expenses		924			1,271
Fees due to Adviser^(A)		1,914			1,502
Fee due to Administrator^(A)		270			262
Other liabilities		870			1,761

TOTAL LIABILITIES	$	234,224		$	210,092

Commitments and contingencies^(B)
NET ASSETS	$	273,968		$	273,429

ANALYSIS OF NET ASSETS
Common stock, $0.001 par value per share, 100,000,000 shares authorized, 30,270,958 and 29,775,958 shares issued and outstanding	$	30		$	30
Capital in excess of par value		312,463			309,438
Cumulative net unrealized depreciation of investments		(39,400	)		(39,204	)
Cumulative net unrealized depreciation of other		(75	)		(75	)
Net investment income in excess of distributions		3,762			3,511
Accumulated net realized loss		(2,812	)		(271	)

TOTAL NET ASSETS	$	273,968		$	273,429

NET ASSET VALUE PER SHARE AT END OF PERIOD	$	9.05		$	9.18

^(A)

Refer to Note 4—Related Party Transactions for additional information.

^(B)

Refer to Note 10—Commitments and Contingencies for additional information.

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

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended September 30,						Six Months Ended September 30,
	2015			2014			2015			2014
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	3,970		$	4,494		$	7,772		$	9,751
Affiliate investments		7,329			3,540			14,253			6,156
Control investments		645			535			1,304			1,065
Cash and cash equivalents		1			1			1			2

Total interest income		11,945			8,570			23,330			16,974
Other income
Non-Control/Non-Affiliate investments		1,795			501			3,116			1,900
Affiliate investments		—			—			—			34

Total other income		1,795			501			3,116			1,934

Total investment income		13,740			9,071			26,446			18,908

EXPENSES
Base management fee^(A)		2,510			1,744			4,963			3,410
Loan servicing fee^(A)		1,707			1,158			3,266			2,293
Incentive fee^(A)		1,505			1,051			2,796			2,266
Administration fee^(A)		270			209			625			444
Interest expense on borrowings		1,081			720			2,145			1,458
Dividends on mandatorily redeemable preferred stock		2,065			712			3,832			1,425
Amortization of deferred financing fees		483			282			943			536
Professional fees		261			305			703			547
Other general and administrative expenses		403			450			959			747

Expenses before credits from Adviser		10,285			6,631			20,232			13,126

Credit to base management fee — loan servicing fee^(A)		(1,707	)		(1,158	)		(3,266	)		(2,293	)
Credit to fees from Adviser — other^(A)		(861	)		(606	)		(1,706	)		(988	)

Total expenses net of credits to fees		7,717			4,867			15,260			9,845

NET INVESTMENT INCOME		6,023			4,204			11,186			9,063

REALIZED AND UNREALIZED (LOSS) GAIN
Net realized loss:
Non-Control/Non-Affiliate investments		(1	)		—			(1	)		—
Affiliate investments		(2,740	)		—			(2,740	)		—
Control investments		1			(12	)		200			(12	)

Total net realized loss		(2,740	)		(12	)		(2,541	)		(12	)
Net unrealized (depreciation) appreciation:
Non-Control/Non-Affiliate investments		(9,990	)		9,454			(3,482	)		9,899
Affiliate investments		11,852			(4,283	)		8,651			(2,941	)
Control investments		(5,255	)		(6,666	)		(5,365	)		(2,993	)
Other		—			—			—			451

Total net unrealized (depreciation) appreciation		(3,393	)		(1,495	)		(196	)		4,416

Net realized and unrealized (loss) gain		(6,133	)		(1,507	)		(2,737	)		4,404

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	(110	)	$	2,697		$	8,449		$	13,467

BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.20		$	0.16		$	0.37		$	0.34

Net increase in net assets resulting from operations	$	—		$	0.10		$	0.28		$	0.51

Distributions	$	0.19		$	0.18		$	0.38		$	0.36

WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted		30,270,958			26,475,958			30,265,548			26,475,958

^(A)

Refer to Note 4—Related Party Transactions for additional information.

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

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended September 30,
	2015			2014
OPERATIONS
Net investment income	$	11,186		$	9,063
Net realized loss on investments		(2,541	)		(12	)
Net unrealized appreciation of investments		(196	)		3,965
Net unrealized depreciation of other		—			451

Net increase in net assets from operations		8,449			13,467

DISTRIBUTIONS
Distributions to common stockholders		(11,352	)		(9,531	)

Net decrease in net assets from distributions		(11,352	)		(9,531	)

CAPITAL ACTIVITY
Issuance of common stock		3,663			—
Offering costs for issuance of common stock		(221	)		—

Net increase in net assets from capital activity		3,442			—

TOTAL INCREASE IN NET ASSETS		539			3,936
NET ASSETS, BEGINNING OF PERIOD		273,429			220,837

NET ASSETS, END OF PERIOD	$	273,968		$	224,773

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

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended September 30,
	2015			2014
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	8,449		$	13,467
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchase of investments		(40,045	)		(29,287	)
Principal repayments of investments		10,583			802
Increase in investment balance due to paid in kind interest		—			(58	)
Net proceeds from the sale of investments		2,159			(12	)
Net realized loss on investments		2,525			12
Net unrealized depreciation (appreciation) of investments		196			(3,965	)
Net unrealized depreciation of other		—			(451	)
Amortization of deferred financing costs		943			536
Bad debt expense		172			16
Changes in assets and liabilities:
(Increase) decrease in restricted cash and cash equivalents		(388	)		1,864
Increase in interest receivable		(876	)		(424	)
Decrease in due from custodian		2,816			527
Increase in other assets		(272	)		(242	)
(Decrease) increase in accounts payable and accrued expenses		(347	)		357
Increase in fees due to Adviser^(A)		412			82
Increase (decrease) in fee due to Administrator^(A)		8			(15	)
Decrease in other liabilities		(891	)		(58	)

Net cash used in operating activities		(14,556	)		(16,849	)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		3,663			—
Offering costs for issuance of common stock		(221	)		—
Proceeds from line of credit		65,500			36,800
Repayments on line of credit		(80,800	)		(10,300	)
Proceeds from secured borrowing		—			96
Proceeds from issuance of mandatorily redeemable preferred stock		40,250			—
Deferred financing costs		(1,711	)		(1,717	)
Distributions paid to common stockholders		(11,352	)		(9,531	)

Net cash provided by financing activities		15,329			15,348

NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		773			(1,501	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		4,921			4,553

CASH AND CASH EQUIVALENTS, END OF PERIOD	$	5,694		$	3,052

NON-CASH ACTIVITIES^(B)	$	15,740		$	—


^(A)	Refer to Note 4—Related Party Transactions for additional information.
^(B)	2015:	In August 2015, NDLI, Inc. (“NDLI”) was acquired by Diligent Delivery Systems (“Diligent”). As part of this acquisition, we restructured our investment in NDLI, which resulted in the termination of our debt investments in NDLI, which had a cost basis and fair value of $17.7 million and $14.2 million, respectively. We received cash proceeds of $1.9 million and a $13.0 million secured second lien debt investment in Diligent, which resulted in a net realized loss of $2.7 million. We recognized this net realized loss in our Condensed Consolidated Statements of Operations during the three and six months ended September 30, 2015.

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

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2015

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N):
Auto Safety House, LLC	Automobile	Secured First Lien Line of Credit, $1,000 available (7.0%, Due 10/2019)^(I)(K)	$	—	$	—	$	—
Auto Safety House, LLC	Automobile	Secured First Lien Term Debt (7.0%, Due 10/2019)^(I)(K)		5,000		5,000		4,931

						5,000		4,931

B-Dry, LLC	Personal, Food and Miscellaneous Services	Secured First Lien Line of Credit, $250 available (6.5% (0.8% Unused Fee), Due 12/2016)^(L)		2,250		2,250		1,177
		Secured First Lien Term Debt (12.0%, Due 12/2019)^(L)		6,433		6,443		3,370
		Secured First Lien Term Debt (12.0%, Due 12/2019)^(L)		840		840		439
		Preferred Stock (2,250 shares)^(C)(F)(L)				2,250		—
		Common Stock (2,250 shares)^(C)(F)(L)				300		—

						12,083		4,986

Country Club Enterprises, LLC	Automobile	Secured Second Lien Term Debt (18.7%, Due 5/2017)^(L)		4,000		4,000		4,000
		Preferred Stock (7,079,792 shares)^(C)(F)(L)				7,725		1,870
		Guaranty ($2,000)^(D)
		Guaranty ($459)^(D)

						11,725		5,870

Diligent Delivery Systems	Cargo Transport	Secured Second Lien Term Debt (10.0%, Due 8/2020)^(J)		13,000		13,000		13,000
Diligent Delivery Systems	Cargo Transport	Common Stock Warrants (6% ownership)^(C)(F)(J)				—		—

						13,000		13,000

Drew Foam Company, Inc.	Chemicals, Plastics, and Rubber	Secured First Lien Term Debt (13.5%, Due 8/2017)^(L)		9,913		9,913		9,913
		Preferred Stock (34,045 shares)^(C)(F)(L)				3,375		3,442
		Common Stock (5,372 shares)^(C)(F)(L)				63		5,409

						13,351		18,764

Frontier Packaging, Inc.	Containers, Packaging, and Glass	Secured First Lien Term Debt (12.0%, Due 12/2017)^(L)		11,500		11,500		11,500
		Preferred Stock (1,373 shares)^(C)(F)(L)				1,373		1,471
		Common Stock (152 shares)^(C)(F)(L)				152		8,151

						13,025		21,122

Funko, LLC^(M)	Personal and Non-Durable Consumer Products (Manufacturing Only)	Secured First Lien Term Debt (9.3%, Due 5/2019)^(I)(L)		7,500		7,500		7,500
		Secured First Lien Term Debt (9.3%, Due 5/2019)^(I)(L)		2,000		2,000		2,000
		Preferred Stock (1,305 units)^(C)(F)(L)				1,305		17,314

						10,805		26,814

Ginsey Home Solutions, Inc.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Secured Second Lien Term Debt (13.5%, Due 1/2018)^(H)(L)		13,300		13,300		13,300
		Preferred Stock (18,898 shares)^(C)(F)(L)				9,583		6,514
		Common Stock (63,747 shares)^(C)(F)(L)				8		—

						22,891		19,814

Jackrabbit, Inc.	Farming and Agriculture	Secured First Lien Term Debt (13.5%, Due 4/2018)^(L)		11,000		11,000		11,000
		Preferred Stock (3,556 shares)^(C)(F)(L)				3,556		4,305
		Common Stock (548 shares)^(C)(F)(L)				94		1,303

						14,650		16,608

Mathey Investments, Inc.	Machinery (Nonagriculture, Nonconstruction, Nonelectronic)	Secured First Lien Term Debt (10.0%, Due 3/2016)^(L)		1,375		1,375		1,375
		Secured First Lien Term Debt (12.0%, Due 3/2016)^(L)		3,727		3,727		3,727
		Secured First Lien Term Debt (12.5%, Due 3/2016)^(E)(I)(L)		3,500		3,500		3,500
		Common Stock (29,102 shares)^(C)(F)(L)				777		6,850

						9,379		15,452

Mitchell Rubber Products, Inc.	Chemicals, Plastics, and Rubber	Secured Second Lien Term Debt (13.0%, Due 10/2016)^(I)(K)		13,560		13,560		8,109
		Secured Second Lien Term Debt (13.0%, Due 12/2015)^(I)(K)		700		700		419
		Preferred Stock (27,900 shares)^(C)(F)(L)				2,790		—
		Common Stock (27,900 shares)^(C)(F)(L)				28		—

						17,078		8,528

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2015

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
Quench Holdings Corp.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Common Stock (4,770,391 shares)^(C)(F)(L)			$	3,397	$	5,160

						3,397		5,160

SBS Industries, LLC	Machinery (Nonagriculture, Nonconstruction, Nonelectronic)	Secured First Lien Term Debt (14.0%, Due 8/2016)^(L)		11,355		11,355		11,355
		Preferred Stock (19,935 shares)^(C)(F)(L)				1,994		1,520
		Common Stock (221,500 shares)^(C)(F)(L)				222		—

						13,571		12,875

Schylling, Inc.	Leisure, Amusement, Motion	Secured First Lien Term Debt (13.0%, Due 8/2018)^(L)		13,081		13,081		13,081
Schylling, Inc.	Leisure, Amusement, Motion	Preferred Stock (4,000 shares)^(C)(F)(L)				4,000		—

						17,081		13,081

Star Seed, Inc.	Farming and Agriculture	Secured First Lien Term Debt (12.5%, Due 5/2018)^(E)(K)		5,000		5,000		4,825
		Preferred Stock (1,499 shares)^(C)(F)(L)				1,499		—
		Common Stock (600 shares)^(C)(F)(L)				1		—

						6,500		4,825

Total Non-Control/Non-Affiliate Investments (represents 39.1% of total investments at fair value)					$	183,536	$	191,830

AFFILIATE INVESTMENTS^(O):
Acme Cryogenics, Inc.	Chemicals, Plastics, and Rubber	Secured Second Lien Term Debt (11.5%, Due 3/2020)^(I)(L)	$	14,500	$	14,500	$	14,500
		Preferred Stock (965,982 shares)^(C)(F)(L)				7,956		14,831
		Common Stock (549,908 shares)^(C)(F)(L)				1,197		—
		Common Stock Warrants (465,639 shares)^(C)(F)(L)				25		—

						23,678		29,331

Alloy Die Casting Co.^(M)	Diversified/Conglomerate Manufacturing	Secured First Lien Term Debt (13.5%, Due 10/2018)^(K)		12,215		12,215		11,543
		Preferred Stock (4,064 shares)^(C)(F)(L)				4,064		356
		Common Stock (630 shares)^(C)(F)(L)				41		—

						16,320		11,899

Behrens Manufacturing, LLC^(M)	Diversified/Conglomerate Manufacturing	Secured First Lien Term Debt (13.0%, Due 12/2018)^(L)		9,975		9,975		9,975
Behrens Manufacturing, LLC^(M)	Diversified/Conglomerate Manufacturing	Preferred Stock (2,923 shares)^(C)(F)(L)				2,922		5,292

						12,897		15,267

Brunswick Bowling Products, Inc.	Home and Office Furnishings, Housewares and Durable Consumer Products	Secured First Lien Term Debt (16.3%, Due 5/2020)^(L)		11,307		11,307		11,307
Brunswick Bowling Products, Inc.		Preferred Stock (4,943 shares)^(C)(F)(L)				4,943		3,869

						16,250		15,176

B+T Group Acquisition Inc.^(M)	Telecommunications	Secured First Lien Term Debt (13.0%, Due 12/2019)^(L)		14,000		14,000		14,000
B+T Group Acquisition Inc.^(M)	Telecommunications	Preferred Stock (12,841 shares)^(C)(F)(L)				4,196		—

						18,196		14,000

Cambridge Sound Management, Inc.	Home and Office Furnishings, Housewares and Durable Consumer Products	Secured First Lien Term Debt (13.0%, Due 9/2019)^(L)		15,000		15,000		15,000
Cambridge Sound Management, Inc.		Preferred Stock (4,500 shares)^(C)(F)(L)				4,500		13,218

						19,500		28,218

Channel Technologies Group, LLC	Diversified/Conglomerate Manufacturing	Preferred Stock (2,279 shares)^(C)(F)(L)				2,864		1,922
Channel Technologies Group, LLC	Diversified/Conglomerate Manufacturing	Common Stock (2,279,020 shares)^(C)(F)(L)				—		—

						2,864		1,922

Counsel Press, Inc.	Diversified/Conglomerate Services	Secured First Lien Line of Credit, $450 available (12.8% (1.0% Unused Fee), Due 3/2017)^(L)		550		550		550
		Secured First Lien Term Debt (12.8%, Due 3/2020)^(L)		18,000		18,000		18,000
		Secured First Lien Term Debt (14.0%, Due 3/2020)^(L)		5,500		5,500		5,500
		Preferred Stock (6,995 shares)^(C)(F)(L)				6,995		3,657

						31,045		27,707

D.P.M.S., Inc.	Diversified/Conglomerate Manufacturing	Secured First Lien Line of Credit, $550 available (4.0% (0.5% Unused Fee), Due 8/2016)^(I)(L)		4,000		4,000		2,224
		Secured First Lien Term Debt (4.0%, Due 8/2016)^(I)(L)		2,575		2,575		1,432
		Secured First Lien Term Debt (4.0%, Due 8/2016)^(I)(L)		8,795		8,795		4,891
		Secured First Lien Term Debt (5.0%, Due 8/2016)^(E)(L)		1,150		1,150		639
		Preferred Stock (25 shares)^(C)(F)(L)				2,500		—
		Common Stock (1,241 shares)^(C)(F)(L)				3		—

						19,023		9,186

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2015

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
Edge Adhesives Holdings, Inc.^(M)	Diversified/Conglomerate Manufacturing	Secured First Lien Term Debt (12.5%, Due 2/2019)^(K)	$	9,300	$	9,300	$	9,184
		Secured First Lien Term Debt (13.8%, Due 2/2019)^(K)		2,400		2,400		2,373
		Preferred Stock (3,774 shares)^(C)(F)(L)				3,774		—

						15,474		11,557

GI Plastek, Inc.	Chemicals, Plastics, and Rubber	Secured First Lien Line of Credit, $1,330 available (10.0% (1.0% Unused Fee), Due 7/2016)^(J)		670		670		670
		Secured First Lien Term Debt (13.3%, Due 7/2020)^(J)		15,000		15,000		15,000
		Preferred Stock (5,150 units)^(C)(F)(J)				5,150		5,150

						20,820		20,820

Head Country, Inc.	Beverage, Food and Tobacco	Secured First Lien Term Debt (12.5%, Due 2/2019)^(L)		9,050		9,050		9,050
Head Country, Inc.	Beverage, Food and Tobacco	Preferred Stock (4,000 shares)^(C)(F)(L)				4,000		4,255

						13,050		13,305

Logo Sportswear, Inc.	Textiles and Leather	Secured First Lien Term Debt (12.5%, Due 3/2020)^(L)		9,200		9,200		9,200
Logo Sportswear, Inc.	Textiles and Leather	Preferred Stock (1,550 shares)^(C)(F)(L)				1,550		2,141

						10,750		11,341

Meridian Rack & Pinion, Inc.^(M)	Automobile	Secured First Lien Term Debt (13.5%, Due 12/2018)^(K)		9,660		9,660		9,419
Meridian Rack & Pinion, Inc.^(M)	Automobile	Preferred Stock (3,381 shares)^(C)(F)(L)				3,381		—

						13,041		9,419

NDLI, Inc.	Cargo Transport	Preferred Stock (3,600 shares)^(C)(F)(L)				3,600		—
NDLI, Inc.	Cargo Transport	Common Stock (545 shares)^(C)(F)(L)				—		—

						3,600		—

Old World Christmas, Inc.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Secured First Lien Term Debt (13.3%, Due 10/2019)^(L)		15,770		15,770		15,770
Old World Christmas, Inc.		Preferred Stock (6,180 shares)^(C)(F)(L)				6,180		—

						21,950		15,770

Precision Southeast, Inc.	Diversified/Conglomerate Manufacturing	Secured Second Lien Term Debt (14.0%, Due 9/2020)^(L)		9,618		9,618		9,618
		Preferred Stock (37,391 shares)^(C)(F)(L)				3,739		3,850
		Common Stock (90,909 shares)^(C)(F)(L)				90		—

						13,447		13,468

SOG Specialty Knives & Tools, LLC	Leisure, Amusement, Motion Pictures, Entertainment	Secured First Lien Term Debt (13.3%, Due 10/2017)^(L)		6,200		6,200		6,200
SOG Specialty Knives & Tools, LLC	Leisure, Amusement, Motion Pictures, Entertainment	Secured First Lien Term Debt (14.8%, Due 10/2017)^(L)		12,200		12,200		12,200
		Preferred Stock (9,749 shares)^(C)(F)(L)				9,749		13,455

						28,149		31,855

Tread Corporation	Oil and Gas	Secured First Lien Line of Credit, $1,434 available (12.5%, Due 2/2018)^(G)(L)		1,816		1,816		623
		Secured First Lien Term Debt (12.5%, Due 2/2018)^(G)(I)(L)		5,000		5,000		1,715
		Secured First Lien Term Debt (12.5%, Due 2/2018)^(G)(I)(L)		2,750		2,750		943
		Secured First Lien Term Debt (12.5%, Due 2/2018)^(G)(I)(L)		1,000		1,000		343
		Secured First Lien Term Debt (12.5%, Due on Demand)^(G)(I)(L)		510		510		175
		Preferred Stock (3,332,765 shares)^(C)(F)(L)				3,333		—
		Common Stock (7,716,320 shares)^(C)(F)(L)				501		—
		Common Stock Warrants (2,372,727 shares)^(C)(F)(L)				3		—

						14,913		3,799

Total Affiliate Investments (represents 57.9% of total investments at fair value)					$	314,967	$	284,040

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2015

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
CONTROL INVESTMENTS^(P):
Galaxy Tool Holding Corporation	Aerospace and Defense	Secured First Lien Line of Credit, $0 available (10.0% (1.0% Unused Fee), Due 9/2016)^(K)	$	4,500	$	4,500	$	3,319
		Secured Second Lien Secured Term Debt (13.5%, Due 8/2017)^(K)		15,520		15,520		11,446
		Preferred Stock (6,039,387 shares)^(C)(F)(L)				11,464		—
		Common Stock (88,843 shares)^(C)(F)(L)				48		—

						31,532		14,765

Total Control Investments (represents 3.0% of total investments at fair value)					$	31,532	$	14,765

TOTAL INVESTMENTS					$	530,035	$	490,635

^(A)

Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $470.6 million at fair value, are pledged as collateral to our revolving line of credit as described further in Note 5—Borrowings. Additionally, all of our investments are considered qualifying assets under Section 55 of the Investment Company Act of 1940, as amended, (the “1940 Act”,) as of September 30, 2015.

^(B)

Percentages represent the weighted average cash interest rates in effect at September 30, 2015, and due date represents the contractual maturity date. Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate. If applicable, paid-in-kind interest rates are noted separately from the cash interest rates.

^(C)	Security is non-income producing.

^(D)	Refer to Note 10—Commitments and Contingencies for additional information regarding these guaranties.

^(E)	Last Out Tranche (“LOT”) of secured first lien debt, meaning if the portfolio company is liquidated, the holder of the LOT is generally paid after the other secured first lien debt but before the secured second lien debt.

^(F)

Where applicable, aggregates all shares of such class of stock owned without regard to specific series owned within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of such class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase.

^(G)	Debt security is on non-accrual status.

^(H)

$5.1 million of the debt security was participated to a third party but is accounted for as collateral for a secured borrowing under accounting principles generally accepted in the U.S. and presented as secured borrowing on our accompanying Condensed Consolidated Statement of Assets and Liabilities as of September 30, 2015.

^(I)	Debt security has a fixed interest rate.

^(J)	New portfolio investment valued at cost, as it was determined that the price paid during the three months ended September 30, 2015 best represents fair value as of September 30, 2015.

^(K)	Fair value was based on internal yield analysis or on estimates of value submitted by Standard & Poor’s Securities Evaluations, Inc.

^(L)	Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to the portfolio company’s securities in order of their relative priority in the capital structure.

^(M)	One of our affiliated funds, Gladstone Capital Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

^(N)	Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments or in which we own less than 5.0% of the issued and outstanding voting securities.

^(O)	Affiliate investments, as defined by the 1940 Act, are those that are not Control investments, and in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

^(P)	Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2015

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N):
Auto Safety House, LLC	Automobile	Secured First Lien Line of Credit, $1,000 available (7.0%, Due 10/2019)^(I)(K)	$	—	$	—	$	—
		Secured First Lien Term Debt (7.0%, Due 10/2019)^(I)(K)		5,000		5,000		4,938

						5,000		4,938

Cavert II Holding Corp.	Containers, Packaging, and Glass	Preferred Stock (18,446 shares)^(C)(F)(L)				1,845		3,265

						1,845		3,265

Country Club Enterprises, LLC	Automobile	Secured Second Lien Term Debt (18.7%, Due 5/2017)^(L)		4,000		4,000		4,000
		Preferred Stock (7,079,792 shares)^(C)(F)(L) Guaranty ($2,000)^(D) Guaranty ($593)^(D)				7,725		2,863

						11,725		6,863

Drew Foam Company, Inc.	Chemicals, Plastics, and Rubber	Secured First Lien Term Debt (13.5%, Due 8/2017)^(L)		10,913		10,913		10,913
		Preferred Stock (34,045 shares)^(C)(F)(L)				3,375		3,532
		Common Stock (5,372 shares)^(C)(F)(L)				63		2,813

						14,351		17,258

Frontier Packaging, Inc.	Containers, Packaging, and Glass	Secured First Lien Term Debt (12.0%, Due 12/2017)^(L)		12,000		12,000		12,000
		Preferred Stock (1,373 shares)^(C)(F)(L)				1,373		1,404
		Common Stock (152 shares)^(C)(F)(L)				152		2,777

						13,525		16,181

Funko, LLC^(M)	Personal and Non-Durable Consumer Products (Manufacturing Only)	Secured First Lien Term Debt (9.3%, Due 5/2019)^(I)(K)		7,500		7,500		7,734
		Secured First Lien Term Debt (9.3%, Due 5/2019)^(I)(K)		2,000		2,000		2,063
		Preferred Stock (1,305 units)^(C)(F)(L)				1,305		15,211

						10,805		25,008

Ginsey Home Solutions, Inc.	Home and Office Furnishings, Housewares and Durable Consumer Products	Secured Second Lien Term Debt (13.5%, Due 1/2018)^(H)(L)		13,300		13,300		13,300
		Preferred Stock (18,898 shares)^(C)(F)(L)				9,583		7,176
		Common Stock (63,747 shares)^(C)(F)(L)				8		—

						22,891		20,476

Jackrabbit, Inc.	Farming and Agriculture	Secured First Lien Debt (13.5%, Due 4/2018)^(L)		11,000		11,000		11,000
		Preferred Stock (3,556 shares)^(C)(F)(L)				3,556		4,139
		Common Stock (548 shares)^(C)(F)(L)				94		2,399

						14,650		17,538

Mathey Investments, Inc.	Machinery (Nonagriculture, Nonconstruction, Nonelectronic)	Secured First Lien Term Debt (10.0%, Due 3/2016)^(L)		1,375		1,375		1,375
		Secured First Lien Term Debt (12.0%, Due 3/2016)^(L)		3,727		3,727		3,727
		Secured First Lien Term Debt (12.5%, Due 3/2016)^(E)(I)(L)		3,500		3,500		3,500
		Common Stock (29,102 shares)^(C)(F)(L)				777		7,630

						9,379		16,232

Mitchell Rubber Products, Inc.	Chemicals, Plastics, and Rubber	Secured Second Lien Term Debt (13.0%, Due 10/2016)^(I)(K)		13,560		13,560		8,136
		Secured Second Lien Term Debt (13.0%, Due 12/2015)^(I)(K)		1,500		1,500		900
		Preferred Stock (27,900 shares)^(C)(F)(L)				2,790		—
		Common Stock (27,900 shares)^(C)(F)(L)				28		—

						17,878		9,036

Quench Holdings Corp.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Common Stock (4,770,391 shares)^(C)(F)(L)				3,397		5,432
Quench Holdings Corp.
						3,397		5,432

SBS Industries, LLC	Machinery (Nonagriculture, Nonconstruction, Nonelectronic)	Secured First Lien Term Debt (14.0%, Due 8/2016)^(L)		11,355		11,355		11,355
		Preferred Stock (19,935 shares)^(C)(F)(L)				1,994		2,627
		Common Stock (221,500 shares)^(C)(F)(L)				222		183

						13,571		14,165

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2015

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
Schylling, Inc.	Leisure, Amusement, Motion Pictures, Entertainment	Secured First Lien Term Debt (13.0%, Due 8/2018)^(L)	$	13,081	$	13,081	$	13,081
Schylling, Inc.	Leisure, Amusement, Motion Pictures, Entertainment	Preferred Stock (4,000 shares)^(C)(F)(L)				4,000		—

						17,081		13,081

Star Seed, Inc.	Farming and Agriculture	Secured First Lien Term Debt (12.5%, Due 5/2018)^(E)(K)		5,000		5,000		4,900
		Preferred Stock (1,499 shares)^(C)(F)(L)				1,499		—
		Common Stock (600 shares)^(C)(F)(L)				1		—

						6,500		4,900

Total Non-Control/Non-Affiliate Investments (represents 37.4% of total investments at fair value)					$	162,598	$	174,373

AFFILIATE INVESTMENTS^(O):

Acme Cryogenics, Inc.	Chemicals, Plastics, and Rubber	Secured Second Lien Term Debt (11.5%, Due 3/2020)^(I)(L)	$	14,500	$	14,500	$	14,500
		Preferred Stock (965,982 shares)^(C)(F)(L)				7,956		8,519
		Common Stock (549,908 shares)^(C)(F)(L)				1,197		—
		Common Stock Warrants (465,639 shares)^(C)(F)(L)				25		—

						23,678		23,019

Alloy Die Casting Co.^(M)	Diversified/Conglomerate Manufacturing	Secured First Lien Term Debt (13.5%, Due 10/2018)^(K)		12,215		12,215		12,154
		Preferred Stock (4,064 shares)^(C)(F)(L)				4,064		4,122
		Common Stock (630 shares)^(C)(F)(L)				41		—

						16,320		16,276

Behrens Manufacturing, LLC^(M)	Diversified/Conglomerate Manufacturing	Secured First Lien Term Debt (13.0%, Due 12/2018)^(L)		9,975		9,975		9,975
Behrens Manufacturing, LLC^(M)	Diversified/Conglomerate Manufacturing	Preferred Stock (2,923 shares)^(C)(F)(L)				2,922		3,447

						12,897		13,422

B-Dry, LLC	Personal, Food and Miscellaneous Services	Secured First Lien Line of Credit, $175 available (6.5% (0.8% Unused Fee), Due 12/2016)^(L)		2,075		2,075		1,124
		Secured First Lien Term Debt (13.5%, Due 12/2019)^(L)		6,433		6,443		3,490
		Secured First Lien Term Debt (13.5%, Due 12/2019)^(L)		840		840		455
		Preferred Stock (2,250 shares)^(C)(F)(L)				2,250		—
		Common Stock (2,250 shares)^(C)(F)(L)				300		—

						11,908		5,069

B+T Group Acquisition Inc.^(M)	Telecommunications	Secured First Lien Line of Credit, $700 available (10.0% (1.0% Unused Fee), Due 6/2015)^(L)		700		700		700
		Secured First Lien Term Debt (13.0%, Due 12/2019)^(L)		14,000		14,000		14,000
		Preferred Stock (12,841 shares)^(C)(F)(L)				4,196		4,541

						18,896		19,241

Cambridge Sound Management, Inc.	Home and Office Furnishing, Housewares and Durable Consumer Products	Secured First Lien Term Debt (13.0%, Due 9/2019)^(L)		15,000		15,000		15,000
Cambridge Sound Management, Inc.		Preferred Stock (4,500 shares)^(C)(F)(L)				4,500		7,198

						19,500		22,198

Channel Technologies Group, LLC	Diversified/Conglomerate Manufacturing	Preferred Stock (2,279 shares)^(C)(F)(L)				2,864		2,315
Channel Technologies Group, LLC	Diversified/Conglomerate Manufacturing	Common Stock (2,279,020 shares)^(C)(F)(L)				—		—

						2,864		2,315

Counsel Press, Inc.	Diversified/Conglomerate Services	Secured First Lien Line of Credit, $500 available (12.8% (1.0% Unused Fee), Due 3/2017)^(J)		1,500		1,500		1,500
		Secured First Lien Term Debt (12.8%, Due 3/2020)^(J)		18,000		18,000		18,000
		Secured First Lien Term Debt (14.0%, Due 3/2020)^(J)		5,500		5,500		5,500
		Preferred Stock (6,995 shares)^(C)(F)(J)				6,995		6,995

						31,995		31,995

D.P.M.S., Inc.	Diversified/Conglomerate Manufacturing	Secured First Lien Line of Credit, $550 available (4.0% (0.5% Unused Fee), Due 8/2016)^(I)(L)		4,000		4,000		762
		Secured First Lien Term Debt (4.0%, Due 8/2016)^(I)(L)		2,575		2,575		490
		Secured First Lien Term Debt (4.0%, Due 8/2016)^(I)(L)		8,795		8,795		1,674
		Secured First Lien Term Debt (5.0%, Due 8/2016)^(E)(L)		1,150		1,150		219
		Preferred Stock (25 shares)^(C)(F)(L)				2,500		—
		Common Stock (1,241 shares)^(C)(F)(L)				3		—

						19,023		3,145

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2015

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
Edge Adhesives Holdings, Inc.^(M)	Diversified/Conglomerate Manufacturing	Secured First Lien Line of Credit, $10 available (12.5% (1.0% Unused Fee), Due 8/2015)^(K)	$	1,490	$	1,490	$	1,488
		Secured First Lien Term Debt (12.5%, Due 2/2019)^(K)		9,300		9,300		9,300
		Secured First Lien Term Debt (13.8%, Due 2/2019)^(K)		2,400		2,400		2,403
		Preferred Stock (3,474 shares)^(C)(F)(L)				3,474		3,199

						16,664		16,390

Head Country, Inc.	Beverage, Food and Tobacco	Secured First Lien Term Debt (12.5%, Due 2/2019)^(L)		9,050		9,050		9,050
Head Country, Inc.	Beverage, Food and Tobacco	Preferred Stock (4,000 shares)^(C)(F)(L)				4,000		3,931

						13,050		12,981

Logo Sportswear, Inc.	Textiles and Leather	Secured First Lien Line of Credit, $500 available (10.0% (1.0% Unused Fee), Due 9/2015)^(J)		—		—		—
		Secured First Lien Term Debt (12.5%, Due 3/2020)^(J)		9,200		9,200		9,200
		Preferred Stock (1,550 shares)^(C)(F)(J)				1,550		1,550

						10,750		10,750

Meridian Rack & Pinion, Inc.^(M)	Automobile	Secured First Lien Term Debt (13.5%, Due 12/2018)^(K)		9,660		9,660		9,612
Meridian Rack & Pinion, Inc.^(M)	Automobile	Preferred Stock (3,381 shares)^(C)(F)(L)				3,381		3,117

						13,041		12,729

NDLI, Inc.	Cargo Transport	Secured First Lien Line of Credit, $50 available (10.5% (0.5% Unused Fee), Due 1/2016)^(L)		2,875		2,875		2,308
		Secured First Lien Term Debt (11.0%, Due 1/2018)^(L)		7,227		7,227		5,803
		Secured First Lien Term Debt (10.5%, Due 1/2018)^(L)		3,650		3,650		2,931
		Secured First Lien Term Debt (10.5%, Due 1/2018)^(E)(L)		3,650		3,650		2,930
		Preferred Stock (3,600 shares)^(C)(F)(L)				3,600		—
		Common Stock (545 shares)^(C)(F)(L)				—		—

						21,002		13,972

Old World Christmas, Inc.	Home and Office Furnishings, Housewares, and Durable Consumer Products	Secured First Lien Term Debt (13.3%, Due 10/2019)^(L)		15,770		15,770		15,770
Old World Christmas, Inc.		Preferred Stock (6,180 shares)^(C)(F)(L)				6,180		6,657

						21,950		22,427

Precision Southeast, Inc.	Diversified/Conglomerate Manufacturing	Secured Second Lien Term Debt (14.0%, Due 9/2020)^(L)		9,617		9,617		9,617
		Preferred Stock (37,391 shares)^(C)(F)(J)				3,739		1,830
		Common Stock (90,909 shares)^(C)(F)(L)				91		—

						13,447		11,447

SOG Specialty Knives & Tools LLC	Leisure, Amusement, Motion Pictures, Entertainment	Secured First Lien Term Debt (13.3%, Due 10/2017)^(L)		6,200		6,200		6,200
		Secured First Lien Term Debt (14.8%, Due 10/2017)^(L)		12,200		12,200		12,200
		Preferred Stock (9,749 shares)^(C)(F)(L)				9,749		13,451

						28,149		31,851

Tread Corporation	Oil and Gas	Secured First Lien Line of Credit, $853 available (12.5%, Due 2/2018)^(G)(L)		2,397		2,397		375
		Secured First Lien Term Debt (12.5%, Due 2/2018)^(G)(I)(L)		5,000		5,000		782
		Secured First Lien Term Debt (12.5%, Due 2/2018)^(G)(I)(L)		2,750		2,750		430
		Secured First Lien Term Debt (12.5%, Due 2/2018)^(G)(I)(L)		1,000		1,000		156
		Secured First Lien Term Debt (12.5%, Due on Demand)^(G)(I)(L)		510		510		80
		Preferred Stock (3,332,765 shares)^(C)(F)(L)				3,333		—
		Common Stock (7,716,320 shares)^(C)(F)(L)				501		—
		Common Stock Warrants (2,372,727 shares)^(C)(F)(L)				3		—

						15,494		1,823

Total Affiliate Investments (represents 58.2% of total investments at fair value)					$	310,628	$	271,050

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2015

(DOLLAR AMOUNTS IN THOUSANDS)


Company^(A)	Industry	Investment^(B)	Principal		Cost		Fair Value
CONTROL INVESTMENTS^(P):
Galaxy Tool Holding Corporation	Aerospace and Defense	Secured First Lien Line of Credit, $1,250 available (10.0% (1.0% Unused Fee), Due 9/2015)^(L)	$	3,250	$	3,250	$	3,250
		Secured Second Lien Term Debt (13.5%, Due 8/2017)^(L)		15,520		15,520		15,520
		Preferred Stock (6,039,387 shares)^(C)(F)(L)				11,464		—
		Common Stock (88,843 shares)^(C)(F)(L)				48		—

						30,282		18,770

Roanoke Industries Corp.	Buildings and Real Estate	Secured First Lien Debt (10.0%, Due 11/2019)^(I)(L)		1,650		1,650		1,650
Roanoke Industries Corp.	Buildings and Real Estate	Common Stock (57 shares)^(C)(F)(L)				100		210

						1,750		1,860


Total Control Investments (represents 4.4% of total investments at fair value)					$	32,032	$	20,630


TOTAL INVESTMENTS^(Q)					$	505,258	$	466,053

^(A)

Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $435.9 million at fair value, are pledged as collateral to our revolving line of credit as described further in Note 5—Borrowings. Additionally, all of our investments are considered qualifying assets under Section 55 of the Investment Company Act of 1940, as amended, (the “1940 Act”,) as of March 31, 2015.

^(B)

Percentages represent the weighted average cash interest rates in effect at March 31, 2015, and due date represents the contractual maturity date. Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate. If applicable, paid-in-kind interest rates are noted separately from the cash interest rates.

^(C)	Security is non-income producing.

^(D)	Refer to Note 10—Commitments and Contingencies for additional information regarding these guaranties.

^(E)	Last Out Tranche (“LOT”) of secured first lien debt, meaning if the portfolio company is liquidated, the holder of the LOT is generally paid after the other secured first lien debt but before the secured second lien debt.

^(F)

^(G)	Debt security is on non-accrual status.

^(H)

^(I)	Debt security has a fixed interest rate.

^(J)	New portfolio investment valued at cost, as it was determined that the price paid during the three months ended March 31, 2015 best represents fair value as of March 31, 2015.

^(K)	Fair value was based on internal yield analysis or on estimates of value submitted by Standard & Poor’s Securities Evaluations, Inc.

^(L)	Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to the portfolio company’s securities in order of their relative priority in the capital structure.

^(M)	One of our affiliated funds, Gladstone Capital Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

^(N)	Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments or in which we own less than 5.0% of the issued and outstanding voting securities.

^(O)	Affiliate investments, as defined by the 1940 Act, are those that are not Control investments, and in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

^(P)	Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

^(Q)	Cumulative gross unrealized depreciation for federal income tax purposes is $80.6 million; cumulative gross unrealized appreciation for federal income tax purposes is $41.4 million. Cumulative net unrealized depreciation is $39.2 million, based on a tax cost of $505.6 million.

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

GLADSTONE INVESTMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2015

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

NOTE 1. ORGANIZATION

Gladstone Investment Corporation (“Gladstone Investment”) was incorporated under the General Corporation Law of the State of Delaware on February 18, 2005, and completed an initial public offering on June 22, 2005. The terms “the Company,” “we,” “our” and “us” all refer to Gladstone Investment and its consolidated subsidiaries. We are an externally advised, closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and is applying the guidance of FASB ASC Topic 946 Financial Services-Investment Companies. In addition, we have elected to be treated for tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (“U.S.”). Debt investments primarily come in the form of two types of loans: secured first lien loans and secured second lien loans. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. Our investment objectives are: (a) to achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time, and (b) to provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. We aim to maintain a portfolio allocation of approximately 75.0% debt investments and 25.0% equity investments, at cost.

Gladstone Business Investment, LLC (“Business Investment”), a wholly-owned subsidiary of ours, was established on August 11, 2006 for the sole purpose of owning our portfolio of investments in connection with our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment. We also have significant subsidiaries (as defined under Rule 1-02(w) of the U.S. Securities and Exchange Commission’s (“SEC”) Regulation S-X) whose financial statements are not consolidated with ours. Refer to Note 12—Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.

We are externally managed by Gladstone Management Corporation (the “Adviser”), an affiliate of ours and a SEC registered investment adviser, pursuant to an investment advisory agreement and management agreement. Administrative services are provided by Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, pursuant to an administration agreement.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of SEC Regulation S-X. Accordingly, we have omitted certain disclosures accompanying annual financial statements prepared in accordance with GAAP. The accompanying Condensed Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Under Article 6 of Regulation S-X, and the authoritative accounting guidance provided by the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which we have a controlling interest. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and six months ended September 30, 2015 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 our annual report on Form 10-K for the fiscal year ended March 31, 2015, as filed with the SEC on May 20, 2015.

Our accompanying fiscal year-end Condensed Consolidated Statement of Assets and Liabilities was derived from audited financial statements, but does not include all disclosures required by GAAP.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the condensed consolidated financial statements and related notes. Reclassifications did not impact net increase in net assets resulting from operations, total assets, total liabilities or total net assets, or statement of changes in net assets and statement of cash flows classifications.

Investment Valuation Policy

Accounting Recognition

We record our investments at fair value in accordance with the Financial Accounting Standards Board (the “FASB”) Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and amortized cost basis of the investment, without regard to unrealized depreciation or appreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized depreciation or appreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized depreciation or appreciation when gains or losses are realized.

Board Responsibility

In accordance with the 1940 Act, our Board of Directors has the ultimate responsibility for reviewing and approving, in good faith, the fair value of our investments based on our investment valuation policy (which has been approved by our Board of Directors) (the “Policy”). Such review occurs in three phases. First, prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from the chief valuation officer (the “Valuation Team”). Second, the Valuation Committee of our Board of Directors (comprised entirely of independent directors) meets to review the valuation recommendations and supporting materials. Third, after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committee’s findings to the entire Board of Directs at a meeting the next day so that the full Board of Directors may review and approve the fair value of our investments in accordance with the Policy.

There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy and each quarter our Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and also review whether the Valuation Team has applied the Policy consistently.

Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments.

Standard & Poor’s Securities Evaluation, Inc. (“SPSE”) provides estimates of fair value on our debt investments. The Valuation Team generally assigns SPSE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates SPSE’s estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimate of value on a specific debt investment may significantly differ from SPSE’s. When this occurs, our Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended fair value is reasonable in light of the Policy and other facts and circumstances and then votes to accept or reject the Valuation Team’s recommended fair value.

We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review our valuation of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our total enterprise value, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value and whether it is reasonable in light of the Policy and other relevant facts and circumstances and then votes to accept or reject the Valuation Team’s recommended fair value.

Valuation Techniques

In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:

•

Total Enterprise Value — In determining the fair value using a total enterprise value (“TEV”), the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio company’s ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes, depreciation and amortization (“EBITDA”)); EBITDA or revenue multiples obtained from our indexing methodology whereby the

original transaction EBITDA or revenue multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA or revenue multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries, and other pertinent factors. The Valuation Team generally references industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team then generally allocates the TEV to the portfolio company’s securities in order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.

TEV is primarily calculated using EBITDA or revenue multiples; however, TEV may also be calculated using a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses the DCF to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit impaired portfolio companies.

•

Yield Analysis — The Valuation Team generally determines the fair value of our debt investments using the yield analysis, which includes a DCF calculation and the Valuation Team’s own assumptions, including, but not limited to, estimated remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including, among other things, increased probability of default, increased loss upon default and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by SPSE and market quotes.

•

Market Quotes — For our investments for which a limited market exists, we generally base fair value on readily available and reliable market quotations, which are corroborated by the Valuation Team (generally by using the yield analysis explained above). In addition, the Valuation Team assesses trading activity for similar investments and evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price (“IBP”) in the bid-to-ask price range obtained from the respective originating syndication agent’s trading desk on or near the valuation date. The Valuation Team may take further steps to consider additional information to validate that price in accordance with the Policy.

•

Investments in Funds — For equity investments in other funds, where we cannot effectuate a sale, the Valuation Team generally determines the fair value of our uninvested capital at par value and of our invested capital at the Net Asset Value (“NAV”) provided by the fund. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.

In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments, including but not limited to: the nature and realizable value of the collateral, including external parties’ guaranties; any relevant offers or letters of intent to acquire the portfolio company; and the markets in which the portfolio company operates. If applicable, new and follow-on debt and equity investments made during the current reporting quarter (the three months ended September 30, 2015) are generally valued at our original cost basis.

Fair value measurements of our investments may involve subjective judgments and estimates and, due to the uncertainty inherent in valuing these securities, the Adviser’s determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if the Adviser’s determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

Refer to Note 3—Investments for additional information regarding fair value measurements and our application of ASC 820.

Revenue Recognition Policy

Interest Income Recognition

Interest income, adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon management’s judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid, and, in management’s judgment, are likely to remain current, or due to a restructuring, the interest income is deemed to be collectible. As of September 30, 2015, our loans to Tread Corporation (“Tread”) were on non-accrual status, with an aggregate debt cost basis of $11.1 million, or 2.9% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $3.8 million, or 1.1% of the fair value of all debt investments in our portfolio. As of March 31, 2015, our loans to Tread were on non-accrual status, with an aggregate debt cost basis of $11.7 million, or 3.1% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $1.8 million, or 0.5% of the fair value of all debt investments in our portfolio.

Paid-in-kind (“PIK”) interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income over the life of the obligation. As of September 30, 2015 and March 31, 2015, respectively, we did not have any loans with a PIK interest component. During the three and six months ended September 30, 2015, we did not record PIK income. During the three and six months ended September 30, 2014, we recorded PIK income of $29 and $58, respectively.

Other Income Recognition

We generally record success fees upon receipt of cash. Typically, success fees are contractually due upon a change of control in a portfolio company. During the three and six months ended September 30, 2015, we recorded success fees of $0 and $0.9 million, respectively, which resulted from a prepayment from Drew Foam Company, Inc. (“Drew Foam”) in June 2015. During the three and six months ended September 30, 2014, we recorded $0.5 million of success fees, which resulted from prepayments of $0.2 million from each of Auto Safety House, LLC (“ASH”) and Frontier Packaging, Inc. (“Frontier”) and $0.1 million from Mathey Investments, Inc. (“Mathey”).

We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration. During the three and six months ended September 30, 2015, we recorded dividend income of $1.8 million and $2.2 million, respectively, which resulted from payments we received from Cavert II Holding Corp. (“Cavert”), Drew Foam and Funko, LLC (“Funko”) as well as an additional $0.2 million dividend receivable from Funko. For the three and six months ended September 30, 2014, we recorded $1.4 million of dividend income resulting from payments we received from Mathey.

Both dividend and success fee income are recorded in other income in our accompanying Condensed Consolidated Statements of Operations.

Related Party Fees

We have entered into an investment advisory and management agreement (the “Advisory Agreement”) with the Adviser, which is controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Advisor a loan servicing fee as compensation for its services as servicer under the terms of our Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (our “Credit Facility”).

We have entered into an administration agreement (the “Administration Agreement”) with the Administrator whereby we pay separately for administrative services. These fees are accrued when the services are performed and generally paid one month in arrears. Refer to Note 4—Related Party Transactions for additional information regarding these related party fees and agreements.

Recent Accounting Pronouncements

In August 2015, the FASB issued Accounting Standards Update 2015-15, “Interest – Imputation of Interest (Subtopic 835-30)” (“ASU 2015-15”), which codifies an SEC staff announcement that entities are permitted to defer and present debt issuance costs related to line of credit arrangements as assets. We have assessed the impact of ASU 2015-15 and identified no impact on our financial position, results of operations or cash flows from adopting this standard. ASU 2015-15 was effective immediately.

In May 2015, the FASB issued Accounting Standards Update 2015-07, “Disclosures for Investments in Certain Entities That Calculate Net Asset Value Per Share (or its Equivalent)” (“ASU 2015-07”), which eliminates the requirement to categorize investments in the fair value hierarchy if their fair value is measured at net asset value per share (or its equivalent) using the practical expedient in the FASB’s fair value measurement guidance. We are currently assessing the impact of ASU 2015-07 and do not anticipate a material impact on our financial position, results of operations or cash flows from adopting this standard. ASU 2015-07 is required to be adopted retrospectively and is effective for annual reporting periods beginning after December 15, 2015 and interim periods within those years, with early adoption permitted.

In May 2014, the FASB issued Accounting Standards Update 2014-09, “Revenue from Contracts with Customers” (“ASU 2014-09”), which supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when revenue is recognized over time or at a point in time and will expand disclosures about revenue. We are currently assessing the impact of ASU 2014-09 and anticipate no impact on our financial position, results of operations or cash flows from adopting this standard. In July 2015, the FASB voted to defer the effective date of ASU 2014-09 until January 1, 2018, with early adoption permitted beginning January 1, 2017.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, our investments’ fair value is determined to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition 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. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.

•

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

•

Level 2 — inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, 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 assumptions that market participants would use when pricing the financial instrument and can include the Valuation Team’s assumptions based upon the best available information.

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such 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, inputs, observable inputs (or, components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

As of September 30, 2015 and March 31, 2015, all of our investments were valued using Level 3 inputs. We transfer investments in and out of Level 1, 2 and 3 securities as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the three and six months ended September 30, 2015 and 2014, there were no transfers in or out of Level 1, 2 and 3.

The following table presents our portfolio investments carried at fair value as of September 30, 2015 and March 31, 2015, by caption on our accompanying Condensed Consolidated Statements of Assets and Liabilities and by security type and all valued at Level 3 on the ASC 820 fair value hierarchy:


	Total Recurring Fair Value Measurement Reported in Condensed Consolidated Statements of Assets and Liabilities
	September 30, 2015		March 31, 2015
Non-Control/Non-Affiliate Investments
Secured first lien debt	$	89,694	$	86,586
Secured second lien debt		38,828		26,336
Preferred equity		36,435		40,217
Common equity/equivalents		26,873		21,234

Total Non-Control/Non-Affiliate Investments		191,830		174,373
Affiliate Investments
Secured first lien debt		187,925		176,059
Secured second lien debt		24,118		24,118
Preferred equity		71,997		70,873

Total Affiliate Investments		284,040		271,050
Control Investments
Secured first lien debt		3,319		4,900
Secured second lien debt		11,446		15,520
Preferred equity		—		—
Common equity/equivalents		—		210

Total Control Investments		14,765		20,630

Total Investments at fair value using Level 3 inputs	$	490,635	$	466,053

In accordance with the FASB’s ASU No. 2011-04, “Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (“IFRS”), (“ASU 2011-04”), the following table provides quantitative information about our investments valued using Level 3 fair value measurements as of September 30, 2015 and March 31, 2015. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations for the particular input.

Quantitative Information about Level 3 Fair Value Measurements

Fair Value as
of September 30,
2015

Fair Value as
of March 31,
2015

Valuation
Technique/
Methodology

Unobservable
Input

Range / Weighted
Average as of

September 30, 2015

Range /Weighted
Average as of

March 31, 2015

Secured first lien debt ^(A)

220,383

212,954

TEV

EBITDA multiples

4.5x –8.3x /6.2x

4.2x –18.2x /6.8x

EBITDA

$249 - $55,042/

$5,577

$712 - $5,871 /

$3,185

4,986

—

DCF

Discount Rate

20.0% -20.0% /20.0%

—

55,569

54,591

Yield Analysis

Discount Rate

7.4% - 46.0% / 16.0%

5.0% -13.7% /11.3%

Secured second lien debt^(B)

54,418

56,938

TEV

EBITDA multiples

5.8x – 8.6x / 7.0x

4.8x – 7.0x / 6.2x

EBITDA

$1,882 - $9,631 / $4,482

$1,135 -$5,462 / $3,677

19,974

9,036

Yield Analysis

Discount Rate

19.0% - 32.6% /

25.5%

20.5% - 20.5% /

20.5%

Preferred equity^(C)

108,432

111,090

TEV

EBITDA multiples

4.5x – 8.9x /6.5x

3.6x – 18.2x / 6.6x

EBITDA

$249 - $55,042 / $4,072

$712 - $29,235 / $3,749

Common equity/equivalents

26,873

21,444

TEV

EBITDA multiples

4.5x – 11.2x / 8.7x

3.6x – 18.2x / 9.4x

EBITDA

$791 - $17,545 / $10,687

$712 - $15,240 / $9,149

Total

490,635

466,053

^(A)	September 30, 2015 includes one new proprietary secured first lien debt investment with a fair value of $15.7 million, which was valued at cost. March 31, 2015 includes two new proprietary secured first lien debt investments with a combined fair value of $34.2 million, which were valued at cost.

^(B)	September 30, 2015 includes one new proprietary secured second lien debt investment with a fair value of $13.0 million, which was valued at cost.

^(C)	September 30, 2015 includes one new proprietary preferred equity investment with a fair value of $5.2 million, which was valued at cost. March 31, 2015 includes two new proprietary preferred equity investments with a combined fair value of $8.5 million, which were valued at cost.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in market yields, discounts rates, leverage, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/ (decrease) in market yields, discount rates or leverage or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase in the fair value of certain of our investments.

Changes in Level 3 Fair Value Measurements of Investments

The following tables provide the changes in fair value, broken out by security type, during the three and six months ended September 30, 2015 and 2014 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents		Total
Three months ended September 30, 2015:
Fair value as of June 30, 2015	$	279,027		$	65,067		$	112,745		$	24,404	$	481,243
Total gain (loss):
Net realized (loss) gain^(A)		(2,740	)		—			(1	)		1		(2,740	)
Net unrealized appreciation (depreciation)^(B)		1,943			(3,675	)		(6,135	)		2,468		(5,399	)
Reversal of previously recorded depreciation (appreciation) upon realization^(B)		3,489			—			(1,483	)		—		2,006
New investments, repayments and settlements^(C):
Issuances / originations		17,569			13,000			5,150			—		35,719
Settlements / repayments		(18,350	)		—			—			—		(18,350	)
Sales		—			—			(1,844	)		—		(1,844	)
Transfers		—			—			—			—		—

Fair value as of September 30, 2015	$	280,938		$	74,392		$	108,432		$	26,873	$	490,635


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents			Total
Six months ended September 30, 2015:
Fair value as of March 31, 2015	$	267,545		$	65,974		$	111,090		$	21,444		$	466,053
Total (loss) gain:
Net realized (loss) gain^(A)		(2,740	)		—			(1	)		216			(2,525	)
Net unrealized (depreciation) appreciation^(B)		5,775			(3,782	)		(9,723	)		5,638			(2,092	)
Reversal of previously recorded depreciation (appreciation) upon realization^(B)		3,489			—			(1,483	)		(110	)		1,896
New investments, repayments and settlements^(C):
Issuances / originations		29,652			13,000			10,393			—			53,045
Settlements / repayments		(22,783	)		(800	)		—			—			(23,583	)
Sales		—			—			(1,844	)		(315	)		(2,159	)
Transfers		—			—			—			—			—

Fair value as of September 30, 2015	$	280,938		$	74,392		$	108,432		$	26,873		$	490,635


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents			Total
Three months ended September 30, 2014:
Fair value as of June 30, 2014	$	182,161		$	65,820		$	60,934		$	12,917		$	321,832
Total gain (loss):
Net realized loss^(A)		—			—			(12	)		—			(12	)
Net unrealized depreciation^(B)		(1,547	)		(452	)		(4,207	)		4,711			(1,495	)
Reversal of previously recorded appreciation upon realization^(B)		—			—			—			—			—
New investments, repayments and settlements^(C):
Issuances / originations		17,432			1,500			6,472			1,902			27,306
Settlements / repayments		(742	)		—			—			—			(742	)
Sales		—			—			12			—			12
Transfers		—			—			—			—			—

Fair value as of September 30, 2014	$	197,304		$	66,868		$	63,199		$	19,530		$	346,901


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents			Total
Six months ended September 30, 2014:
Fair value as of March 31, 2014	$	174,382		$	66,315		$	62,901		$	10,795		$	314,393
Total gain (loss):
Net realized loss^(A)		—			—			(12	)		—			(12	)
Net unrealized appreciation (depreciation)^(B)		4,693			(1,197	)		(6,365	)		6,834			3,965
Reversal of previously recorded appreciation upon realization^(B)		—			—			—			—			—
New investments, repayments and settlements^(C):
Issuances / originations		18,971			1,750			6,723			1,901			29,345
Settlements / repayments		(742	)		—			(60	)		—			(802	)
Sales		—			—			12			—			12
Transfers		—			—			—			—			—

Fair value as of September 30, 2014	$	197,304		$	66,868		$	63,199		$	19,530		$	346,901

^(A)

Included in net realized gain (loss) on investments on our accompanying Condensed Consolidated Statements of Operations for the respective periods ended September 30, 2015 and 2014.

^(B)

Included in net unrealized appreciation (depreciation) of investments on our accompanying Condensed Consolidated Statements of Operations for the periods ended September 30, 2015 and 2014.

^(C)

Includes increases in the cost basis of investments resulting from new portfolio investments, the amortization of discounts, PIK and other non-cash disbursements to portfolio companies, as well as decreases in the cost basis of investments resulting from principal repayments or sales, the amortization of premiums and acquisition costs, and other cost-basis adjustments.

Investment Activity

During the six months ended September 30, 2015, the following significant transactions occurred:

•

In May 2015, we invested $16.3 million in Brunswick Bowling Products, Inc. (“Brunswick”) through a combination of secured first lien debt and equity. Brunswick, headquartered in Muskegon, Michigan, is a leader in the recreation industry and provides industry expertise, products, installation and maintenance for the development and renovation of new and existing centers as well as mixed-use facilities across the entertainment industry.

•

In June 2015, we sold our investment in Roanoke Industries Corp. (“Roanoke”). As a result of the sale, we received net cash proceeds of $0.3 million, resulting in a net realized gain of $0.2 million. In addition, we received full repayment of our debt investment of $1.7 million.

•

In July 2015, we invested $20.9 million in GI Plastek, Inc. (“GI Plastek”) through a combination of secured first lien debt and equity. GI Plastek, headquartered in Wolfeboro, New Hampshire, is a value-added provider of advanced manufacturing solutions for various non-automotive end markets.

•

In August 2015, NDLI, Inc. (“NDLI”) was acquired by Diligent Delivery Systems (“Diligent”). As part of this acquisition, we restructured our investment in NDLI, which resulted in the termination of our debt investments in NDLI. We received cash proceeds of $1.9 million and a $13.0 million secured second lien debt investment in Diligent, which resulted in a net realized loss of $2.7 million. Diligent, headquartered in Houston, Texas, has provided professional delivery services since 1994.

•

In September 2015, we sold our investment in Cavert. As a result of the sale, we received cash proceeds of $3.4 million, resulting in dividend income of $1.5 million and repayment of our equity investment at its cost basis of $1.8 million.

Investment Concentrations

As of September 30, 2015, our investment portfolio consisted of investments in 35 portfolio companies located in 18 states across 17 different industries with an aggregate fair value of $490.6 million, of which our investments in SOG Specialty Knives & Tools, LLC (“SOG”), Acme Cryogenics, Inc. (“Acme”), Cambridge Sound Management, Inc. (“Cambridge”), Counsel Press Inc. (“Counsel Press”), and Funko, our five largest portfolio investments at fair value, collectively comprised $143.9 million, or 29.4%, of our total investment portfolio at fair value. The following table summarizes our investments by security type as of September 30, 2015 and March 31, 2015:


	September 30, 2015								March 31, 2015
	Cost				Fair Value				Cost				Fair Value
Secured first lien debt	$	302,577	57.1	%	$	280,938	57.3	%	$	298,448	59.1	%	$	267,545	57.4	%
Secured second lien debt		84,197	15.9			74,392	15.1			71,998	14.2			65,974	14.2

Total debt		386,774	73.0			355,330	72.4			370,446	73.3			333,519	71.6
Preferred equity		136,311	25.7			108,432	22.1			127,762	25.3			111,090	23.8
Common equity/equivalents		6,950	1.3			26,873	5.5			7,050	1.4			21,444	4.6

Total equity/equivalents		143,261	27.0			135,305	27.6			134,812	26.7			132,534	28.4

Total Investments	$	530,035	100.0	%	$	490,635	100.0	%	$	505,258	100.0	%	$	466,053	100.0	%

Investments at fair value consisted of the following industry classifications as of September 30, 2015 and March 31, 2015:


	September 30, 2015					March 31, 2015
	Fair Value		Percentage of Total Investments			Fair Value		Percentage of Total Investments
Home and Office Furnishings, House wares, and Durable Consumer Products	$	84,138		17.2	%	$	70,533		15.1	%
Chemicals, Plastics, and Rubber		77,442		15.8			49,312		10.6
Diversified/Conglomerate Manufacturing		63,299		12.9			62,996		13.5
Leisure, Amusement, Motion Pictures, Entertainment		44,936		9.2			44,931		9.6
Machinery (Non-agriculture, Non-construction, Non-electronic)		28,327		5.8			30,397		6.5
Diversified/Conglomerate Service		27,707		5.6			31,995		6.9
Personal and Non-Durable Consumer Products (Manufacturing Only)		26,814		5.5			25,008		5.4
Farming and Agriculture		21,432		4.4			22,438		4.8
Containers, Packaging, and Glass		21,123		4.3			19,447		4.2
Automobile		20,220		4.1			24,530		5.3
Aerospace and Defense		14,765		3.0			18,770		4.0
Telecommunications		14,000		2.8			19,241		4.1
Beverage, Food and Tobacco		13,305		2.7			12,982		2.8
Cargo Transport		13,000		2.6			13,972		3.0
Textiles and Leather		11,341		2.3			10,750		2.3
Other < 2.0%		8,786		1.8			8,751		1.9

Total Investments	$	490,635		100.0	%	$	466,053		100.0	%

Investments at fair value were included in the following geographic regions of the U.S. as of September 30, 2015 and March 31, 2015:


	September 30, 2015					March 31, 2015
	Fair Value		Percentage of Total Investments			Fair Value		Percentage of Total Investments
Northeast	$	161,342		32.9	%	$	133,814		28.7	%
West		158,054		32.2			161,444		34.6
South		121,206		24.7			133,703		28.7
Midwest		50,033		10.2			37,092		8.0

Total Investments	$	490,635		100.0	%	$	466,053		100.0	%

The geographic region indicates the location of the headquarters for our portfolio companies. A portfolio company may have additional business locations in other geographic regions.

Investment Principal Repayments

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of September 30, 2015:


		Amount
For the remaining six months ending March 31:	2016	$	9,302
For the fiscal year ending March 31:	2017		49,406
	2018		83,707
	2019		81,681
	2020		113,753
	Thereafter		48,925

	Total contractual repayments	$	386,774
	Investments in equity securities		143,261

	Total cost basis of investments held at September 30, 2015:	$	530,035

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies. Such receivables, net of any allowance for uncollectible receivables, are included in other assets on our accompanying Condensed Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon management’s judgment,

that the portfolio company is unable to pay its obligations. We charge the accounts receivable to the established allowance when collection efforts have been exhausted and the receivables are deemed uncollectible. As of both September 30, 2015 and March 31, 2015, we had gross receivables from portfolio companies of $1.5 million. The allowance for uncollectible receivables was $0.5 million and $0.3 million as of September 30, 2015 and March 31, 2015, respectively.

NOTE 4. RELATED PARTY TRANSACTIONS

Transactions with our Adviser

We pay the Adviser certain fees as compensation for its services, such fees consisting of a base management fee and an incentive fee, as provided for in the Advisory Agreement, and of a loan servicing fee, for the Advisor’s role as servicer pursuant to our Credit Facility, each as described below. On July 14, 2015, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party, approved the annual renewal of the Advisory Agreement through August 31, 2016.

The following table summarizes the base management fees, loan servicing fees, incentive fees, and associated voluntary, non-contractual and irrevocable credits reflected in our accompanying Condensed Consolidated Statements of Operations:


	Three Months Ended September 30,						Six Months Ended September 30,
	2015			2014			2015			2014
Average total assets subject to base management fee^(A)	$	502,000		$	348,800		$	496,300		$	341,000
Multiplied by prorated annual base management fee of 2.0%		0.5	%		0.5	%		1.0	%		1.0	%

Base management fee^(B)		2,510			1,744			4,963			3,410
Credits to fees from Adviser - other^(B)		(861	)		(606	)		(1,706	)		(988	)

Net base management fee	$	1,649		$	1,138		$	3,257		$	2,422

Loan servicing fee^(B)		1,707			1,158			3,266			2,293
Credits to base management fee - loan servicing fee^(B)		(1,707	)		(1,158	)		(3,266	)		(2,293	)

Net loan servicing fee	$	—		$	—		$	—		$	—

Incentive fee^(B)	$	1,505		$	1,051		$	2,796		$	2,266
Credits to fees from Adviser - other^(B)		—			—			—			—

Net incentive fee	$	1,505			1,051			2,796			2,266

^(A)

Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.

^(B)

Reflected as a line item on our accompanying Condensed Consolidated Statement of Operations.

Base Management Fee

The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 2.0%, computed on the basis of the value of our average gross assets at the end of the two most recently completed quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, and adjusted appropriately for any share issuances or repurchases during the period.

Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include, but are not limited to: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser voluntarily, unconditionally, and irrevocably credits 100% of these fees against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, primarily for the valuation of portfolio companies, is retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser.

Loan Servicing Fee

The Adviser also services the loans held by our wholly-owned subsidiary, Business Investment (the borrower under our Credit Facility), in return for which the Adviser receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans pledged under our Credit Facility. Since Business Investment is a consolidated subsidiary of ours, coupled with the fact that the total base management fee paid to the Adviser pursuant to the Advisory Agreement cannot exceed 2.0% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any given calendar year, we treat payment of the loan servicing as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100% voluntarily, unconditionally, and irrevocably credited back to us by the Adviser.

Incentive Fee

The incentive fee payable to the Adviser under our Advisory Agreement consists of two parts: an income-based incentive fee and a capital gains-based incentive fee.

The income-based incentive fee rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets (the “hurdle rate”). The income-based incentive fee with respect to our pre-incentive fee net investment income is payable quarterly to the Adviser and is computed as follows:

•

no incentive fee in any calendar quarter in which our pre-incentive fee net investment income does not exceed the hurdle rate (7.0% annualized);

•

100.0% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds the hurdle rate but is less than 2.1875% of our net assets in any calendar quarter (8.75% annualized); and

•

20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% of our net assets in any calendar quarter (8.75% annualized).

The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), and equals 20.0% of our realized capital gains, less any realized capital losses and unrealized depreciation, calculated as of the end of the preceding calendar year. The capital gains-based incentive fee payable to the Adviser is calculated based on (i) cumulative aggregate realized capital gains since our inception, less (ii) cumulative aggregate realized capital losses since our inception, less (iii) the entire portfolio’s aggregate unrealized capital depreciation, if any, as of the date of the calculation. If this number is positive at the applicable calculation date, then the capital gains-based incentive fee for such year equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. For calculation purposes, cumulative aggregate realized capital gains, if any, equals the sum of the excess between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the deficit between the net sales price of each investment, when sold, and the original cost of such investment since our inception. The entire portfolio’s aggregate unrealized capital depreciation, if any, equals the sum of deficit between the fair value of each investment security as of the applicable calculation date and the original cost of such investment security. We have not incurred capital gains-based incentive fees from inception through September 30, 2015, as cumulative net unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.

Additionally, in accordance with GAAP, a capital gains-based incentive fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains-based incentive fee plus the aggregate cumulative unrealized capital appreciation. If such amount is positive at the end of a reporting period, then GAAP requires us to record a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is negative, then there is no accrual for such year. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that any such unrealized capital appreciation will be realized in the future. There has been no GAAP accrual recorded for a capital gains-based incentive fee since our inception through September 30, 2015.

Administration Agreement

The Administration Agreement provides for payments equal to our allocable portion of the Administrator’s expenses incurred while performing services to us, which are primarily rent and salaries and benefits expenses of the Administrator’s employees, including, but not limited to, our chief financial officer and treasurer, chief valuation officer, chief compliance officer and general counsel and

secretary (who also serves as the Administrator’s president) and their respective staff. Prior to July 1, 2014, our allocable portion of the expenses was generally derived by multiplying that portion of the Administrator’s expenses allocable to all funds managed by the Adviser and serviced by the Administrator by the percentage of our total assets at the beginning of each quarter in comparison to the total assets at the beginning of each quarter of all funds managed by the Adviser and serviced by the Administrator.

Effective July 1, 2014, our allocable portion of the Administrator’s expenses are generally derived by multiplying the Administrator’s total expenses by the approximate percentage of time during the current quarter the Administrator’s employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. These administrative fees are accrued at the end of the quarter when the services are performed and recorded on our accompanying Condensed Consolidated Statements of Operations and generally paid the following quarter. On July 14, 2015, our Board of Directors approved the annual renewal of the Administration Agreement through August 31, 2016.

Related Party Fees Due

Amounts due to related parties on our accompanying Condensed Consolidated Statements of Assets and Liabilities were as follows:


	As of September 30,			As of March 31
	2015			2015
Base management fee due to Adviser	$	(58	)	$	191
Incentive fee due to Adviser		1,505			1,249
Other due to Adviser		467			62

Total fees due to Adviser	$	1,914		$	1,502

Fee due to Administrator	$	270		$	262

Total related party fees due	$	2,184		$	1,764

Net co-investment expense receivable from or payable to Gladstone Capital (for reimbursement purposes) and payables to other affiliates totaled to a receivable of $0.1 million as of September 30, 2015 and a payable of $0.3 million as of March 31, 2015, respectively. These amounts were received or paid in full in the quarter subsequent to being incurred and have been included in other assets and other liabilities, as appropriate, on the accompanying Condensed Consolidated Statements of Assets and Liabilities as of September 30, 2015 and March 31, 2015, respectively.

NOTE 5. BORROWINGS

Revolving Line of Credit

On June 26, 2014, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 1 to the Fifth Amended and Restated Credit Agreement originally entered into on April 30, 2013. If not renewed or extended prior to June 26, 2017 (the “Revolving Period End Date”), all principal and interest will be due and payable on or before June 26, 2019. As of September 30, 2015, we have retained a one-year extension option, to be agreed upon by all parties, which may be exercised on or before June 26, 2016, and upon exercise, the option would extend the revolving period to June 26, 2018 and the maturity date to June 26, 2020. Subject to certain terms and conditions, our Credit Facility can be expanded up to a total facility amount of $250.0 million, through additional commitments of existing or new committed lenders. Advances under our Credit Facility generally bear interest at 30-day London Interbank Offered Rate (“LIBOR”), plus 3.25% per annum, and our Credit Facility includes a fee of 0.50% on undrawn amounts. After the Revolving Period End Date, the interest rate margin increases to 3.75% for the period from June 26, 2017 to June 26, 2018, and further increases to 4.25% through maturity.

The following tables summarize noteworthy information related to our Credit Facility:


	As of September 30,		As of March 31,
	2015		2015
Commitment amount	$	185,000	$	185,000
Borrowings outstanding at cost		103,500		118,800
Availability^(A)		81,500		66,200

For the Three Months Ended
September 30,

For the Six Months Ended
September 30,

2015

2014

2015

2014

Weighted average borrowings outstanding

98,768

64,934

100,943

62,690

Effective interest rate^(B)

4.0

3.9

4.0

4.1

Commitment (unused) fees incurred

107

209

121

^(A)

Availability subject to various constraints imposed under our Credit Facility

^(B)

Excludes the impact of deferred financing fees and includes weighted average unused commitment fees.

Among other things, our Credit Facility includes a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our mandatory redeemable term preferred stock) of $170.0 million plus 50% of all equity and subordinated debt raised minus any equity or subordinated debt redeemed or retired after June 26, 2014, which equates to $224.9 million as of September 30, 2015, (ii) “asset coverage” with respect to “senior securities representing indebtedness” of at least 200%, in accordance with Section 18 of the 1940 Act and (iii) its status as a BDC under the 1940 Act and as a RIC under the Code. As of September 30, 2015, and as defined in the performance guaranty of our Credit Facility, we had a net worth of $390.3 million, an asset coverage of 441.9%, calculated in compliance with the requirements of Section 18 of the 1940 Act, and an active status as a BDC and RIC. Our Credit Facility requires a minimum of 12 obligors in the borrowing base and, as of September 30, 2015, we had 30 obligors in its borrowing base. As of September 30, 2015, we were in compliance with all covenants under our Credit Facility.

Pursuant to the terms of our Credit Facility, in July 2013, we entered into an interest rate cap agreement with KeyBank National Association that effectively limits the interest rate on a portion of our borrowings under our Credit Facility. The agreement, which expires April 2016, provides that the interest rate on $45.0 million of our borrowings is capped at 6.0%, plus 3.25% per annum, when 30-day LIBOR is in excess of 6.0%. We incurred a premium fee of $75 in conjunction with this agreement, which is recorded in other assets on our accompanying Condensed Consolidated Statements of Assets and Liabilities. As of September 30, 2015 and March 31, 2015, the fair value of our interest rate cap agreement was $0.

Secured Borrowing

In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our secured second lien term debt investment in Ginsey Home Solutions, Inc. (“Ginsey”). In May 2014, we amended the agreement with the third-party to include an additional $0.1 million. Accounting Standards Codification Topic 860, “Transfers and Servicing” (“ASC 860”) requires us to treat the participation as a financing-type transaction. Specifically, the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual rate established at origination. Therefore, our accompanying Condensed Consolidated Statements of Assets and Liabilities reflects the entire secured second lien term debt investment in Ginsey and a corresponding $5.1 million secured borrowing liability. The secured borrowing has a stated fixed interest rate of 7.0% and a maturity date of January 3, 2018.

Fair Value

We elected to apply the fair value option of ASC 825, “Financial Instruments,” specifically for our Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of our Credit Facility is determined using a yield analysis which includes a DCF calculation and also takes into account the Valuation Team’s own assumptions, including, but not limited to, the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At each of September 30, 2015 and March 31, 2015, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 3.25% per annum, plus a 0.50% unused fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding increase or decrease, respectively, in the fair value of our Credit Facility. At each of September 30, 2015 and March 31, 2015, our Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in net unrealized depreciation (appreciation) of other on our accompanying Condensed Consolidated Statements of Operations.

The following tables present our Credit Facility carried at fair value as of September 30, 2015 and March 31, 2015, by caption on our accompanying Condensed Consolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and a roll-forward of the changes in fair value during the three and six months ended September 30, 2015 and 2014:


	Level 3 – Borrowings
	Recurring Fair Value Measurement Reported in *Condensed Consolidated* *Statements of Assets and Liabilities* Using Significant Unobservable Inputs (Level 3)
	September 30, 2015		March 31, 2015
Credit Facility	$	103,500	$	118,800


Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3) Reported in *Consolidated Statements* *of Assets and Liabilities*
	Credit Facility
Three months ended September 30, 2015:
Fair value at June 30, 2015	$	89,750
Borrowings		27,000
Repayments		(13,250	)

Fair value at September 30, 2015	$	103,500


Six months ended September 30, 2015:
Fair value at March 31, 2015	$	118,800
Borrowings		65,500
Repayments		(80,800	)

Fair value at September 30, 2015	$	103,500


Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3) Reported in *Consolidated Statements* *of Assets and Liabilities*
	Credit Facility
Three months ended September 30, 2014:
Fair value at June 30, 2014	$	62,950
Borrowings		30,500
Repayments		(5,700	)

Fair value at September 30, 2014	$	87,750


Six months ended September 30, 2014:
Fair value at March 31, 2014	$	61,701
Borrowings		36,800
Repayments		(10,300	)
Net unrealized depreciation^(A)		(451	)

Fair value at September 30, 2014	$	87,750

^(A)	Included in net unrealized depreciation of other on our accompanying Condensed Consolidated Statement of Operations for the periods ended September 30, 2014.

The fair value of the collateral under our Credit Facility was $470.6 million and $435.9 million as of September 30, 2015 and March 31, 2015, respectively.

NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK

In May, 2015, we completed a public offering of 1,610,000 shares of 6.50% Series C Cumulative Term Preferred Stock (our “Series C Term Preferred Stock” or “Series C”) at a public offering price of $25.00 per share. Gross proceeds totaled $40.3 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were $38.6 million. We incurred $1.6 million in total offering costs related this offering, which have been recorded as deferred financing costs on our accompanying Condensed Consolidated Statements of Assets and Liabilities and are being amortized over the period ending May 31, 2022, the mandatory redemption date.

The shares of Series C Term Preferred Stock are traded under the ticker symbol GAINN on the NASDAQ Global Select Market (“NASDAQ”). Our Series C Term Preferred Stock is not convertible into our common stock or any other security. Our Series C Term Preferred Stock provides for a fixed dividend equal to 6.50% per year, payable monthly. We are required to redeem all shares of our outstanding Series C Term Preferred Stock on May 31, 2022, for cash at a redemption price equal to $25.00 per share, plus an amount equal to accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. In addition, two other potential mandatory redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of our outstanding Series C Term Preferred Stock, and (2) if we fail to maintain an asset coverage ratio of at least 200%, we are required to redeem a portion of our outstanding Series C Term Preferred Stock or otherwise cure the ratio redemption trigger. We may also voluntarily redeem all or a portion of our Series C Term Preferred Stock at our sole option at the redemption price in order to have an asset coverage ratio of up to and including 215.0% and at any time on or after May 31, 2018. The asset coverage on our senior securities that are stock (our Series A, B, and C Term Preferred Stock) as of September 30, 2015 was 214.3%, calculated pursuant to Section 18(h) of the 1940 Act. The asset coverage on our senior securities that are stock as of October 13, 2015, when our Board of Directors declared a distribution on our common stock and mandatorily redeemable preferred stock dividends, was 213.1%, in compliance with requirements under Section 18 of the 1940 Act.

The following tables summarize our 7.125% Series A Cumulative Term Preferred Stock (our “Series A Term Preferred Stock” or “Series A”), 6.75% Series B Cumulative Term Preferred Stock (our “Series B Term Preferred Stock” or “Series B”), and Series C Term Preferred Stock outstanding as of September 30, 2015 and March 31, 2015:

As of September 30, 2015:

Class of

Term

Preferred

Stock

Ticker
Symbol

Date
Issued

Redemption
Date

Interest
Rate

Shares
Outstanding

Liquidation
Preference
per Share

Total
Liquidation
Preference

Series A

GAINP

March 6,
2012

February 28,
2017

7.125%

1,600,000

25.00

40,000

Series B

GAINO

November
13, 2014

December 31,
2021

6.750%

1,656,000

25.00

41,400

Series C

GAINN

May 12,

2015

May 31,

2022

6.500%

1,610,000

25.00

40,250

Total as of September 30, 2015

4,866,000

25.00

121,650

As of March 31, 2015:

Class of

Term

Preferred

Stock

Ticker
Symbol

Date
Issued

Redemption
Date

Interest
Rate

Shares
Outstanding

Liquidation
Preference
per Share

Total
Liquidation
Preference

Series A

GAINP

March 6,
2012

February 28,
2017

7.125%

1,600,000

25.00

40,000

Series B

GAINO

November
13, 2014

December 31,
2021

6.750%

1,656,000

25.00

41,400

Total as of March 31, 2015

3,256,000

25.00

81,400

The following tables summarize dividends declared by our Board of Directors and paid by us on each of our series of cumulative preferred stock during the six months ended September 30, 2015 and 2014:

For the Six Months Ended September 30, 2015:


Declaration Date	Record Date	Payment Date	Dividend per Series A Term Preferred Share		Dividend per Series B Term Preferred Share		Dividend per Series C Term Preferred Share
April 14, 2015	April 24, 2015	May 5, 2015	$	0.1484375	$	0.140625	$	—
April 14, 2015	May 19, 2015	May 29, 2015		0.1484375		0.140625		—
April 14, 2015	June 19, 2015	June 30, 2015		0.1484375		0.140625		—
May 14, 2015^(A)	June 19, 2015	June 30, 2015		—		—		0.221181
July 14, 2015	July 24, 2015	August 4, 2015		0.1484375		0.140625		0.1354170
July 14, 2015	August 20, 2015	August 31, 2015		0.1484375		0.140625		0.1354170
July 14, 2015	September 21, 2015	September 30, 2015		0.1484375		0.140625		0.1354170

Total			$	0.8906250	$	0.843750	$	0.6274320

^(A)	Represents a combined dividend for a prorated month of May 2015, based upon the issuance date of our Series C Term Preferred Stock, combined with a full month of June 2015.

For the Six months Ended September 30, 2014:


Declaration Date	Record Date	Payment Date	Dividend per Series A Term Preferred Share
April 8, 2014	April 21, 2014	April 30, 2014	$	0.1484375
April 8, 2014	May 20, 2014	May 30, 2014		0.1484375
April 8, 2014	June 19, 2014	June 30, 2014		0.1484375
July 15, 2014	July 25, 2014	August 5, 2014		0.1484375
July 15, 2014	August 20, 2014	August 29, 2014		0.1484375
July 15, 2014	September 19, 2014	September 30, 2014		0.1484375

Total			$	0.8906250

The tax character of dividends paid by us to preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and profits.

In accordance with ASC 480, “Distinguishing Liabilities from Equity,” mandatorily redeemable financial instruments should be classified as liabilities in the balance sheet and we have recorded our mandatorily redeemable preferred stock at cost as of September 30, 2015 and March 31, 2015. The related dividend payments to preferred stockholders are treated as dividend expense on our accompanying Condensed Consolidated Statements of Operations at the ex-dividend date.

The following table summarizes the fair value of each of our series of cumulative preferred stock, each of which we consider to be a Level 1 liability within the fair value hierarchy, based on the last reported closing sale price as of September 30, 2015 and March 31, 2015:


	Level 1 – Borrowings
	Recurring Fair Value Measurement Reported in *Condensed Consolidated* *Statements of Assets and Liabilities*
	September 30, 2015		March 31, 2015
Series A Term Preferred Stock	$	40,560	$	41,472
Series B Term Preferred Stock		41,864		42,228
Series C Term Preferred Stock		40,089		—

Total	$	122,513	$	83,700

NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS

Registration Statement

On June 16, 2015, we filed a registration statement on Form N-2 (File No. 333-204996) with the SEC and subsequently filed a Pre-Effective Amendment No. 1 to the registration statement on July 28, 2015, which the SEC declared effective on July 29, 2015. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common or preferred stock, including through concurrent, separate offerings of such securities. We currently have the ability to issue up to $300.0 million in securities under the registration statement. No securities have been issued to date under the registration statement.

Common Equity Offering

On March 13, 2015, we completed a public offering of 3.3 million shares of our common stock at a public offering price of $7.40 per share, which was below our then current NAV per share. Gross proceeds totaled $24.4 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were approximately $23.0 million, which was used to repay borrowings under our Credit Facility. In April 2015, the underwriters exercised their option to purchase an additional 495,000 shares at the public offering price of $7.40 per share to cover over-allotments, which resulted in gross proceeds of $3.7 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, of approximately $3.4 million.

NOTE 8. NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER WEIGHTED AVERAGE COMMON SHARE

The following table sets forth the computation of basic and diluted net (decrease) increase in net assets resulting from operations per weighted average common share for the three and six months ended September 30, 2015 and 2014:


	Three Months Ended September 30,					Six Months Ended September 30,
	2015			2014		2015		2014
Numerator: net (decrease) increase in net assets resulting from operations	$	(110	)	$	2,697	$	8,449	$	13,467
Denominator: basic and diluted weighted average common shares		30,270,958			26,475,958		30,265,548		26,475,958

Basic and diluted net (decrease) increase in net assets resulting from operations per weighted average common share	$	—		$	0.10	$	0.28	$	0.51

NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS

To qualify to be taxed as a RIC, we are required to distribute to our common stockholders 90% of our investment company taxable income. The amount to be paid out as distributions to our common stockholders is determined by our Board of Directors quarterly and is based on management’s estimate of the investment company taxable income. Based on that estimate, our Board of Directors declares three monthly distributions to common stockholders each quarter.

The federal income tax characteristics of all distributions (including preferred stock dividends) will be reported to stockholders on the Internal Revenue Service Form 1099 at the end of each calendar year. For calendar years ended December 31, 2014 and 2013, 100% of our common distributions during these periods were deemed to be paid from ordinary income for 1099 stockholder reporting purposes.

We paid the following monthly distributions to our common stockholders for the six months ended September 30, 2015 and 2014:


Fiscal Year	Declaration Date	Record Date	Payment Date	Distribution per Common Share
2016	April 14, 2015	April 24, 2015	May 5, 2015	$0.0625
	April 14, 2015	May 19, 2015	May 29, 2015	0.0625
	April 14, 2015	June 19, 2015	June 30, 2015	0.0625
	July 14, 2015	July 24, 2015	August 4, 2015	0.0625
	July 14, 2015	August 20, 2015	August 31, 2015	0.0625
	July 14, 2015	September 21, 2015	September 30, 2015	0.0625

		Six months ended September 30, 2015:		$0.3750


Fiscal Year	Declaration Date	Record Date	Payment Date	Distribution per Common Share
2015	April 8, 2014	April 21, 2014	April 30, 2014	$0.06
	April 8, 2014	May 20, 2014	May 30, 2014	0.06
	April 8, 2014	June 19, 2014	June 30, 2014	0.06
	July 15, 2014	July 25, 2014	August 5, 2014	0.06
	July 15, 2014	August 20, 2014	August 29, 2014	0.06
	July 15, 2014	September 19, 2014	September 30, 2014	0.06

		Six months ended September 30, 2014:		$0.36

Aggregate distributions to common stockholders declared quarterly and paid for the six months ended September 30, 2015 and 2014 were approximately $11.4 million and $9.5 million, respectively, and were declared based on estimates of net investment income for the respective fiscal years. We determine the tax characterization of our distributions to common stockholders as of the end of our fiscal year based upon our taxable income for the full year and distributions paid during the full year. Therefore, a determination of tax attributes made on a quarterly basis may not be representative of the actual tax attributes of distributions for a full year. If we determined the tax attributes of our distributions as of September 30, 2015, 100% would be from ordinary income and 0% would be a return of capital. For the six months ended September 30, 2015, we recorded a $0.4 million adjustment for estimated book-tax differences which decreased Capital in excess of par value and increased Net investment income in excess of distributions. For the fiscal year ended March 31, 2015, taxable income available for common distributions exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $4.0 million of the first common distributions paid in fiscal year 2016, as having been paid in the prior year.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to certain legal proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our financial condition, results of operation or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of September 30, 2015, we have not established reserves for such loss contingencies.

Escrow Holdbacks

From time to time, we will enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in restricted cash and cash equivalents on our accompanying Condensed Consolidated Statements of Assets and Liabilities. We establish

a contingent liability against the escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not be ultimately received at the end of the escrow period. The aggregate contingent liability recorded against the escrow amounts was $0 as of both September 30, 2015 and March 31, 2015.

Financial Commitments and Obligations

We have lines of credit and other uncalled capital commitments to certain of our portfolio companies that have not been fully drawn. Since these lines of credit and other uncalled capital commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and other uncalled capital commitment amounts do not necessarily represent future cash requirements. In February 2015, we executed a capital call commitment with Tread and its senior credit facility lender, which expires in February 2018. Under the terms of the agreement, we may be required to fund additional capital up to $10.0 million in Tread, with such commitment limited at all times to the actual amount outstanding under Tread’s senior credit facility. The actual amount outstanding under Tread’s senior credit facility as of September 30, 2015 and March 31, 2015 was $4.6 million and $4.4 million, respectively. We estimate the fair value of the combined unused line of credit and other uncalled capital commitments as of September 30, 2015 and March 31, 2015 to be immaterial.

In addition to the lines of credit and other uncalled capital commitments to our portfolio companies, we have also extended certain guaranties on behalf of some our portfolio companies. During the three and six months ended September 30, 2015, we have not been required to make any payments on any of the guaranties, and we consider the credit risks to be remote and the fair value of the guaranties as of September 30, 2015 and March 31, 2015 to be immaterial.

As of September 30, 2015, the following guaranties were outstanding:

•

In February 2010, we executed a guarantee of a wholesale financing facility agreement (the “Floor Plan Facility”) between Agricredit Acceptance, LLC (“Agricredit”) and Country Club Enterprises, LLC (“CCE”). The Floor Plan Facility provides CCE with financing of up to $2.0 million to bridge the time and cash flow gap between the order and delivery of golf carts to customers. The guarantee was renewed in February of each subsequent year through February 2015 and expires in February 2016, unless it is renewed again by us, CCE and Agricredit.

•

In April 2010, we executed a guarantee of vendor recourse for up to $0.5 million in individual customer transactions (the “Recourse Facility”) between Wells Fargo Financial Leasing, Inc. and CCE. The Recourse Facility provides CCE with the ability to provide vendor recourse up to a limit of $0.5 million on transactions with long-time customers who lack the financial history to qualify for third-party financing. The terms to maturity of these individual transactions range from October 2015 to October 2016.

The following table summarizes the dollar balance of unused line of credit and other uncalled capital commitments and guaranties as of September 30 and March 31, 2015, which are not reflected as liabilities in the accompanying Condensed Consolidated Statements of Assets and Liabilities:


	September 30, 2015		March 31, 2015
Unused line of credit and other uncalled capital commitments	$	9,629	$	10,031
Guarantees		2,459		2,593

Total	$	12,088	$	12,624

NOTE 11. FINANCIAL HIGHLIGHTS


	Three Months Ended September 30,						Six Months Ended September 30,
	2015			2014			2015			2014
Per Common Share Data:
Net asset value at beginning of period^(A)	$	9.24		$	8.57		$	9.18		$	8.34
Income from investment operations^(B)
Net investment income		0.20			0.16			0.37			0.34

Realized loss on sale of investments and other		(0.09	)		—			(0.08	)		—
Net unrealized (depreciation) appreciation of investments and other		(0.11	)		(0.06	)		—			0.17

Total from investment operations		—			0.10			0.29			0.51
Effect of equity capital activity^(B)

Cash distributions to common stockholders^(C)		(0.19	)		(0.18	)		(0.38	)		(0.36	)
Shelf registration offering costs		—			—			(0.01	)		—
Net dilutive effect of equity offering^(D)		—			—			(0.03	)		—

Total from equity capital activity		(0.19	)		(0.18	)		(0.42	)		(0.36	)

Net asset value at end of period^(A)	$	9.05		$	8.49		$	9.05		$	8.49

Per common share market value at beginning of period	$	7.95		$	7.40		$	7.40			8.27
Per common share market value at end of period		7.04			7.11			7.04			7.11
Total return^(E)		(9.20	)%		(1.55	)%		(0.06	)%		(9.82	)%
Common stock outstanding at end of period^(A)		30,270,958			26,475,958			30,270,958			26,475,958

Statement of Assets and Liabilities Data:
Net assets at end of period	$	273,968		$	224,773		$	273,968		$	224,773
Average net assets^(F)		277,021			227,307			277,884			225,013

Senior Securities Data:
Total borrowings, at cost	$	108,596		$	92,846		$	108,596		$	92,846
Mandatorily redeemable preferred stock		121,650			40,000			121,650			40,000

Ratios/Supplemental Data:

Ratio of expenses to average net assets - annualized^(G)		14.85	%		11.67	%		14.56	%		11.67	%
Ratio of net expenses to average net assets - annualized^(H)(I)		11.14			8.56			10.98			8.75
Ratio of net investment income to average net assets - annualized^(J)		8.70			7.40			8.05			8.06

^(A)	Based on actual common shares outstanding at the end of the corresponding period.

^(B)	Based on weighted average per basic common share data.

^(C)	Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP. For the three and six months ended September 30, 2015 and 2014, distributions were deemed to be made from net investment income.

^(D)	During the six months ended September 30, 2015, the dilution is the result of issuing common shares at a price below then current NAV.

^(E)

Total return equals the change in the market value of our common stock from the beginning of the period, taking into account dividends reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common stockholders, please refer to Note 9—Distributions to Common Stockholders.

^(F)	Calculated using the average balance of net assets at the end of each month of the reporting period.

^(G)	Ratio of expenses to average net assets is computed using expenses before any credits from the Adviser.

^(H)	Ratio of net expenses to average net assets is computed using total expenses, net of credits to the base management fee for the loan servicing fee and other credits from the Adviser

^(I)

Had we not received any voluntary, unconditional, and irrevocable credits of fees due to the Adviser, the ratio of expenses to average net assets would have been 14.84% and 11.67% for the three months ended September 30, 2015 and 2014, and 14.56% and 11.67% for the six months ended September 30, 2015 and 2014, respectively.

^(J)

Had we not received any voluntary, unconditional, and irrevocable credits of fees due to the Adviser, the ratio of net investment income to average net assets would have been 4.99% and 1.07% for the three months ended September 30, 2015 and 2014, and 4.47% and 2.57% for the six months ended September 30, 2015 and 2014, respectively.

NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES

In accordance with the SEC’s Regulation S-X and GAAP, we are not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which we have a controlling interest. We have one unconsolidated subsidiary, Galaxy Tool Holdings, Inc. (“Galaxy”), which met at least one of the significance conditions under Rule 1-02(w) of the SEC’s Regulation S-X as of September 30, 2015 and 2014 and for the six months ended September 30, 2015 and 2014. Accordingly, summarized, comparative financial information, is presented below for our significant unconsolidated subsidiary, Galaxy, which is a designer and manufacturer of precision tools for the business jet industry and of injection and blow molds for the plastics industry.


	For the Six Months Ended September 30,
Income Statement	2015			2014
Net sales	$	13,080		$	12,182
Gross profit		20			1,135
Net loss		(2,980	)		(1,765	)

NOTE 13. SUBSEQUENT EVENTS

The Company’s management has evaluated subsequent events through the date of issuance of the condensed consolidated financial statements included herein. There have been no subsequent events that occurred during such period that would require disclosure in this Form 10-Q or would be required to be recognized in the condensed consolidated financial statements as of and for the three and six months ended September 30, 2015, except as disclosed below:

Distributions

In October 2015, our Board of Directors declared the following monthly distributions to common stockholders and dividends to holders of our Series A, B and C Term Preferred Stock:


Record Date	Payment Date	Distribution per Common Share		Dividend per Series A Term Preferred Share		Dividend per Series B Term Preferred Share		Dividend per Series C Term Preferred Share
October 26, 2015	November 4, 2015	$	0.0625	$	0.1484375	$	0.140625	$	0.135417
November 17, 2015	November 30, 2015		0.0625		0.1484375		0.140625		0.135417
December 18, 2015	December 31, 2015		0.0625		0.1484375		0.140625		0.135417

	Total for the Quarter:	$	0.1875	$	0.4453125	$	0.421875	$	0.406250

ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All statements contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “project,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our 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. Such factors include, but are not limited to: (1) the recurrence of adverse events in the economy and the capital markets; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or David Dullum; 4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates, regulation or the general economy; (7) the degree and nature of our competition; (8) our ability to maintain our qualification as a regulated investment company and as a business development company; and (9) those factors described in Item 1A. “Risk Factors” herein and the “Risk Factors” section of our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, filed with the Securities and Exchange Commission (“SEC”) on May 20, 2015. We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including subsequent annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

In this Quarterly Report on Form 10-Q, the “Company,” “we,” “us,” and “our” refer to Gladstone Investment Corporation and its wholly-owned subsidiaries unless the context otherwise indicates. Dollar amounts are in thousands unless otherwise indicated.

The following analysis of our financial condition and results of operations should be read in conjunction with our accompanying Condensed Consolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year ended March 31, 2015, filed with the SEC on May 20, 2015. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future periods.

OVERVIEW

General

We were incorporated under the General Corporation Law of the State of Delaware on February 18, 2005. On June 22, 2005, we completed our initial public offering and commenced operations. We operate as an externally managed, closed-end, non-diversified management investment company and have elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). For federal income tax purposes, we have elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). In order to continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements.

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States (“U.S.”). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities, generally in combination with the aforementioned debt securities, of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains.

To achieve our objectives, our investment strategy is to invest in several categories of debt and equity securities, with each investment generally ranging from $5 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We seek to avoid investments in high-risk, early stage enterprises. We expect that our investment portfolio over time will consist of approximately 75.0% in debt securities and 25.0% in equity securities, at cost. As of September 30, 2015, our investment allocation was 73.0% in debt securities and 27.0% in equity securities, at cost.

We focus on investing in small and medium-sized private U.S. businesses that meet certain criteria, including, but not limited to, the following: the sustainability of the business’ free cash flow and its ability to grow it over time, the adequacy of the portfolio company’s assets for loan collateral, experienced management teams with a significant ownership interest in the portfolio company, reasonable capitalization of the portfolio company, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples, and the potential to realize appreciation and gain liquidity in our equity position, if any. We anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the portfolio company, a public offering of the portfolio company’s stock or by exercising our right to require the portfolio company to repurchase our warrants, though there can be no assurance that we will always have these rights. We generally invest in portfolio companies that need funds for growth capital or to finance acquisitions or recapitalize or refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises.

We invest by ourselves or jointly with other funds or management of the portfolio company, depending on the opportunity. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

In July 2012, the Securities and Exchange Commission (“SEC”) granted us an exemptive order that expanded our ability to co-invest with certain of our affiliates under certain circumstances and any future business development company or closed-end management investment company that is advised (or sub-advised if it controls the fund) by our external investment adviser, or any combination of the foregoing, subject to the conditions in the SEC’s order. We believe this ability to co-invest will continue to enhance our ability to further our investment objectives and strategies.

We are externally managed by our investment advisor, Gladstone Management Corporation (the “Adviser”), an SEC registered investment adviser and an affiliate of ours, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). The Adviser manages our investment activities. We have also entered into an administration agreement (the “Administration Agreement”) with Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, whereby we pay separately for administrative services.

Our shares of common stock, 7.125% Series A Cumulative Term Preferred Stock (“Series A Term Preferred Stock”), 6.75% Series B Cumulative Term Preferred Stock (“Series B Term Preferred Stock”) and 6.50% Series C Cumulative Term Preferred Stock (“Series C Term Preferred Stock”) are traded on the NASDAQ Global Select Market (“NASDAQ”) under the trading symbols “GAIN,” “GAINP,” “GAINO,” and “GAINN,” respectively.

Business

Portfolio Activity

While conditions remain challenging, we are seeing many new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and sponsor-led buyouts of small and medium-sized companies in the U.S. During the three months ended September 30, 2015, we invested $20.9 million in one new deal, exited one existing deal with a fair value of $3.3 million as of June 30, 2015, and obtained a $13.0 million investment in one additional company as part of a restructuring, resulting in a net increase of one portfolio company, which was 35 at September 30, 2015, and a net increase quarter over quarter of 2.0% in our portfolio at fair value. These new investments, along with our capital raising efforts discussed below, have allowed us to invest $470.4 million in 28 new debt and equity deals since October 2010. For the three months ended September 30, 2015, our new investments consisted of approximately 46.5% secured first lien loans, 38.3% secured second lien loans and 15.2% equity investments, based on the originating principal balances.

Generally, the majority of the debt securities in our portfolio have a success fee component, which enhances the yield on our debt investments. Unlike paid-in-kind (“PIK”) income, we generally do not recognize success fees as income until they are received in cash. Due to their contingent nature, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of such collections. As a result, as of September 30, 2015, we had unrecognized success fees of $29.6 million, or $0.98 per common share. Consistent with accounting principles generally accepted in the U.S. (“GAAP”), we generally have not recognized our success fee receivable and related income in our accompanying Condensed Consolidated Financial Statements.

The improved investing environment following the recent recession has presented us with an opportunity to realize gains and other income from six management-supported buyout liquidity events since June 2010, and in the aggregate, the six liquidity events have generated $51.9 million in net realized gains and $14.6 million in other income, for a total increase to our net assets of $66.5 million. We believe each of these transactions was an equity-oriented investment success and exemplifies our investment strategy of striving to achieve returns through current income on the debt portion of our investments and capital gains from the equity portion. With the six liquidity events that resulted in net realized gains since June 2010, we have nearly overcome our cumulative realized losses since inception that were primarily incurred during the recession and in connection with the sale of performing loans at a realized loss to pay off a former lender. These successful exits, in part, enabled us to increase the monthly distribution by 56.3% since March 2011, and allowed us to declare and pay a $0.03 per common share one-time special distribution in fiscal year 2012, a $0.05 per common share one-time special distribution in November 2013, and a $0.05 per common share one-time special distribution in December 2014.

Capital Raising Efforts

Despite the challenges that have existed in the economy for the past several years, we have been able to meet our capital needs through extensions of and increases to our revolving line of credit (the “Credit Facility”) and by accessing the capital markets in the form of public offerings of common and preferred stock. We have successfully extended our Credit Facility’s revolving period multiple times, most recently to June 2017, and increased the commitment from $60.0 million to $185.0 million (with a total commitment of $250.0 million through additional commitments of new or existing lenders). Additionally, we issued approximately 1.7 million shares of our Series B Term Preferred Stock for gross proceeds of $41.4 million in November 2014, approximately 3.8 million shares of common stock for gross proceeds of $28.1 million in March 2015, inclusive of the April 2015 overallotment, and approximately 1.6 million shares of our Series C Term Preferred Stock for gross proceeds of approximately $40.3 million in May 2015. Refer to “Liquidity and Capital Resources — Equity — Common Stock” and “Liquidity and Capital Resources — Equity — Term Preferred Stock” for further discussion of our common stock and mandatorily redeemable preferred stock and “Liquidity and Capital Resources — Revolving Credit Facility” for further discussion of our Credit Facility.

Although we were able to access the capital markets during 2014 and 2015, we believe market conditions continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of additional equity. On October 27, 2015, the closing market price of our common stock was $7.49 per share, which represented a 17.2% discount to our net asset value (“NAV”) of $9.05 per share as of September 30, 2015. When our common stock trades below NAV, our ability to issue additional equity is constrained by provisions of the 1940 Act, which generally prohibit the issuance and sale of our common stock at an issuance price below the then current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering.

At our 2015 Annual Meeting of Stockholders held on August 6, 2015, our stockholders approved a proposal authorizing us to issue and sell shares of our common stock at a price below our then current NAV per share, subject to certain limitations, including that the number of shares issued and sold pursuant to such authority does not exceed 25.0% of our then outstanding common stock immediately prior to each such sale, provided that our board of directors (our “Board of Directors”) makes certain determinations prior to any such sale. This August 2015 stockholder authorization is in effect for one year from the date of stockholder approval. We sought and obtained stockholder approval concerning a similar proposal at the Annual Meeting of Stockholders held in August 2014, and with our Board of Directors’ subsequent approval, we issued shares of our common stock in March and April 2015 at a price per share below the then current NAV per share. We also sought and obtained stockholder approval concerning a similar proposal at the Annual Meeting of Stockholders held in August 2012, and with our Board of Directors’ subsequent approval, we issued shares of our common stock in October and November 2012 at a price per share below the then current NAV per share. The resulting proceeds, in part, have allowed us to grow the portfolio by making new investments, generate additional income through these new investments, provide us additional equity capital to help ensure continued compliance with regulatory tests and increase our debt capital while still complying with our applicable debt-to-equity ratios. Refer to “Liquidity and Capital Resources — Equity — Common Stock” for further discussion of our common stock.

Regulatory Compliance

Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have an asset coverage ratio (as defined in Section 18(h) of the 1940 Act), of at least 200.0% on our senior securities representing indebtedness. Furthermore, to issue additional senior securities that are stock (such as our series of term preferred stock) Section 18 of the 1940 Act requires that we must have an asset coverage ratio of at least 200% on our senior securities that are stock

Investment Highlights

During the six months ended September 30, 2015, we disbursed $37.2 million in new debt and equity investments, obtained a $13.0 million new debt investment as part of a restructuring, and extended $2.9 million of investments to existing portfolio companies through revolver draws or additions to equity. From our initial public offering in June 2005 through September 30, 2015, we have made 244 investments in 116 companies for a total of approximately $1.2 billion, before giving effect to principal repayments and divestitures.

Investment Activity

During the six months ended September 30, 2015, the following significant transactions occurred:

•

In May 2015, we invested $16.3 million in Brunswick Bowling Products, Inc., (“Brunswick”) through a combination of secured first lien debt and equity. Brunswick, headquartered in Muskegon, Michigan, is a leader in the recreation industry and provides industry expertise, products, installation and maintenance for the development and renovation of new and existing centers as well as mixed-use facilities across the entertainment industry.

•

In September 2015, we sold our investment in Cavert II Holding Corp. (“Cavert”). As a result of the sale, we received cash proceeds of $3.4 million, resulting in dividend income of $1.5 million and repayment of our equity investment at its cost basis of $1.8 million.

Recent Developments

Registration Statement

On June 16, 2015, we filed a registration statement on Form N-2 with the SEC and subsequently filed a Pre-Effective Amendment No. 1 to the registration statement on July 28, 2015, which the SEC declared effective on July 29, 2015. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common or preferred stock, including through concurrent, separate offerings of such securities. Currently, we have not issued any securities pursuant to the registration statement and are able to issue up to $300.0 million in securities under the registration statement.

Term Preferred Stock Offerings

In May 2015, we completed a public offering of 1,610,000 shares of our Series C Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $40.3 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were approximately $38.6 million. Refer to “Liquidity and Capital Resources — Equity — Term Preferred Stock” for further discussion of our recently issued mandatorily redeemable preferred stock.

Common Stock Offering

In March 2015, we completed a public offering of 3.3 million shares of our common stock. Gross proceeds totaled $24.4 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were approximately $23.0 million. In April 2015, the underwriters fully exercised their overallotment option to purchase 495,000 additional shares of our common stock, resulting in net proceeds, after deducting underwriting discounts and offering costs borne by us, of approximately $3.4 million.

Executive Officers

On July 14, 2015, our Board of Directors appointed Julia Ryan, formerly the Company’s chief accounting officer, as the Company’s chief financial officer and treasurer. Ms. Ryan replaced Melissa Morrison, Gladstone Capital Corporation’s chief financial officer and treasurer, who had also been acting as chief financial officer and treasurer of the Company since January 13, 2015.

On October 13, 2015, our Board of Directors announced that Ms. Ryan had taken a temporary family medical leave of absence and that Ms. Morrison will serve as the Company’s acting principal financial officer during Ms. Ryan’s temporary family medical leave of absence. Ms. Ryan will return to her position as chief financial officer and treasurer of the Company in December 2015.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended September 30, 2015, to the Three Months Ended September 30, 2014


	For the Three Months Ended September 30,
	2015			2014			$ Change			% Change
INVESTMENT INCOME
Interest income	$	11,945		$	8,570		$	3,375			39.4	%
Other income		1,795			501			1,294			258.3

Total investment income		13,740			9,071			4,669			51.5

EXPENSES
Base management fee		2,510			1,744			766			43.9
Loan servicing fee		1,707			1,158			549			47.4
Incentive fee		1,505			1,051			454			43.2
Administration fee		270			209			61			29.2
Interest and dividend expense		3,146			1,432			1,714			119.7
Amortization of deferred financing costs		483			282			201			71.3
Other		664			755			(91	)		(12.1	)

Expenses before credits from Adviser		10,285			6,631			3,654			55.1
Credits to fees from Adviser		(2,568	)		(1,764	)		(804	)		45.6

Total expenses, net of credits to fees		7,717			4,867			2,851			58.6

NET INVESTMENT INCOME		6,023			4,204			1,819			43.3

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized loss on investments		(2,740	)		(12	)		(2,728	)		NM
Net unrealized depreciation of investments		(3,393	)		(1,495	)		(1,898	)		127.0

Net realized and unrealized loss		(6,133	)		(1,507	)		(4,626	)		307.6

NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	(110	)	$	2,697		$	(2,807	)		(104.1	)%

BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.20		$	0.16		$	0.04			25.0	%

Net increase in net assets resulting from operations	$	—		$	0.10		$	(0.10	)		(100.0	)%

NM = Not Meaningful

Investment Income

Total investment income increased by 51.5% for the three months ended September 30, 2015, as compared to the prior year period. This increase was due to an increase in both interest income and other income, which largely resulted from an increase in the size of our portfolio during the three months ended September 30, 2015.

Interest income from our investments in debt securities increased 39.4% for the three months ended September 30, 2015, as compared to the prior year period. The level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period, multiplied by the weighted average yield. The weighted average principal balance of our interest-bearing investment portfolio during the three months ended September 30, 2015, was approximately $375.9 million, compared to approximately $270.9 million for the prior year period. This increase was primarily due to approximately $107.4 million in new debt investments originated after September 30, 2014, including Old World Christmas, Inc. (“Old World”), B+T Group Acquisition, Inc. (“B+T”), Logo Sportswear, Inc. (“Logo”), Counsel Press, Inc. (“Counsel Press”), Brunswick, GI Plastek, and Diligent.

At September 30, 2015 and 2014, our loans to one portfolio company, Tread Corporation (“Tread”), were on non-accrual status, with an aggregate debt cost basis of $11.7 million and $12.0 million, respectively. The weighted average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as other income, was 12.7% and 12.6% for the three months ended September 30, 2015 and 2014, respectively. The weighted average yield varies from period to period, based on the current stated interest rate on interest-bearing investments.

Other income for the three months ended September 30, 2015 increased by 258.3% from the prior year period. During the three months ended September 30, 2015, other income consisted of $1.6 million of dividend income resulting from payments from Cavert and Funko, LLC (“Funko”) and a $0.2 million dividend receivable from Funko. For the three months ended September 30, 2014, other income consisted of $0.5 million of success fees received from Auto Safety House LLC (“ASH”), Frontier Packaging, Inc. (“Frontier”), and Mathey Investments, Inc. (“Mathey”).

The following table lists the investment income for our five largest portfolio company investments based on fair value during the respective periods:


	As of September 30, 2015					Three months ended September 30, 2015
Portfolio Company	Fair Value		% of Portfolio			Investment Income		% of Total Investment Income
SOG Specialty Knives & Tools, LLC	$	31,855		6.5	%	$	670		4.9	%
Acme Cryogenics, Inc.		29,331		6.0			426		3.1
Cambridge Sound Management, Inc.		28,218		5.8			498		3.6
Counsel Press, Inc.		27,707		5.6			803		5.8
Funko, LLC		26,814		5.5			481		3.5

Subtotal—five largest investments		143,925		29.4			2,878		20.9
Other portfolio companies		346,710		70.6			10,862		79.1

Total investment portfolio	$	490,635		100.0	%	$	13,740		100.0	%


	As of September 30, 2014					Three months ended September 30, 2014
Portfolio Company	Fair Value		% of Portfolio			Investment Income		% of Total Investment Income
Acme Cryogenics, Inc.	$	27,139		7.8	%	$	426		4.7	%
SOG Specialty Knives & Tools, LLC		23,989		6.9			670		7.4
Cambridge Sound Management, LLC^(A)		20,175		5.8			6		0.1
Jackrabbit, Inc.		19,327		5.6			380		4.2
Edge Adhesives Holdings, Inc.		18,074		5.2			440		4.9

Subtotal—five largest investments		108,704		31.3			1,922		21.3
Other portfolio companies		238,197		68.7			7,149		78.7

Total investment portfolio	$	346,901		100.0	%	$	9,071		100.0	%

^(A)

New investment during the applicable period.

Expenses

Total expenses, net of any voluntary, unconditional, and irrevocable credits from the Adviser, increased 58.6% for the three months ended September 30, 2015, as compared to the prior year period, primarily due to an increase in interest and dividend expense, the net base management fee, and amortization of deferred financing costs as compared to the prior year period.

The net base management fee increased for the three months ended September 30, 2015, as compared to the prior year period, as a result of the increased size of our portfolio over the respective periods.

The base management fee, loan servicing fee, incentive fee, and their related voluntary, unconditional, and irrevocable credits are computed quarterly, as described under “Transactions with our Adviser” in Note 4 –Related Party Transactions of the notes to our accompanying Condensed Consolidated Financial Statements and are summarized in the following table:


	Three Months Ended September 30,
	2015			2014
Average total assets subject to base management fee^(A)	$	502,000		$	348,800
Multiplied by prorated annual base management fee of 2.0%		0.5	%		0.5	%

Base management fee^(B)		2,510			1,744
Credits to fees from Adviser - other^(B)(C)		(861	)		(606	)

Net base management fee	$	1,649		$	1,138

Loan servicing fee^(B)	$	1,707		$	1,158
Credits to base management fee - loan servicing fee^(B)		(1,707	)		(1,158	)

Net loan servicing fee	$	—		$	—

Incentive fee^(B)	$	1,505		$	1,051
Credits to fees from Adviser - other^(B)		—			—

Net incentive fee	$	1,505		$	1,051

^(A)

^(B)

Reflected as a line item on our accompanying Condensed Consolidated Statement of Operations.

^(C)

Pursuant to the requirements of the 1940 Act, we make available significant managerial assistance to our portfolio companies through the personnel of the Adviser. The Adviser may also provide other services to our portfolio companies under other agreements and may receive fees for services other than managerial assistance. At the end of each quarter, the Advisor credits 100.0% of these fees against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, primarily for valuation of portfolio companies, is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser.

Interest and dividend expense increased 119.7% for the three months ended September 30, 2015, as compared to the prior year period, primarily due to increased average borrowings under our Credit Facility and newly issued Series B Term Preferred Stock and Series C Term Preferred Stock. The weighted average balance outstanding on our Credit Facility during the three months ended September 30, 2015, was $98.7 million, as compared to $64.9 million in the prior year period. Dividend expense increased due to the offering of our Series B Term Preferred Stock in November 2014 and our Series C Term Preferred Stock in May 2015. We paid dividends on both the Series B Term Preferred Stock and the Series C Term Preferred Stock for July, August and September 2015, which dividends represented a $1.4 million increase from the prior year period, when the Series B Term Preferred Stock and Series C Term Preferred Stock were not yet outstanding.

Amortization of deferred financing costs increased 71.3% for the three months ended September 30, 2015, as compared to the prior year period, due to the addition of new lenders to our Credit Facility through joinder agreements in September 2014 and the issuance of our Series B Term Preferred Stock and C Term Preferred Stock in November 2014 and May 2015, respectively.

Realized and Unrealized Loss

Realized Loss on Investments

During the three months ended September 30, 2015, we recorded realized losses of $2.7 million, primarily related to the restructuring of NDLI, compared to realized losses of $12 during the prior year period related to post-closing adjustments on previous exits.

Unrealized Depreciation of Investments

During the three months ended September 30, 2015, we recorded net unrealized depreciation of investments in the aggregate amount of approximately $3.4 million. The realized gain (loss) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2015, were as follows:


	Three Months Ended September 30, 2015
Portfolio Company	Realized (Loss) Gain			Unrealized Appreciation (Depreciation)			Reversal of Unrealized Depreciation (Appreciation)			Net (Loss) Gain
Acme Cryogenics, Inc.	$	—		$	3,762		$	—		$	3,762
D.P.M.S., Inc.		—			3,571			—			3,571
Drew Foam Company, Inc.		—			2,829			—			2,829
SOG Specialty Knives & Tools, LLC		—			2,089			—			2,089
Cambridge Sound Management, Inc.		—			2,038			—			2,038
Frontier Packaging, Inc.		—			1,957			—			1,957
Jackrabbit, Inc.		—			1,845			—			1,845
Behrens Manufacturing, LLC		—			1,173			—			1,173
Tread Corporation		—			1,038			—			1,038
NDLI, Inc.		(2,740	)		—			3,480			740
Head Country, Inc.		—			478			—			478
Country Club Enterprises, LLC		—			444			—			444
Mitchell Rubber Products, Inc.		—			400			—			400
Precision Southeast, Inc.		—			352			—			352
Ginsey Home Solutions, Inc.		—			306			—			306
B-Dry LLC		—			(259	)		—			(259	)
Channel Technologies Group, LLC		—			(305	)		—			(305	)
Logo Sportswear, Inc.		—			(613	)		—			(613	)
Brunswick Bowling Products, Inc.		—			(1,074	)		—			(1,074	)
Cavert II Holdings Corp.		(1	)		—			(1,483	)		(1,484	)
Edge Adhesives Holdings, Inc.		—			(1,538	)		9			(1,529	)
Counsel Press, Inc.		—			(1,906	)		—			(1,906	)
Meridian Rack & Pinion, Inc.		—			(2,072	)		—			(2,072	)
SBS Industries, LLC		—			(2,119	)		—			(2,119	)
Old World Christmas, Inc.		—			(2,452	)		—			(2,452	)
Mathey Investments, Inc.		—			(2,483	)		—			(2,483	)
Alloy Die Casting Co.		—			(3,017	)		—			(3,017	)