Form 10-Q

Large accelerated filer

Accelerated filer

Non-accelerated filer

Smaller reporting company

Emerging growth company

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2019

☐	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 offices)		(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)

Securities registered pursuant to Section 12(b) of the Act:


Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, $0.001 par value per share	GAIN	The Nasdaq Stock Market LLC
6.250% Series D Cumulative Term Preferred Stock, $0.001 par value per share	GAINM	The Nasdaq Stock Market LLC
6.375% Series E Cumulative Term Preferred Stock, $0.001 par value per share	GAINL	The Nasdaq Stock Market LLC

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 ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ☐ No ☐

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

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

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

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of November 1, 2019 was 32,822,459.

GLADSTONE INVESTMENT CORPORATION

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Assets and Liabilities as of September 30, 2019 and March 31, 2019	2
	Consolidated Statements of Operations for the three and six months ended September 30, 2019 and 2018	3
	Consolidated Statements of Changes in Net Assets for the three and six months ended September 30, 2019 and 2018	5
	Consolidated Statements of Cash Flows for the six months ended September 30, 2019 and 2018	6
	Consolidated Schedules of Investments as of September 30, 2019 and March 31, 2019	7
	Notes to Consolidated Financial Statements	19

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

	Overview	43
	Results of Operations	48
	Liquidity and Capital Resources	56

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	62

Item 4.	Controls and Procedures	62

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	63

Item 1A.	Risk Factors	63

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	63

Item 3.	Defaults Upon Senior Securities	63

Item 4.	Mine Safety Disclosures	63

Item 5.	Other Information	63

Item 6.	Exhibits	64

SIGNATURES		65

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	September 30,			March 31,
	2019			2019
ASSETS
Investments at fair value
Non-Control/Non-Affiliate investments (Cost of $279,232 and $254,002, respectively)	$	346,445		$	313,750
Affiliate investments (Cost of $293,010 and $314,175, respectively)		249,830			297,113
Control investments (Cost of $21,512 and $21,512 respectively)		12,061			13,309
Cash and cash equivalents		2,169			1,702
Restricted cash and cash equivalents		1,770			1,903
Interest receivable		2,729			2,808
Due from administrative agent		1,820			1,285
Deferred financing costs, net		1,398			1,730
Other assets, net		1,541			1,500

TOTAL ASSETS	$	619,763		$	635,100

LIABILITIES
Borrowings:
Line of credit at fair value (Cost of $46,800 and $53,000, respectively)	$	46,964		$	53,000
Secured borrowing		5,096			5,096

Total borrowings		52,060			58,096
Mandatorily redeemable preferred stock, $0.001 par value per share, $25.00 liquidation preference per share; 6,500,000 shares authorized; 5,290,000 shares issued and outstanding, net		128,821			128,482
Accounts payable and accrued expenses		1,753			892
Fees due to Adviser^(A)		24,740			24,724
Fee due to Administrator^(A)		423			344
Other liabilities		5,136			15,452

TOTAL LIABILITIES	$	212,933		$	227,990

Commitments and contingencies^(B)
NET ASSETS	$	406,830		$	407,110

ANALYSIS OF NET ASSETS
Common stock, $0.001 par value per share, 100,000,000 shares authorized, 32,822,459 shares issued and outstanding	$	33		$	33
Capital in excess of par value		365,148			366,422
Cumulative net unrealized appreciation of investments		14,582			34,483
Cumulative net unrealized appreciation of other		(164	)		—
Underdistributed (Overdistributed) net investment income		651			(7,343	)
Accumulated net realized gain in excess of distributions		26,580			13,515

Total distributable earnings		41,649			40,655

TOTAL NET ASSETS	$	406,830		$	407,110

NET ASSET VALUE PER SHARE AT END OF PERIOD	$	12.39		$	12.40

^(A)

Refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

^(B)

Refer to Note 10 — Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information.

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	6,636		$	5,622		$	12,476		$	11,888
Affiliate investments		7,274			6,051			13,083			12,880
Control investments		214			212			428			421
Cash and cash equivalents		19			10			31			20

Total interest income		14,143			11,895			26,018			25,209
Dividend income
Non-Control/Non-Affiliate investments		612			1,196			2,727			1,262
Affiliate investments		—			—			3,080			—

Total dividend income		612			1,196			5,807			1,262
Success fee income
Non-Control/Non-Affiliate investments		—			—			—			124
Affiliate investments		1,881			—			2,121			—
Control investments		—			—			—			2,000

Total success fee income		1,881			—			2,121			2,124

Total investment income		16,636			13,091			33,946			28,595

EXPENSES
Base management fee^(A)		3,144			3,275			6,315			6,386
Loan servicing fee^(A)		1,593			1,674			3,345			3,414
Incentive fee^(A)		1,600			7,125			3,169			14,711
Administration fee^(A)		423			344			737			629
Interest expense on borrowings		1,207			1,526			2,266			3,268
Dividends on mandatorily redeemable preferred stock		2,090			2,317			4,180			4,568
Amortization of deferred financing costs and discounts		373			497			746			864
Professional fees		467			247			971			658
Other general and administrative expenses		1,357			2,319			1,954			2,972

Expenses before credits from Adviser		12,254			19,324			23,683			37,470

Credits to base management fee – loan servicing fee^(A)		(1,593	)		(1,674	)		(3,345	)		(3,414	)
Credits to fees from Adviser—other^(A)		(608	)		(565	)		(1,830	)		(1,525	)

Total expenses, net of credits to fees		10,053			17,085			18,508			32,531

NET INVESTMENT INCOME (LOSS)		6,583			(3,994	)		15,438			(3,936	)

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss):
Non-Control/Non-Affiliate investments		791			745			1,321			14,531
Affiliate investments		20,353			(3,601	)		20,356			(3,279	)
Other		—			(1,687	)		—			(1,687	)

Total net realized gain (loss)		21,144			(4,543	)		21,677			9,565
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate investments		8,231			19,805			7,465			16,064
Affiliate investments		(26,617	)		17,650			(26,118	)		36,221
Control investments		1,532			1,039			(1,248	)		4,277
Other		131			407			(164	)		500

Total net unrealized (depreciation) appreciation		(16,723	)		38,901			(20,065	)		57,062

Net realized and unrealized gain		4,421			34,358			1,612			66,627

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	11,004		$	30,364		$	17,050		$	62,691

^(A)

Refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS (Continued)

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended September 30,					Six Months Ended September 30,
	2019		2018			2019		2018
BASIC AND DILUTED PER COMMON SHARE:
Net investment income (loss)	$	0.20	$	(0.12	)	$	0.47	$	(0.12	)

Net increase in net assets resulting from operations	$	0.34	$	0.93		$	0.52	$	1.91

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted		32,822,459		32,822,459			32,822,459		32,792,816

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)


	2019			2018
NET ASSETS, MARCH 31	$	407,110		$	354,200
OPERATIONS
Net investment income		8,855			58
Net realized gain on investments		533			14,108
Net realized loss on other		—			—
Net unrealized (depreciation) appreciation of investments		(3,047	)		18,068
Net unrealized (appreciation) depreciation of other		(295	)		93

Net increase in net assets from operations		6,046			32,327

DISTRIBUTIONS^(A)
Distributions to common stockholders from net investment income ($0.20 and $0.21 per share, respectively)		(6,523	)		(6,914	)
Distributions to common stockholders from realized gains ($0.09 and $0.05 per share, respectively)		(3,127	)		(1,641	)

Net decrease in net assets from distributions		(9,650	)		(8,555	)

CAPITAL ACTIVITY
Issuance of common stock		—			1,873
Discounts, commissions, and offering costs for issuance of common stock		—			(37	)

Net increase in net assets from capital activity		—			1,836

NET (DECREASE) INCREASE IN NET ASSETS		(3,604	)		25,608

NET ASSETS, JUNE 30	$	403,506		$	379,808

OPERATIONS
Net investment income (loss)	$	6,583		$	(3,994	)
Net realized gain (loss) on investments		21,144			(2,856	)
Net realized loss on other		—			(1,687	)
Net unrealized (depreciation) appreciation of investments		(16,854	)		38,494
Net unrealized depreciation of other		131			407

Net increase in net assets from operations		11,004			30,364

DISTRIBUTIONS^(A)
Distributions to common stockholders from net investment income ($0.16 and $0.20 per share)		(5,236	)		(6,598	)
Distributions to common stockholders from realized gains ($0.07 and $0.00 per share, respectively)		(2,444	)		—

Net decrease in net assets from distributions		(7,680	)		(6,598	)

NET INCREASE IN NET ASSETS		3,324			23,766

NET ASSETS, SEPTEMBER 30	$	406,830		$	403,574

^(A)	Refer to Note 9 — Distributions to Common Stockholders in the accompanying Notes to Consolidated Financial Statements for additional information.

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Six Months Ended September 30,
	2019			2018
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	17,050		$	62,691
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Purchase of investments		(71,380	)		(30,952	)
Principal repayments of investments		53,926			14,514
Net proceeds from the sale of investments		34,539			18,291
Net realized (gain) loss on investments		(21,677	)		(11,252	)
Net unrealized depreciation (appreciation) of investments		19,901			(56,562	)
Net realized loss on other		—			1,670
Net unrealized appreciation (depreciation) of other		164			(500	)
Amortization of premiums, discounts, and acquisition costs, net		(9	)		(9	)
Amortization of deferred financing costs and discounts		746			864
Bad debt expense, net of recoveries		148			1,374
Changes in assets and liabilities:
Decrease in interest receivable		79			434
(Increase) decrease in due from administrative agent		(534	)		409
Increase in other assets, net		(33	)		(142	)
Increase in accounts payable and accrued expenses		861			602
Increase in fees due to Adviser^(A)		16			12,846
Increase in fee due to Administrator^(A)		79			20
(Decrease) increase in other liabilities		(9,879	)		827

Net cash provided by operating activities		23,997			15,125

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock		—			1,873
Discounts, commissions, and offering costs for issuance of common stock		—			(28	)
Proceeds from line of credit		100,000			129,200
Repayments on line of credit		(106,200	)		(120,500	)
Proceeds from issuance of mandatorily redeemable preferred stock		—			74,750
Redemption of mandatorily redeemable preferred stock		—			(81,650	)
Deferred financing and offering costs		(133	)		(4,283	)
Distributions paid to common stockholders		(17,330	)		(15,153	)

Net cash used in financing activities		(23,663	)		(15,791	)

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS		334			(666	)

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT BEGINNING OF PERIOD		3,605			3,967

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF PERIOD	$	3,939		$	3,301

CASH PAID FOR INTEREST	$	1,536		$	3,114

^(A)

Refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N) – 85.0%
Secured First Lien Debt – 43.8%
Containers, Packaging, and Glass – 2.3%
Frontier Packaging, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 3/2021)^(L)	$	9,500	$	9,500	$	9,500
Diversified/Conglomerate Manufacturing – 0.8%
Phoenix Door Systems, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 9/2024)^(L)		3,200		3,200		3,200
Diversified/Conglomerate Services – 25.2%
Bassett Creek Restoration, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 4/2023)^(L)		37,500		37,500		37,500
Counsel Press, Inc. – Term Debt (L+11.8%, 13.8% Cash, Due 3/2020)^(L)		18,000		18,000		18,000
Counsel Press, Inc. – Term Debt (L+13.0%, 15.0% Cash, Due 3/2020)^(L)		5,500		5,500		5,500
Horizon Facilities Services, Inc. – Line of Credit, $2,500 available (L+7.0%, 10.0% Cash, Due 6/2020)^(L)		500		500		500
Horizon Facilities Services, Inc. – Term Debt (L+9.5%, 12.0% Cash, Due 6/2024)^(L)		27,700		27,700		27,700
Nth Degree, Inc. – Term Debt (L+11.5%, 13.5% Cash, Due 3/2023)^(L)		13,290		13,290		13,290

				102,490		102,490
Healthcare, Education, and Childcare – 4.9%
Educators Resource, Inc. – Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)^(L)		20,000		20,000		20,000
Leisure, Amusement, Motion Pictures, and Entertainment – 5.7%
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)^(L)		13,081		13,081		13,081
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)^(L)		8,500		8,500		8,500
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)^(L)		1,500		1,500		1,500

				23,081		23,081
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 4.9%
SBS Industries, LLC – Term Debt (L+12.0%, 14.0% Cash, Due 6/2020)^(L)		19,957		19,957		19,957

Total Secured First Lien Debt			$	178,228	$	178,228

Secured Second Lien Debt – 7.5%
Automobile – 0.9%
Country Club Enterprises, LLC – Term Debt (L+8.0%, 10.0% Cash, Due 2/2022)^(K)	$	4,000	$	4,000	$	3,860
Country Club Enterprises, LLC – Guaranty ($1,000)^(T)		—		—		—

				4,000		3,860

Cargo Transport – 3.3%
Diligent Delivery Systems – Term Debt (L+9.0%, 11.0% Cash, Due 11/2022)^(K)		13,000		12,942		13,276
Home and Office Furnishings, Housewares, and Durable Consumer Products – 3.3%
Ginsey Home Solutions, Inc. – Term Debt (L+10.0%, 13.5% Cash, Due 1/2021)^(H)(L)		13,300		13,300		13,300

Total Secured Second Lien Debt			$	30,242	$	30,436

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

Company and Investment^(A)(B)(D)(E)

Principal/Shares/
Units^(F)(J)

Cost

Fair Value

Preferred Equity – 29.5%

Containers, Packaging, and Glass – 0.3%

Frontier Packaging, Inc. – Preferred Stock^(C)(L)

1,373

1,373

Diversified/Conglomerate Services – 22.2%

Bassett Creek Restoration, Inc. – Preferred Stock^(C)(L)

4,900

—

Counsel Press, Inc. – Preferred Stock^(C)(L)

6,995

21,889

Horizon Facilities Services, Inc. – Preferred Stock^(C)(L)

10,080

10,703

Nth Degree, Inc. – Preferred Stock^(C)(L)

5,660

57,722

27,635

90,314

Healthcare, Education, and Childcare – 1.9%

Educators Resource, Inc. – Preferred Stock^(C)(L)

8,560

8,560

7,907

Home and Office Furnishings, Housewares, and Durable Consumer Products – 3.0%

Ginsey Home Solutions, Inc. – Preferred Stock^(C)(L)

19,280

9,583

12,290

Leisure, Amusement, Motion Pictures, and Entertainment – 1.0%

Schylling, Inc. – Preferred Stock^(C)(L)

4,000

4,000

4,066

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 1.1%

SBS Industries, LLC – Preferred Stock^(C)(L)

27,705

2,771

4,634

Personal, Food, and Miscellaneous Services – 0.0%

B-Dry, LLC – Preferred Stock^(C)(L)(Q)

2,500

14,399

—

Total Preferred Equity

68,321

120,584

Common Equity/Equivalents – 4.2%

Cargo Transport – 0.6%

Diligent Delivery Systems – Common Stock Warrants^(C)(L)

500

2,564

Containers, Packaging, and Glass – 2.7%

Frontier Packaging, Inc. – Common Stock^(C)(L)

153

153

10,979

Diversified/Conglomerate Manufacturing – 0.3%

Phoenix Door Systems, Inc. – Common Stock^(C)(L)

2,515

1,200

Home and Office Furnishings, Housewares, and Durable Consumer Products – 0.0%

Ginsey Home Solutions, Inc. – Common Stock^(C)(L)

63,747

—

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 0.6%

SBS Industries, LLC – Common Stock^(C)(L)

221,500

222

2,284

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%

Funko Acquisition Holdings, LLC^(M) – Common Units^(C)(S)

12,180

170

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
Personal, Food, and Miscellaneous Services – 0.0%
B-Dry, LLC – Common Stock^(C)(L)(Q)		2,500	$	300	$	—

Total Common Equity/Equivalents			$	2,441	$	17,197

Total Non-Control/Non-Affiliate Investments			$	279,232	$	346,445

AFFILIATE INVESTMENTS^(O) – 61.3%
Secured First Lien Debt – 30.1%
Automobile – 0.1%
Meridian Rack & Pinion, Inc.^(M) – Term Debt (L+11.5%, 13.5% Cash, Due 12/2019)^(G)(L)	$	9,660	$	9,660	$	260
Beverage, Food, and Tobacco – 2.2%
Head Country, Inc. – Term Debt (L+10.5%, 12.5% Cash, Due 2/2021)^(L)		9,050		9,050		9,050
Diversified/Conglomerate Manufacturing – 5.7%
D.P.M.S., Inc. – Line of Credit, $500 available (L+6.5%, 9.0% Cash, (0.5% Unused Fee), Due 10/2021)^(L)		500		500		500
D.P.M.S., Inc. – Term Debt (10.0% Cash, Due 10/2021)^(I)(L)		10,796		10,796		10,796
Edge Adhesives Holdings, Inc.^(M) – Term Debt (L+10.5%, 12.5% Cash, Due 2/2022)^(K)		9,300		9,300		9,068
Edge Adhesives Holdings, Inc.^(M) – Term Debt (L+11.8%, 13.8% Cash, Due 2/2022)^(K)		3,000		3,000		2,940

				23,596		23,304
Diversified/Conglomerate Services – 5.4%
ImageWorks Display and Marketing Group, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 11/2022)^(L)		22,000		22,000		22,000
Home and Office Furnishings, Housewares, and Durable Consumer Products – 4.4%
Brunswick Bowling Products, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)^(L)		17,700		17,700		17,700
Leisure, Amusement, Motion Pictures, and Entertainment – 2.2%
SOG Specialty Knives & Tools, LLC – Term Debt (Due 8/2020)^(L)(R)		538		538		538
SOG Specialty Knives & Tools, LLC – Term Debt (L+4.0%, 6.0% Cash, Due 8/2022)^(G)(L)		8,399		8,399		8,399

				8,937		8,937
Personal and Non-Durable Consumer Products (Manufacturing Only) – 6.3%
The Mountain Corporation – Line of Credit, $400 available (L+5.0%, 9.0% Cash, Due 4/2020)^(L)		2,500		2,500		2,500
Pioneer Square Brands, Inc. – Term Debt (L+12.0%, 14.0% Cash, Due 8/2022)^(L)		23,100		23,100		23,100

				25,600		25,600
Telecommunications – 3.8%
B+T Group Acquisition, Inc.^(M) – Line of Credit, $1,015 available (L+11.0%, 13.0% Cash, Due 12/2021)^(L)		1,785		1,785		1,785
B+T Group Acquisition, Inc.^(M) – Term Debt (L+11.0%, 13.0% Cash, Due 12/2021)^(L)		14,000		14,000		14,000

				15,785		15,785

Total Secured First Lien Debt			$	132,328	$	122,636

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
Secured Second Lien Debt – 16.3%
Chemicals, Plastics, and Rubber – 3.8%
PSI Molded Plastics, Inc. – Term Debt (L+12.0%, 14.0% Cash, Due 1/2024)^(G)(L)	$	26,618	$	26,618	$	15,505
Diversified/Conglomerate Services – 11.3%
J.R. Hobbs Co. – Atlanta, LLC – Line of Credit, $0 available (L+6.0%, 8.0% Cash, Due 10/2024)^(L)		10,000		10,000		10,000
J.R. Hobbs Co. – Atlanta, LLC – Term Debt (L+10.3%, 12.3% Cash, Due 10/2024)^(L)		36,000		36,000		36,000

				46,000		46,000
Personal and Non-Durable Consumer Products (Manufacturing Only) – 1.2%
The Mountain Corporation – Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)^(G)(L)		11,700		11,700		4,803

Total Secured Second Lien Debt			$	84,318	$	66,308

Preferred Equity – 14.9%
Automobile – 0.0%
Meridian Rack & Pinion, Inc.^(M) – Preferred Stock^(C)(L)		3,381	$	3,381	$	—
Beverage, Food, and Tobacco – 1.1%
Head Country, Inc. – Preferred Stock^(C)(L)		4,000		4,000		4,595
Chemicals, Plastics, and Rubber – 0.0%
PSI Molded Plastics, Inc. – Preferred Stock^(C)(L)		58,598		9,730		—
Diversified/Conglomerate Manufacturing – 0.0%
Channel Technologies Group, LLC – Preferred Stock^(C)(L)		2,279		1,841		—
Edge Adhesives Holdings, Inc.^(M) – Preferred Stock^(C)(L)		3,774		3,774		—

				5,615		—
Diversified/Conglomerate Services – 2.6%
ImageWorks Display and Marketing Group, Inc. – Preferred Stock^(C)(L)		67,490		6,749		10,386
J.R. Hobbs Co. – Atlanta, LLC – Preferred Stock^(C)(L)		5,920		5,920		—

				12,669		10,386
Home and Office Furnishings, Housewares, and Durable Consumer Products – 9.7%
Brunswick Bowling Products, Inc. – Preferred Stock^(C)(L)		4,943		4,943		22,429
Old World Christmas, Inc. – Preferred Stock^(C)(L)		6,180		6,180		17,111

				11,123		39,540
Leisure, Amusement, Motion Pictures, and Entertainment – 0.0%
SOG Specialty Knives & Tools, LLC – Preferred Stock^(C)(L)		13,249		13,249		192
Personal and Non-Durable Consumer Products (Manufacturing Only) – 1.5%
The Mountain Corporation – Preferred Stock^(C)(L)		6,899		6,899		—
Pioneer Square Brands, Inc. – Preferred Stock^(C)(L)		5,502		5,500		6,173

				12,399		6,173
Telecommunications – 0.0%
B+T Group Acquisition, Inc.^(M) – Preferred Stock^(C)(L)		12,841		4,196		—

Total Preferred Equity			$	76,362	$	60,886

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)			Cost		Fair Value
Common Equity/Equivalents – 0.0%
Diversified/Conglomerate Manufacturing – 0.0%
Channel Technologies Group, LLC – Common Stock^(C)(L)		2,319,184			—		—
D.P.M.S., Inc. – Common Stock^(C)(L)		627			1		—

					1		—
Telecommunications – 0.0%
B+T Group Acquisition, Inc.^(M) – Common Stock Warrant^(C)(L)		3.5	%		—		—
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
The Mountain Corporation – Common Stock^(C)(L)		751			1		—

Total Common Equity/Equivalents				$	2	$	—

Total Affiliate Investments				$	293,010	$	249,830

CONTROL INVESTMENTS^(P) – 2.9%:
Secured Second Lien Debt – 2.4%
Aerospace and Defense – 2.4%
Galaxy Tool Holding Corporation – Line of Credit, $0 available (L+4.5%, 6.5% Cash (1.0% Unused Fee), Due 8/2021)^(L)	$	5,000		$	5,000	$	5,000
Galaxy Tool Holding Corporation – Term Debt (L+6.0%, 10.0% Cash, Due 8/2021)^(L)		5,000			5,000		5,000

				$	10,000	$	10,000

Preferred Equity – 0.5%
Aerospace and Defense – 0.5%
Galaxy Tool Holding Corporation – Preferred Stock^(C)(L)		5,517,444		$	11,464	$	2,061
Common Equity – 0.0%
Aerospace and Defense – 0.0%
Galaxy Tool Holding Corporation – Common Stock^(C)(L)		88,843		$	48	$	—

Total Control Investments				$	21,512	$	12,061

TOTAL INVESTMENTS – 149.2%				$	593,754	$	608,336

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

^(A)

Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $558.2 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5 — Borrowings in the accompanying Notes to Consolidated Financial Statements. Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2019, our investment in Funko Acquisition Holdings, LLC (“Funko”) is considered a non-qualifying asset under Section 55 of the 1940 Act and represents less than 0.1% of total investments, at fair value.

^(B)

Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 2.0% as of September 30, 2019. If applicable, paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date.

^(C)	Security is non-income producing.

^(D)	Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of September 30, 2019.

^(E)

Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) fair value hierarchy. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(F)

Where applicable, aggregates all shares of a 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 a 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 Consolidated Statements of Assets and Liabilities as of September 30, 2019.

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

^(J)	Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

^(K)	Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(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. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(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 and 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)	Investment was exited and/or amended subsequent to September 30, 2019. Refer to Note 13 — Subsequent Events in the accompanying Notes to Consolidated Financial Statements for additional information.

^(R)	Debt security does not have a stated current interest rate.

^(S)

Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol “FNKO.” Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(T)	Refer to Note 10 — Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information regarding this guaranty.

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2019

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS^(N) – 77.2%
Secured First Lien Debt – 38.4%
Containers, Packaging, and Glass – 2.3%
Frontier Packaging, Inc. – Term Debt (L+10.0%, 12.5% Cash, Due 3/2021)^(L)	$	9,500	$	9,500	$	9,500
Diversified/Conglomerate Services – 16.0%
Bassett Creek Restoration, Inc. – Term Debt (L+10.0%, 12.5% Cash, Due 4/2023)^(L)		28,000		28,000		28,000
Counsel Press, Inc. – Term Debt (L+11.8%, 14.2% Cash, Due 3/2020)^(L)		18,000		18,000		18,000
Counsel Press, Inc. – Term Debt (L+13.0%, 15.5% Cash, Due 3/2020)^(L)		5,500		5,500		5,500
Nth Degree, Inc. – Term Debt (L+11.5%, 14.0% Cash, Due 3/2023)^(L)		13,290		13,290		13,290

				64,790		64,790
Farming and Agriculture – 2.7%
Jackrabbit, Inc. – Term Debt (L+10.0%, 13.5% Cash, Due 12/2020)^(Q)(T)		11,000		11,000		11,000
Healthcare, Education, and Childcare – 4.9%
Educators Resource, Inc. – Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)^(L)		20,000		20,000		20,000
Leisure, Amusement, Motion Pictures, and Entertainment – 6.8%
Schylling, Inc. – Term Debt (L+11.0%, 13.5% Cash, Due 8/2019)^(L)		13,081		13,081		13,081
Schylling, Inc. – Term Debt (L+11.0%, 13.5% Cash, Due 8/2019)^(L)		8,500		8,500		8,500
Schylling, Inc. – Term Debt (L+11.0%, 13.5% Cash, Due 8/2019)^(L)		6,000		6,000		6,000

				27,581		27,581
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 4.9%
SBS Industries, LLC – Term Debt (L+12.0%, 14.5% Cash, Due 6/2020)^(L)		19,957		19,957		19,957
Oil and Gas – 0.8%
Tread Corporation – Line of Credit, $634 available (L+10.0%, 12.5% Cash, Due 3/2021)^(Q)(T)		3,216		3,216		3,216
Personal, Food, and Miscellaneous Services – 0.0%
B-Dry, LLC – Line of Credit, $50 available (L+0.3%, 2.7% Cash (0.8% Unused Fee), Due 12/2019)^(G)(L)		4,600		4,600		—
B-Dry, LLC – Term Debt (L+0.3%, 2.7% Cash, Due 12/2019)^(G)(L)		6,443		6,443		—
B-Dry, LLC – Term Debt (L+0.3%, 2.7% Cash, Due 12/2019)^(G)(L)		840		840		—

				11,883		—

Total Secured First Lien Debt			$	167,927	$	156,044

Secured Second Lien Debt – 7.5%
Automobile – 1.0%
Country Club Enterprises, LLC – Term Debt (L+8.0%, 10.5% Cash, Due 2/2022)^(K)	$	4,000	$	4,000	$	3,920
Country Club Enterprises, LLC – Guaranty ($1,000)^(U)		—		—		—

				4,000		3,920
Cargo Transport – 3.2%
Diligent Delivery Systems – Term Debt (L+9.0%, 11.5% Cash, Due 11/2022)^(K)		13,000		12,933		13,163
Home and Office Furnishings, Housewares, and Durable Consumer Products – 3.3%
Ginsey Home Solutions, Inc. – Term Debt (L+10.0%, 13.5% Cash, Due 1/2021)^(H)(L)		13,300		13,300		13,300

Total Secured Second Lien Debt			$	30,233	$	30,383

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

Company and Investment^(A)(B)(D)(E)

Principal/Shares/
Units^(F)(J)

Cost

Fair Value

Preferred Equity – 26.2%

Containers, Packaging, and Glass – 0.4%

Frontier Packaging, Inc. – Preferred Stock^(C)(L)

1,373

1,373

1,428

Diversified/Conglomerate Services – 15.6%

Bassett Creek Restoration, Inc. – Preferred Stock^(C)(L)

4,900

—

Counsel Press, Inc. – Preferred Stock^(C)(L)

6,995

16,720

Nth Degree, Inc. – Preferred Stock^(C)(L)

5,660

46,958

17,555

63,678

Farming and Agriculture – 1.4%

Jackrabbit, Inc. – Preferred Stock^(Q)(T)

3,556

3,556

5,632

Healthcare, Education, and Childcare – 2.5%

Educators Resource, Inc. – Preferred Stock^(C)(L)

8,560

8,560

10,023

Home and Office Furnishings, Housewares, and Durable Consumer Products – 3.9%

Ginsey Home Solutions, Inc. – Preferred Stock^(C)(L)

19,280

9,583

15,845

Leisure, Amusement, Motion Pictures, and Entertainment – 1.0%

Schylling, Inc. – Preferred Stock^(C)(L)

4,000

4,000

4,255

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 1.1%

SBS Industries, LLC – Preferred Stock^(C)(L)

27,705

2,771

4,461

Oil and Gas – 0.3%

Tread Corporation – Preferred Stock^(C)(Q)(T)

12,998,639

3,768

1,140

Personal, Food, and Miscellaneous Services – 0.0%

B-Dry, LLC – Preferred Stock^(C)(L)

2,500

2,516

—

Total Preferred Equity

53,682

106,462

Common Equity/Equivalents – 5.1%

Cargo Transport – 0.6%

Diligent Delivery Systems – Common Stock Warrants^(C)(L)

500

2,327

Containers, Packaging, and Glass – 2.7%

Frontier Packaging, Inc. – Common Stock^(C)(L)

152

152

11,081

Farming and Agriculture – 0.6%

Jackrabbit, Inc. – Common Stock^(C)(Q)(T)

548

2,565

Home and Office Furnishings, Housewares, and Durable Consumer Products – 0.0%

Ginsey Home Solutions, Inc. – Common Stock^(C)(L)

63,747

—

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 1.1%

SBS Industries, LLC – Common Stock^(C)(L)

221,500

222

4,487

Oil and Gas – 0.0%

Tread Corporation – Common Stock^(C)(Q)(T)

10,089,048

753

—

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.1%

Funko Acquisition Holdings, LLC^(M) – Common Units^(C)(S)

27,188

131

401

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2019

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
Personal, Food, and Miscellaneous Services – 0.0%
B-Dry, LLC – Common Stock^(C)(L)		2,500	$	300	$	—

Total Common Equity			$	2,160	$	20,861

Total Non-Control/Non-Affiliate Investments			$	254,002	$	313,750

AFFILIATE INVESTMENTS^(O) – 72.8%
Secured First Lien Debt – 42.8%
Automobile – 1.4%
Meridian Rack & Pinion, Inc.^(M) – Term Debt (L+11.5%, 14.0% Cash, Due 6/2019)^(G)(K)	$	9,660	$	9,660	$	5,796
Beverage, Food, and Tobacco – 2.2%
Head Country, Inc. – Term Debt (L+10.5%, 13.0% Cash, Due 2/2021)^(L)		9,050		9,050		9,050
Diversified/Conglomerate Manufacturing – 4.6%
D.P.M.S., Inc. – Term Debt (10.0% Cash, Due 10/2021)^(I)(L)		10,796		10,796		7,115
Edge Adhesives Holdings, Inc.^(M) – Term Debt (L+10.5%, 13.0% Cash, Due 2/2022)^(K)		9,300		9,300		8,951
Edge Adhesives Holdings, Inc.^(M) – Term Debt (L+11.8%, 14.2% Cash, Due 2/2022)^(K)		3,000		3,000		2,902

				23,096		18,968
Diversified/Conglomerate Services – 14.2%
ImageWorks Display and Marketing Group, Inc. – Term Debt (L+11.0%, 13.5% Cash, Due 11/2022)^(L)		22,000		22,000		22,000
J.R. Hobbs Co. – Atlanta, LLC – Term Debt (L+10.3%, 12.7% Cash, Due 10/2023)^(L)		36,000		36,000		36,000

				58,000		58,000
Home and Office Furnishings, Housewares, and Durable Consumer Products – 8.2%
Brunswick Bowling Products, Inc. – Term Debt (L+10.0%, 12.5% Cash, Due 1/2023)^(L)		17,700		17,700		17,700
Old World Christmas, Inc. – Term Debt (L+11.3%, 13.7% Cash, Due 10/2019)^(L)		15,770		15,770		15,770

				33,470		33,470
Leisure, Amusement, Motion Pictures, and Entertainment – 2.2%
SOG Specialty Knives & Tools, LLC – Term Debt (L+4.0%, 6.5% Cash, Due 8/2022)^(G)(L)		8,399		8,399		8,399
SOG Specialty Knives & Tools, LLC – Term Debt (Due 8/2020)^(L)(R)		538		538		538

				8,937		8,937
Personal and Non-Durable Consumer Products (Manufacturing Only) – 6.3%
The Mountain Corporation – Line of Credit, $400 available (L+5.0%, 9.0% Cash, Due 4/2020)^(L)		2,500		2,500		2,500
Pioneer Square Brands, Inc. – Term Debt (L+12.0%, 14.5% Cash, Due 8/2022)^(L)		23,100		23,100		23,100

				25,600		25,600
Telecommunications – 3.7%
B+T Group Acquisition, Inc.^(M) – Line of Credit, $175 available (L+11.0%, 13.5% Cash, Due 12/2021)^(L)		1,225		1,225		1,225
B+T Group Acquisition, Inc.^(M) – Term Debt (L+11.0%, 13.5% Cash, Due 12/2021)^(L)		14,000		14,000		14,000

				15,225		15,225

Total Secured First Lien Debt			$	183,038	$	175,046

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2019

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
Secured Second Lien Debt – 8.6%
Chemicals, Plastics, and Rubber – 4.1%
PSI Molded Plastics, Inc. – Term Debt (L+12.0%, 14.5% Cash, Due 1/2024)^(G)(L)	$	26,618	$	26,618	$	16,641
Diversified/Conglomerate Manufacturing – 3.2%
Alloy Die Casting Co.^(M) – Term Debt (L+4.0%, 6.5% Cash, Due 4/2021)^(K)		12,215		12,215		12,032
Alloy Die Casting Co.^(M) – Term Debt (L+4.0%, 6.5% Cash, Due 4/2021)^(K)		175		175		172
Alloy Die Casting Co.^(M) – Term Debt (L+4.0%, 6.5% Cash, Due 4/2021)^(K)		910		910		896

				13,300		13,100
Personal and Non-Durable Consumer Products (Manufacturing Only) – 1.3%
The Mountain Corporation – Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)^(G)(L)		11,700		11,700		5,169

Total Secured Second Lien Debt			$	51,618	$	34,910

Preferred Equity – 21.0%
Automobile – 0.0%
Meridian Rack & Pinion, Inc.^(M) – Preferred Stock^(C)(L)		3,381	$	3,381	$	—
Beverage, Food, and Tobacco – 0.7%
Head Country, Inc. – Preferred Stock^(C)(L)		4,000		4,000		2,887
Chemicals, Plastics, and Rubber – 0.0%
PSI Molded Plastics, Inc. – Preferred Stock^(C)(L)		58,598		9,730		—
Diversified/Conglomerate Manufacturing – 1.9%
Alloy Die Casting Co.^(M) – Preferred Stock^(C)(L)		5,114		5,114		7,616
Channel Technologies Group, LLC – Preferred Stock^(C)(L)		2,279		1,841		—
Edge Adhesives Holdings, Inc.^(M) – Preferred Stock^(C)(L)		3,774		3,774		—

				10,729		7,616
Diversified/Conglomerate Services – 6.5%
ImageWorks Display and Marketing Group, Inc. – Preferred Stock^(C)(L)		67,490		6,749		8,526
J.R. Hobbs Co. – Atlanta, LLC – Preferred Stock^(C)(L)		5,920		5,920		17,822

				12,669		26,348
Home and Office Furnishings, Housewares, and Durable Consumer Products – 9.7%
Brunswick Bowling Products, Inc. – Preferred Stock^(C)(L)		4,943		4,943		23,747
Old World Christmas, Inc. – Preferred Stock^(C)(L)		6,180		6,180		15,909

				11,123		39,656
Leisure, Amusement, Motion Pictures, and Entertainment – 0.0%
SOG Specialty Knives & Tools, LLC – Preferred Stock^(C)(L)		11,249		11,249		139
Personal and Non-Durable Consumer Products (Manufacturing Only) – 2.2%
The Mountain Corporation – Preferred Stock^(C)(L)		6,899		6,899		—
Pioneer Square Brands, Inc. – Preferred Stock^(C)(L)		5,502		5,500		8,960

				12,399		8,960
Telecommunications – 0.0%
B+T Group Acquisition, Inc.^(M) – Preferred Stock^(C)(L)		12,841		4,196		—

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2019

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment^(A)(B)(D)(E)	Principal/Shares/ Units^(F)(J)		Cost		Fair Value
Total Preferred Equity			$	79,476	$	85,606

Common Equity – 0.4%
Diversified/Conglomerate Manufacturing – 0.4%
Alloy Die Casting Co.^(M) – Common Stock^(C)(L)		630	$	41	$	1,551
Channel Technologies Group, LLC – Common Stock^(C)(L)		2,319,184		—		—
D.P.M.S., Inc. – Common Stock^(C)(L)		627		1		—

				42		1,551
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
The Mountain Corporation – Common Stock^(C)(L)		751		1		—

Total Common Equity			$	43	$	1,551

Total Affiliate Investments			$	314,175	$	297,113

CONTROL INVESTMENTS^(P) – 3.2%:
Secured Second Lien Debt – 2.4%
Aerospace and Defense – 2.4%
Galaxy Tool Holding Corporation – Line of Credit, $0 available (L+4.5%, 7.0% Cash (1.0% Unused Fee), Due 8/2019)^(L)	$	5,000	$	5,000	$	5,000
Galaxy Tool Holding Corporation – Term Debt (L+6.0%, 10.0% Cash, Due 8/2019)^(L)		5,000		5,000		5,000

			$	10,000	$	10,000

Preferred Equity – 0.8%
Aerospace and Defense – 0.8%
Galaxy Tool Holding Corporation – Preferred Stock^(C)(L)		5,517,444	$	11,464	$	3,309
Common Equity – 0.0%
Aerospace and Defense – 0.0%
Galaxy Tool Holding Corporation – Common Stock^(C)(L)		88,843	$	48	$	—

Total Control Investments			$	21,512	$	13,309

TOTAL INVESTMENTS – 153.2%^(V)			$	589,689	$	624,172

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

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2019

(DOLLAR AMOUNTS IN THOUSANDS)

^(A)

Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $536.3 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5—Borrowings in the accompanying Notes to Consolidated Financial Statements. Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of March 31, 2019, our investment in Funko is considered a non-qualifying asset under Section 55 of the 1940 Act and represents less than 0.1% of total investments, at fair value.

^(B)

Unless indicated otherwise, all cash interest rates are indexed to 30-day LIBOR, which was 2.5% as of March 31, 2019. If applicable, paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date.

^(C)	Security is non-income producing.

^(D)	Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of March 31, 2019.

^(E)	Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair value hierarchy. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(F)

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

^(H)

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

^(J)	Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

^(K)	Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(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. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(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 and 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)	Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to occur imminently.

^(R)	Debt security does not have a stated current interest rate.

^(S)

Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol “FNKO.” Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(T)	Security was sold subsequent to March 31, 2019. Refer to Note 3—Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

^(U)	Refer to Note 10—Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information regarding this guaranty.

^(V)	Cumulative gross unrealized depreciation for federal income tax purposes is $98.8 million; cumulative gross unrealized appreciation for federal income tax purposes is $133.2 million. Cumulative net unrealized appreciation is $34.4 million, based on a tax cost of $589.8 million.

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

GLADSTONE INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

SEPTEMBER 30, 2019

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

(UNAUDITED)

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 are applying the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies” (“ASC 946”). In addition, we have elected to be treated for U.S. federal income 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 take 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 to: (i) 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 (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our equity investments for capital gains. We intend that our investment portfolio over time will consist of approximately 75.0% in debt investments and 25.0% in 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 holding certain investments pledged as collateral under 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 an SEC-registered investment adviser, pursuant to an investment advisory agreement and management agreement (the “Advisory Agreement”). Administrative services are provided by Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, pursuant to an administration agreement (the “Administration Agreement”). Refer to Note 4 — Related Party Transactions for more information regarding these arrangements.

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, 10 and 12 of SEC Regulation S-X. Accordingly, we have not included in this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. 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, 2019 are not necessarily indicative of results that ultimately may be achieved for the fiscal year ending March 31, 2020 or any future interim period. 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, 2019, as filed with the SEC on May 13, 2019.

Use of Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated Financial Statements and these Notes to Consolidated Financial Statements. Actual results may differ from those estimates.

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements. Reclassifications did not impact net increase in net assets resulting from operations, total assets, total liabilities, or total net assets, or Consolidated Statements of Changes in Net Assets and Consolidated Statements of Cash Flows classifications.

Investment Valuation Policy

Accounting Recognition

We record our investments at fair value in accordance with the FASB ASC 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 generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Board Responsibility

In accordance with the 1940 Act, our board of directors (“Board of Directors”) has the ultimate responsibility for reviewing and determining, in good faith, the fair value of our investments for which market quotations are not readily available 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, presented by the chief valuation officer. 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 Directors so that the full Board of Directors may review and determine in good faith the fair value of such 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 the Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and 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.

ICE Data Pricing and Reference Data, LLC (“ICE”), a valuation specialist, generally provides estimates of fair value on our debt investments. The Valuation Team generally assigns ICE’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 ICE’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 ICE’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 before determining 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 (“TEV”) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review the valuation of each of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, 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 before determining 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 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 obtained from our indexing methodology whereby the original transaction EBITDA at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA 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 reviews industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio company’s securities based on the facts and circumstances of the securities, which typically results in the allocation of fair value to securities based on the 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; however, TEV may also be calculated using revenue multiples or 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 a DCF analysis 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 for which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis, which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use, including: 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 ICE 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. For securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date. For restricted securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the restriction.

•

Investments in Funds — For equity investments in other funds for which we cannot effectuate a sale of the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (“NAV”) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par value. 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: the nature and realizable value of the collateral, including external parties’ guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the portfolio company operates.

Fair value measurements of our investments may involve subjective judgments and estimates and, due to the uncertainty inherent in valuing these securities, the 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 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

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, 2019, certain of our loans to Meridian Rack & Pinion, Inc. (“Meridian”), The Mountain Corporation (“The Mountain”), PSI Molded Plastics, Inc. (“PSI”), and SOG Specialty Knives & Tools, LLC (“SOG”) were on non-accrual status, with an aggregate debt cost basis of $56.4 million, or 13.0% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $29.0 million, or 7.1% of the fair value of all debt investments in our portfolio. As of March 31, 2019, certain of our loans to B-Dry, LLC, Meridian, The Mountain, PSI, and SOG were on non-accrual status, with an aggregate debt cost basis of $68.3 million, or 15.4% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $21.9 million, or 5.4% 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. As of September 30, 2019 and March 31, 2019, we did not have any loans with a PIK interest component.

Success Fee Income Recognition

We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale, and are non-recurring.

Dividend Income Recognition

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.

Restricted Cash and Cash Equivalents

Restricted cash and cash equivalents are generally cash and cash equivalents held in escrow received as part of an investment exit. Restricted cash and cash equivalents are carried at cost, which approximates fair value.

Deferred Financing and Offering Costs

Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees and legal fees. Certain costs associated with our revolving line of credit are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our mandatorily redeemable preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the respective series of preferred stock. Refer to Note 5 — Borrowings and Note 6 — Mandatorily Redeemable Preferred Stock for further discussion.

Related Party Fees

We are party to the Advisory Agreement with the Adviser, which is owned and 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 Adviser a loan servicing fee as compensation for its services as servicer under the terms of the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (the “Credit Facility”).

We are also party to the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services.

Refer to Note 4 — Related Party Transactions for additional information regarding these related party fees and agreements.

Recent Accounting Pronouncements

In July 2019, the FASB issued Accounting Standards Update 2019-07, “Codification Updates to SEC Sections — Amendments to SEC Paragraphs Pursuant to SEC Final Rule Releases No. 33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company Reporting Modernization and Miscellaneous Updates (SEC Update)” (“ASU 2019-07”). ASU 2019-07 aligns the guidance in various SEC sections of the Codification with the requirements of certain SEC final rules. ASU 2019-07 is effective immediately. The adoption of ASU 2019-07 did not have a material impact on our financial position, results of operations or cash flows.

In August 2018, the FASB issued Accounting Standards Update 2018-13, “Fair Value Measurement (Topic 820): Disclosure Framework—Changes to the Disclosure Requirements for Fair Value” (“ASU 2018-13”), which modifies the disclosure requirements in ASC 820. We are currently assessing the impact of ASU 2018-13 and do not anticipate a material impact on our disclosures. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, we determine the fair value of our investments 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, 2019 and March 31, 2019, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (“Funko”), which was valued using Level 2 inputs.

We transfer investments in and out of Level 1, 2 and 3 of the valuation hierarchy 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. There were no transfers in or out of Level 1, 2 and 3 during the six months ended September 30, 2019 and September 30, 2018, respectively.

As of September 30, 2019 and March 31, 2019, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:


			Fair Value Measurements
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of September 30, 2019:
Secured first lien debt	$	300,864	$	—	$	—		$	300,864
Secured second lien debt		106,744		—		—			106,744
Preferred equity		183,531		—		—			183,531
Common equity/equivalents		17,197		—		170	^(A)		17,027

Total Investments at September 30, 2019	$	608,336	$	—	$	170		$	608,166


			Fair Value Measurements
	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of March 31, 2019:
Secured first lien debt	$	331,090	$	—	$	—		$	331,090
Secured second lien debt		75,293		—		—			75,293
Preferred equity		195,377		—		—			195,377
Common equity/equivalents		22,412		—		401	^(A)		22,011

Total Investments at March 31, 2019	$	624,172	$	—	$	401		$	623,771

^(A)	Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability, as our investment was subject to certain restrictions.

The following table presents our investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy, and carried at fair value as of September 30, 2019 and March 31, 2019, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:


	Total Recurring Fair Value Measurements Reported in *Consolidated Statements* *of Assets and Liabilities* Valued Using Level 3 Inputs
	September 30, 2019		March 31, 2019
Non-Control/Non-Affiliate Investments
Secured first lien debt	$	178,228	$	156,044
Secured second lien debt		30,436		30,383
Preferred equity		120,584		106,462
Common equity/equivalents^(A)		17,027		20,460

Total Non-Control/Non-Affiliate Investments		346,275		313,349
Affiliate Investments
Secured first lien debt		122,636		175,046
Secured second lien debt		66,308		34,910
Preferred equity		60,886		85,606
Common equity/equivalents		—		1,551

Total Affiliate Investments		249,830		297,113
Control Investments
Secured first lien debt		—		—
Secured second lien debt		10,000		10,000
Preferred equity		2,061		3,309
Common equity/equivalents		—		—

Total Control Investments		12,061		13,309

Total investments at fair value using Level 3 inputs	$	608,166	$	623,771

^(A)	Excludes our investment in Funko with a fair value of $0.2 million and $0.4 million as of September 30, 2019 and March 31, 2019, respectively, which was valued using Level 2 inputs.

In accordance with ASC 820, the following table provides quantitative information about our investments valued using Level 3 fair value measurements as of September 30, 2019 and March 31, 2019. 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

Valuation
Technique/
Methodology

Unobservable Input

Range / Weighted-Average as of

September 30,
2019

March 31,
2019

September 30, 2019

March 31, 2019

Secured first lien debt^(A)

288,856

313,440

TEV

EBITDA multiple

3.0x – 8.4x / 6.4x

5.0x – 8.6x / 6.4x

EBITDA

$830 – $24,639 /

$6,356

$1,303 – $20,691 /

$7,355

Revenue multiple

0.6x – 0.8x / 0.7x

0.6x – 1.0x / 0.8x

Revenue

$16,034 – $23,484 / $21,856

$12,574 – $24,857 /
$17,785

12,008

17,650

Yield Analysis

Discount Rate

14.3% – 14.8% / 14.4%

14.6% – 23.1% /
18.5%

Secured second lien debt

89,608

45,110

TEV

EBITDA multiple

5.5x – 6.7x / 6.0x

5.9x – 6.9x / 6.6x

EBITDA

$3,475 – $8,300 / $6,536

$4,156 – $6,059 /
$5,258

Revenue multiple

0.8x – 0.8x / 0.8x

Revenue

$16,034 – $16,034 / $16,034

$16,717 – $16,717 /
$16,717

17,136

30,183

Yield Analysis

Discount Rate

10.2% – 11.8% / 10.6%

7.3% – 11.4% /
9.5%

Preferred equity^(B)

183,531

195,377

TEV

EBITDA multiple

5.4x – 8.3x / 6.5x

5.0x – 8.6x / 7.3x

EBITDA

$830 – $24,639 / $6,226

$2,382 – $20,691 /
$7,183

Revenue multiple

0.6x – 0.8x / 0.7x

0.6x – 1.0x / 0.7x

Revenue

$16,034 – $23,484 / $20,933

$12,574 – $24,857 /
$20,103

Common equity/equivalents^(C)(D)

17,027

22,011

TEV

EBITDA multiple

3.0x – 7.9x / 4.7x

5.5x – 8.1x / 7.0x

EBITDA

$1,217 – $18,182 / $5,963

$1,303 – $17,310 /
$11,459

Revenue multiple

0.8x – 0.8x / 0.8x

Revenue

$16,034 – $16,034 / $16,034

$16,717 – $16,717 /
$16,717

Total

608,166

623,771

^(A)	Fair value as of March 31, 2019 includes two proprietary debt investments for a combined $14.2 million, which were valued at the expected payoff amount as the unobservable input.

^(B)	Fair value as of March 31, 2019 includes two proprietary equity investments for a combined $6.8 million, which were valued at the expected payoff amount as the unobservable input.

^(C)	Fair value as of March 31, 2019 includes two proprietary equity investments for a combined $2.6 million, which were valued at the expected payoff amount as the unobservable input.

^(D)	Fair value as of both September 30, 2019 and March 31, 2019 excludes our investment in Funko with a fair value of $0.2 million and $0.4 million, respectively, which was valued using Level 2 inputs.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, 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 discount rates 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 our portfolio’s changes in fair value, broken out by security type, during the three months and six months ended September 30, 2019 and 2018 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, 2019:
Fair value as of June 30, 2019	$	338,586		$	76,475		$	188,639		$	27,099		$	630,799
Total gain (loss):
Net realized gain (loss)^(A)		—			—			2,788			17,576			20,364
Net unrealized appreciation (depreciation)^(B)		(1,532	)		(2,503	)		1,178			(1,202	)		(4,059	)
Reversal of previously recorded (appreciation) depreciation upon realization^(B)		—			67			(2,672	)		(10,029	)		(12,634	)
New investments, repayments and settlements^(C):
Issuances / originations		12,450			5,005			1,500			1,200			20,155
Settlements / repayments		(7,640	)		(13,300	)		—			—			(20,940	)
Sales		—			—			(7,902	)		(17,617	)		(25,519	)
Transfers^(D)		(41,000	)		41,000			—			—			—

Fair value as of September 30, 2019	$	300,864		$	106,744		$	183,531		$	17,027		$	608,166


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents			Total
Six months ended September 30, 2019:
Fair value as of March 31, 2019	$	331,090		$	75,293		$	195,377		$	22,011		$	623,771
Total gain (loss):
Net realized gain (loss)^(A)		—			—			1,533			19,295			20,828
Net unrealized appreciation (depreciation)^(B)		(1,700	)		(1,325	)		(9,367	)		6,451			(5,941	)
Reversal of previously recorded (appreciation) depreciation upon realization^(B)		—			67			(2,121	)		(11,748	)		(13,802	)
New investments, repayments and settlements^(C):
Issuances / originations		53,100			5,009			12,080			1,200			71,389
Settlements / repayments		(40,626	)		(13,300	)		—			—			(53,926	)
Sales		—			—			(13,971	)		(20,182	)		(34,153	)
Transfers^(D)		(41,000	)		41,000			—			—			—

Fair value as of September 30, 2019	$	300,864		$	106,744		$	183,531		$	17,027		$	608,166


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents		Total
Three months ended September 30, 2018:
Fair value as of June 30, 2018	$	316,325		$	97,026		$	200,252		$	15,003	$	628,606
Total gain (loss):
Net realized loss^(A)		—			—			(3,600	)		—		(3,600	)
Net unrealized appreciation (depreciation)^(B)		(509	)		(2,093	)		33,875			3,661		34,934
Reversal of previously recorded depreciation upon realization^(B)		—			—			3,600			—		3,600
New investments, repayments and settlements^(C):
Issuances / originations		50			105			750			—		905
Settlements / repayments		—			—			—			—		—
Sales		—			—			—			—		—
Transfers		—			—			—			—		—

Fair value as of September 30, 2018	$	315,866		$	95,038		$	234,877		$	18,664	$	664,445


	Secured First Lien Debt			Secured Second Lien Debt			Preferred Equity			Common Equity/ Equivalents			Total
Six months ended September 30, 2018:
Fair value as of March 31, 2018	$	305,856		$	97,339		$	167,150		$	28,608		$	598,953
Total gain (loss):
Net realized gain (loss)^(A)		—			—			(3,600	)		13,786			10,186
Net unrealized appreciation (depreciation)^(B)		(354	)		(2,661	)		65,453			4,801			67,239
Reversal of previously recorded (appreciation) depreciation upon realization^(B)		(74	)		—			3,600			(14,681	)		(11,155	)
New investments, repayments and settlements^(C):
Issuances / originations		24,952			360			5,650			—			30,962
Settlements / repayments		(14,514	)		—			—			—			(14,514	)
Sales		—			—			(3,376	)		(13,850	)		(17,226	)
Transfers		—			—			—			—			—

Fair value as of September 30, 2018	$	315,866		$	95,038		$	234,877		$	18,664		$	664,445

^(A)	Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2019 and 2018.

^(B)	Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2019 and 2018.

^(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.

^(D)

Transfers represent (1) secured first lien debt of B-Dry, LLC with a cost basis of $11.9 million and a fair value of $0, which was converted into equity during the three months ended June 30, 2019 and (2) secured first lien debt of J.R. Hobbs Co. – Atlanta, LLC, with a total cost basis and fair value of $41.0 million, that was converted into secured second lien debt during the three months ended September 30, 2019.

Investment Activity

During the six months ended September 30, 2019, the following significant transactions occurred:

•

In April 2019, we sold our investment in Tread Corporation, which resulted in a realized loss of $2.7 million. In connection with the sale, we received net cash proceeds of $4.9 million, including the repayment of our debt investment of $3.2 million at par.

•

In April 2019, we sold our investment in Jackrabbit Inc., which resulted in dividend income of $2.1 million and a realized gain of $3.2 million. In connection with the sale, we received net cash proceeds of $19.8 million, including the repayment of our debt investment of $11.0 million at par.

•

In April and May 2019, we extended a line of credit to J.R. Hobbs Co. – Atlanta, LLC (“J.R. Hobbs”) with a total commitment amount of $10.0 million, which matures in October 2024.

•

In May 2019, our $15.8 million debt investment in Old World Christmas, Inc. was repaid at par. In connection with the repayment, we received success fee income of $0.2 million.

•

In June 2019, we invested $38.8 million in Horizon Facilities Services, Inc. (“Horizon”) through a combination of secured first lien debt and preferred equity. Horizon, headquartered in Allentown, Pennsylvania, is a leading provider of outsourced services to the rental car industry.

•

In August 2019, we sold our investment in Alloy Die Casting Co., which resulted in success fee income of $1.9 million and a realized gain of $20.4 million. In connection with the sale, we received net cash proceeds of $38.8 million, including the repayment of our debt investment of $13.3 million at par.

•

In September 2019, we invested $4.4 million in Phoenix Door Systems, Inc (“Phoenix”) through a combination of secured first lien debt and common equity. Phoenix, headquartered in Mason, Ohio, manufactures high impact traffic doors for the commercial and industrial market and architectural doors for the municipal market.

•

In September 2019, we invested an additional $8.5 million in Bassett Creek Restoration, Inc. in the form of first lien debt.

Investment Concentrations

As of September 30, 2019, our investment portfolio consisted of investments in 29 portfolio companies located in 17 states across 14 different industries with an aggregate fair value of $608.3 million. Our investments in Nth Degree, Inc., J.R. Hobbs, Counsel Press, Inc., Brunswick Bowling Products, Inc., and Horizon represented our five largest portfolio investments at fair value as of September 30, 2019, and collectively comprised $241.4 million, or 39.8%, of our total investment portfolio at fair value.

The following table summarizes our investments by security type as of September 30, 2019 and March 31, 2019:


	September 30, 2019								March 31, 2019
	Cost				Fair Value				Cost				Fair Value
Secured first lien debt	$	310,556	52.3	%	$	300,864	49.5	%	$	350,965	59.5	%	$	331,090	53.0	%
Secured second lien debt		124,560	21.0			106,744	17.5			91,851	15.6			75,293	12.1

Total debt		435,116	73.3			407,608	67.0			442,816	75.1			406,383	65.1
Preferred equity		156,147	26.3			183,531	30.2			144,622	24.5			195,377	31.3
Common equity/equivalents		2,491	0.4			17,197	2.8			2,251	0.4			22,412	3.6

Total equity/equivalents		158,638	26.7			200,728	33.0			146,873	24.9			217,789	34.9

Total investments	$	593,754	100.0	%	$	608,336	100.0	%	$	589,689	100.0	%	$	624,172	100.0	%

Investments at fair value consisted of the following industry classifications as of September 30, 2019 and March 31, 2019:


	September 30, 2019					March 31, 2019
	Fair Value		Percentage of Total Investments			Fair Value		Percentage of Total Investments
Diversified/Conglomerate Services	$	271,190		44.6	%	$	212,817		34.1	%
Home and Office Furnishings, Housewares, and Durable Consumer Products		82,830		13.6			102,271		16.4
Personal and Non-Durable Consumer Products (Manufacturing Only)		36,746		6.0			40,130		6.4
Leisure, Amusement, Motion Pictures, and Entertainment		36,276		6.0			40,912		6.6
Healthcare, Education, and Childcare		27,907		4.6			30,022		4.8
Diversified/Conglomerate Manufacturing		27,704		4.6			41,235		6.6
Machinery (Non-agriculture, Non-construction, and Non-electronic)		26,875		4.4			28,905		4.6
Containers, Packaging, and Glass		21,852		3.6			22,009		3.5
Cargo Transport		15,840		2.6			15,490		2.5
Telecommunications		15,785		2.6			15,225		2.4
Chemicals, Plastics, and Rubber		15,505		2.5			16,641		2.7
Beverage, Food, and Tobacco		13,645		2.2			11,937		1.9
Aerospace and Defense		12,061		2.0			13,309		2.1
Automobile		4,120		0.7			9,716		1.6
Farming and Agriculture		—		—			19,197		3.1
Other < 2.0%		—		—			4,356		0.7

Total investments	$	608,336		100.0	%	$	624,172		100.0	%

Investments at fair value were included in the following geographic regions of the U.S. as of September 30, 2019 and March 31, 2019:


	September 30, 2019					March 31, 2019
Location	Fair Value		Percentage of Total Investments			Fair Value		Percentage of Total Investments
South	$	261,457		43.0	%	$	262,386		42.0	%
West		163,699		26.9			177,599		28.5
Northeast		126,591		20.8			129,430		20.7
Midwest		56,589		9.3			54,757		8.8

Total investments	$	608,336		100.0	%	$	624,172		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, 2019:


		Amount
For the remaining six months ending March 31:	2020	$	33,160
For the fiscal years ending March 31:	2021		55,346
	2022		53,381
	2023		97,489
	2024		84,118
	Thereafter		111,680

	Total contractual repayments		$435,174
	Adjustments to cost basis of debt investments		(58	)
	Investments in equity securities		158,638

	Total cost basis of investments held as of September 30, 2019:	$	593,754

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, net on our accompanying 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 write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of September 30, 2019 and March 31, 2019, we had gross receivables from portfolio companies of $1.3 million and $1.3 million, respectively. The allowance for uncollectible receivables was $0.6 million and $0.8 million as of September 30, 2019 and March 31, 2019, respectively.

NOTE 4. RELATED PARTY TRANSACTIONS

Transactions with the 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 described in the Advisory Agreement, and a loan servicing fee for the Adviser’s role as servicer pursuant to the Credit Facility, each as described below. On July 9, 2019, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of either party, approved the renewal of the Advisory Agreement through August 31, 2020.

Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by Mr. Gladstone. David Dullum (our president) is also an executive managing director of the Adviser.

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


	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Average total assets subject to base management fee^(A)	$	628,790		$	655,000		$	631,500		$	638,600
Multiplied by prorated annual base management fee of 2.0%		0.5	%		0.5	%		1.0	%		1.0	%

Base management fee^(B)		3,144			3,275			6,315			6,386
Credits to fees from Adviser—other^(B)		(608	)		(565	)		(1,830	)		(1,525	)

Net base management fee	$	2,536		$	2,710		$	4,485		$	4,861

Loan servicing fee^(B)		1,593			1,674			3,345			3,414
Credits to base management fee—loan servicing fee^(B)		(1,593	)		(1,674	)		(3,345	)		(3,414	)

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

Incentive fee – income-based	$	742		$	—		$	2,823		$	1,078
Incentive fee – capital gains-based^(C)		858			7,125			346			13,633

Total incentive fee^(B)	$	1,600		$	7,125		$	3,169		$	14,711
Credits to fees from Adviser—other^(B)		—			—			—			—

Net incentive fee	$	1,600		$	7,125		$	3,169		$	14,711

^(A)

Average total assets subject to the base management fee is defined in the Advisory Agreement 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 Consolidated Statement of Operations.

^(C)	The capital gains-based incentive fee is not yet contractually due under the terms of the Advisory Agreement.

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, valued at the end of the applicable quarters within the respective period 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: (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) taking a 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 non-contractually, unconditionally, and irrevocably credits 100% of any fees received for such services 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, totaling $37 and $87 for the three and six months ended September 30, 2019, respectively, and $47 and $118 for the three and six months ended September 30, 2018, respectively, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser, primarily related to the valuation of portfolio companies.

Loan Servicing Fee

The Adviser also services the loans held by our wholly-owned subsidiary, Business Investment (the borrower under the 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 the 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 (less any uninvested cash or cash equivalents resulting from borrowings) during any given calendar year, we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100% non-contractually, 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, which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually due but not payable during the period, at the end of the immediately preceding calendar quarter, adjusted appropriately for any share issuances or repurchases during the period (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;

•

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, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter; and

•

20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter.

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 the 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, 2019, as aggregate unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.

In accordance with GAAP, accrual of the capital gains-based incentive fee is determined as if our investments had been liquidated at their fair values as of the end of the reporting period. Therefore, GAAP requires that the capital gains-based incentive fee accrual consider the 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. Accordingly, a GAAP accrual is calculated at the end of the reporting period based on (i) cumulative aggregate realized capital gains since our inception, plus (ii) the entire portfolio’s aggregate unrealized capital appreciation, if any, less (iii) cumulative aggregate realized capital losses since our inception, less (iv) the entire portfolio’s aggregate unrealized capital depreciation, if any. If such amount is positive at the end of a reporting period, a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of capital gains-based incentive fees accrued in all prior years, is recorded, regardless of whether such amount is contractually due under the terms of the Advisory Agreement. If such amount is negative, then there is no accrual for such period. During the three and six months ended September 30, 2019, we recorded a capital gains-based incentive fees of $0.9 million and $0.3 million, respectively. During the three and six months ended September 30, 2018, we recorded capital gains-based incentive fees of $7.1 million and $13.6 million, respectively. Such amounts are not yet contractually due under the terms of the Advisory Agreement.

Transactions with the Administrator

We reimburse the Administrator pursuant to the Administration Agreement for 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: 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, general counsel, and secretary), and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone.

Our allocable portion of the Administrator’s expenses is 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. On July 9, 2019, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the renewal of the Administration Agreement through August 31, 2020.

Other Transactions

Gladstone Securities, LLC (“Gladstone Securities”), which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer, is a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. From time to time, Gladstone Securities provides other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which it receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. During the three and six months ended September 30, 2019, the fees received by Gladstone Securities from portfolio companies totaled $0.0 million and $0.4 million, respectively. During the three and six months ended September 30, 2018, the fees received by Gladstone Securities from portfolio companies totaled $0.0 million and $0.3 million, respectively.

Related Party Fees Due

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


	As of September 30,		As of March 31,
	2019		2019
Base management and loan servicing fee due to Adviser, net of credits	$	1,359	$	1,143
Incentive fee due to Adviser^(A)		23,322		23,548
Other due to Adviser		59		33

Total fees due to Adviser	$	24,740	$	24,724
Fee due to Administrator	$	423	$	344

Total related party fees due	$	25,163	$	25,068

^(A)

Includes a capital gains-based incentive fee of $22.6 million and $22.2 million as of September 30, 2019 and March 31, 2019, respectively, recorded in accordance with GAAP requirements and which is not contractually due under the terms of the Advisory Agreement. Refer to Note 4 — Related Party Transactions — Transactions with the Adviser — Incentive Fee for additional information.

Net expenses receivable from Gladstone Capital Corporation, one of our affiliated funds, for reimbursement purposes, which includes certain co-investment expenses, totaled $0 and $12 as of September 30, 2019 and March 31, 2019, respectively. These amounts are generally settled in the quarter subsequent to being incurred and have been included in Other assets, net on the accompanying Consolidated Statements of Assets and Liabilities as of September 30, 2019 and March 31, 2019, respectively.

NOTE 5. BORROWINGS

Revolving Line of Credit

On August 22, 2018, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 4 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended, with KeyBank National Association (“KeyBank”) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to August 22, 2021, and if not renewed or extended by such date, all principal and interest will be due and payable on August 22, 2023 (two years after the revolving period end date). As of September 30, 2019, the Credit Facility provided a one-year extension option that may be exercised on or before the second anniversary of the August 22, 2018 amendment date, subject to approval by all lenders. Additionally, the Credit Facility commitment amount was increased from $165.0 million to $200.0 million and, subject to certain terms and conditions, can be expanded to a total facility amount of $300.0 million through additional commitments from existing or new lenders.

Advances under the Credit Facility generally bear interest at 30-day London Interbank Offered Rate (“LIBOR”) plus 2.85% per annum until August 21, 2021, with the margin then increasing to 3.10% for the period from August 22, 2021 to August 21, 2022, and increasing further to 3.35% thereafter. The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.

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


	As of September 30, 2019		As of March 31, 2019
Commitment amount	$	200,000	$	200,000
Borrowings outstanding at cost		46,800		53,000
Availability^(A)		153,200		147,000


	For the Three Months Ended September 30,						For the Six Months Ended September 30,
	2019			2018			2019			2018
Weighted-average borrowings outstanding	$	57,120		$	100,960		$	49,935		$	112,056
Effective interest rate^(B)		7.8	%		5.7	%		8.4	%		5.5	%
Commitment (unused) fees incurred	$	364		$	116		$	763		$	170

^(A)	Availability is subject to various constraints, characteristics and applicable advance rates based on collateral quality under the Credit Facility, which equated to an adjusted availability of $126.9 million and $137.5 million as of September 30, 2019 and March 31, 2019, respectively.

^(B)	Excludes the impact of deferred financing costs and includes unused commitment fees.

Among other things, the Credit Facility contains a performance guaranty that requires us to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $218.7 million as of September 30, 2019, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of September 30, 2019, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $534.3 million, asset coverage on our senior securities representing indebtedness of 1,103.8%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of September 30, 2019, we were in compliance with all covenants under the Credit Facility.

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. ASC Topic 860, “Transfers and Servicing” 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 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, 2021.

Fair Value

We elected to apply the fair value option of ASC Topic 825, “Financial Instruments,” to the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of the Credit Facility is determined using a yield analysis, which includes a DCF calculation and also takes into account the assumptions the Valuation Team believes market participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. As of September 30, 2019, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.65% per annum, plus a 1.0% unused commitment fee. As of March 31, 2019, the discount rate used to determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.85% per annum, plus a 1.0% unused commitment fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding decrease or

increase, respectively, in the fair value of the Credit Facility. At each of September 30, 2019 and March 31, 2019, the Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in Net unrealized depreciation of other on our accompanying Consolidated Statements of Operations.

The following tables provide relevant information and disclosures about the Credit Facility as of September 30, 2019 and March 31, 2019, and for the three and six months ended September 30, 2019 and 2018, as required by ASC 820:


	Level 3 – Borrowings
	Recurring Fair Value Measurements Reported in *Consolidated* *Statements of Assets and Liabilities* Using Significant Unobservable Inputs (Level 3)
	September 30, 2019		March 31, 2019
Credit Facility	$	46,964	$	53,000


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, 2019:
Fair value at June 30, 2019	$	73,795
Borrowings		25,500
Repayments		(52,200	)
Unrealized depreciation		(131	)

Fair value at September 30, 2019	$	46,964

Six months ended September 30, 2019:
Fair value at March 31, 2019	$	53,000
Borrowings		100,000
Repayments		(106,200	)
Unrealized appreciation		164

Fair value at September 30, 2019	$	46,964


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, 2018:
Fair value at June 30, 2018	$	102,907
Borrowings		91,300
Repayments		(78,100	)
Unrealized depreciation		(407	)

Fair value at September 30, 2018	$	115,700

Six months ended September 30, 2018:
Fair value at March 31, 2018	$	107,500
Borrowings		129,200
Repayments		(120,500	)
Unrealized depreciation		(500	)

Fair value at September 30, 2018	$	115,700

The fair value of the collateral under the Credit Facility was $558.2 million and $536.3 million as of September 30, 2019 and March 31, 2019, respectively.

NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK

The following tables summarize our 6.250% Series D Cumulative Term Preferred Stock (our “Series D Term Preferred Stock” or “Series D”), and our 6.375% Series E Cumulative Term Preferred Stock (our “Series E Term Preferred Stock” or “Series E”) outstanding as of September 30, 2019 and March 31, 2019:

As of September 30, 2019:

Class of
Term
Preferred
Stock

Ticker
Symbol

Date Issued

Mandatory
Redemption
Date^(A)

Interest
Rate

Shares
Outstanding

Liquidation
Preference
per Share

Total
Liquidation
Preference

Series D

GAINM

September 26, 2016

September 30, 2023

6.250

2,300,000

25.00

57,500

Series E

GAINL

August 22, 2018

August 31, 2025

6.375

2,990,000

25.00

74,750

Term preferred stock, gross^(A)

5,290,000

25.00

132,250

Less: Discounts

(3,429

)

Term preferred stock, net^(B)

128,821

As of March 31, 2019:

Class of
Term
Preferred
Stock

Ticker
Symbol

Date Issued

Mandatory
Redemption
Date^(A)

Interest
Rate

Shares
Outstanding

Liquidation
Preference
per Share

Total
Liquidation
Preference

Series D

GAINM

September 26, 2016

September 30, 2023

6.250

2,300,000

25.00

57,500

Series E

GAINL

August 22, 2018

August 31, 2025

6.375

2,990,000

25.00

74,750

Term preferred stock, gross^(A)

5,290,000

25.00

132,250

Less: Discounts

(3,768

)

Term preferred stock, net^(B)

128,482

^(A)

As of September 30, 2019 and March 31, 2019, asset coverage on our senior securities that are stock, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 316.4% and 309.1%, respectively.

^(B)

Reflected as a line item on our accompanying Consolidated Statement of Assets and Liabilities pursuant to the adoption of Accounting Standard Update 2015-03, “Simplifying the Presentation of Debt Issuance Costs.”

The following tables summarize dividends declared by our Board of Directors and paid by us on our 6.750% Series B Cumulative Term Preferred Stock (our “Series B Term Preferred Stock” or “Series B”), our 6.500% Series C Cumulative Term Preferred Stock (our “Series C Term Preferred Stock” or “Series C”), our Series D Term Preferred Stock and our Series E Term Preferred Stock during the six months ended September 30, 2019 and 2018:

For the Six Months Ended September 30, 2019:

Declaration Date

Record
Date

Payment

Date

Dividend per
Share of
Series D Term
Preferred Stock

Dividend per
Share of
Series E Term
Preferred Stock^(A)

April 9, 2019

April 22, 2019

April 30, 2019

0.13020833

0.13281250

April 9, 2019

May 22, 2019

May 31, 2019

0.13020833

0.13281250

April 9, 2019

June 19, 2019

June 28, 2019

0.13020833

0.13281250

July 9, 2019

July 22, 2019

July 31, 2019

0.13020833

0.13281250

July 9, 2019

August 20, 2019

August 30, 2019

0.13020833

0.13281250

July 9, 2019

September 17, 2019

September 30, 2019

0.13020833

0.13281250

Total

0.78124998

0.79687500

For the Six Months Ended September 30, 2018:


Declaration Date	Record Date	Payment Date	Dividend per Share of Series B Term Preferred Stock^(B)		Dividend per Share of Series C Term Preferred Stock^(B)		Dividend per Share of Series D Term Preferred Stock		Dividend per Share of Series E Term Preferred Stock^(A)
April 10, 2018	April 20, 2018	April 30, 2018	$	0.140625	$	0.135417	$	0.13020833	$	—
April 10, 2018	May 22, 2018	May 31, 2018		0.140625		0.135417		0.13020833		—
April 10, 2018	June 20, 2018	June 29, 2018		0.140625		0.135417		0.13020833		—
July 10, 2018	July 20, 2018	July 31, 2018		0.140625		0.135417		0.13020833		—
July 10, 2018	August 21, 2018	August 31, 2018		0.140625		0.135417		0.13020833		—
July 10, 2018	September 19, 2018	September 28, 2018		—		—		0.13020833		—
September 6, 2018	September 19, 2018	September 28, 2018		—		—		—		0.17265625	^(C)

		Total	$	0.703125	$	0.677085	$	0.78124998	$	0.17265625

^(A)	We issued our Series E Term Preferred Stock on August 22, 2018.

^(B)	We voluntarily redeemed all outstanding shares of our Series B Term Preferred Stock and Series C Term Preferred Stock on August 31, 2018.

^(C)	Represents a combined dividend for the prorated month of August 2018, based upon the issuance date of our Series E Term Preferred Stock, combined with the full month of September 2018.

The federal income tax characteristics of dividends paid to our preferred stockholders generally constitute ordinary income or capital gains to the extent of our current and accumulated earnings and profits and is reported after the end of the calendar year based on tax information for the full fiscal year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. If we determined the tax characterization of dividends paid to preferred stockholders in the current calendar year as of September 30, 2019, 27.3% would be from ordinary income and 72.7% would be from capital gains.

In accordance with ASC Topic 480, “Distinguishing Liabilities from Equity,” mandatorily redeemable financial instruments should be classified as liabilities on the balance sheet. Our mandatorily redeemable preferred stock is recorded at the liquidation preference, less discounts, on our accompanying Consolidated Statements of Assets and Liabilities as of September 30, 2019 and March 31, 2019. The related dividend payments to preferred stockholders are treated as dividend expense on our accompanying Consolidated Statements of Operations on the ex-dividend date.

The following table summarizes the fair value of each of our series of mandatorily redeemable preferred stock based on the last reported closing sale price as of September 30, 2019 and March 31, 2019, each of which we consider to be a Level 1 input within the fair value hierarchy:


	Fair Value as of
	September 30, 2019		March 31, 2019
Series D Term Preferred Stock	$	58,213	$	58,535
Series E Term Preferred Stock		78,338		76,395

Total	$	136,551	$	134,930

NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS

Registration Statement

On June 14, 2019, we filed a registration statement on Form N-2 (File No. 333-232124), which the SEC declared effective on July 24, 2019. 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 stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities. As of September 30, 2019, we had the ability to issue all $300.0 million of the securities registered under the registration statement.

Common Equity Offering

In February 2018, we entered into equity distribution agreements with Cantor Fitzgerald & Co. (“Cantor”), Ladenburg Thalmann & Co., Inc., and Wedbush Securities, Inc. (each a “Sales Agent”), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Sales Agents, up to an aggregate offering price of $35.0 million in what is commonly referred to as an “at-the-market” (“ATM”) program. As of September 30, 2019, we had remaining capacity to sell up to an additional $31.8 million of common stock under the ATM program.

During the three months ended June 30, 2018, we sold 168,824 shares of our common stock under the ATM program with Cantor at a weighted-average gross price of $11.09 per share and raised approximately $1.9 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $10.87 and resulted in total net proceeds of approximately $1.8 million. Certain of these sales were below our then-current estimated NAV per share during the sales period, with a discount of $0.002 per share, when comparing the sales price per share, after deducting commissions, to the then-current estimated NAV per share; however, the net dilutive effect (after commissions and offering costs borne by us) of these sales was $0.00 per common share as a result of the small number of shares sold at a slight discount to NAV per share and resulting rounding. In aggregate, the sales during the three months ended June 30, 2018 were above our then-current estimated NAV per share. We did not sell any shares of our common stock under the ATM program during the six months ended September 30, 2019.

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

The following table sets forth the computation of basic and diluted Net increase in net assets resulting from operations per weighted-average common share for the three and six months ended September 30, 2019 and 2018:


	Three Months Ended September 30,				Six Months Ended September 30,
	2019		2018		2019		2018
Numerator: net increase in net assets resulting from operations	$	11,004	$	30,364	$	17,050	$	62,691
Denominator: basic and diluted weighted-average common shares		32,822,459		32,822,459		32,822,459		32,792,816

Basic and diluted net increase in net assets resulting from operations per weighted-average common share	$	0.34	$	0.93	$	0.52	$	1.91

NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS

To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (“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 upon management’s estimate of Investment Company Taxable Income and net long-term capital gains, as well as amounts to be distributed in accordance with Section 855(a) of the Code. Based on that estimate, our Board of Directors declares monthly distributions, and supplemental distributions, as appropriate, to common stockholders each quarter and deemed distributions of long-term capital gains annually as of the end of the fiscal year, as applicable.

The U.S. federal income tax characteristics of distributions paid to our common stockholders generally are reported to stockholders on IRS Form 1099 after the end of each calendar year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of distributions for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. If we determined the tax characterization of distributions paid to common stockholders in the current calendar year as of September 30, 2019, 67.9% would be from ordinary income and 32.1% would be from capital gains.

We paid the following monthly and supplemental cash distributions to our common stockholders for the six months ended September 30, 2019 and 2018:


Fiscal Year	Declaration Date	Record Date	Payment Date	Distribution per Common Share
2020	April 9, 2019	April 22, 2019	April 30, 2019	$	0.068
	April 9, 2019	May 22, 2019	May 31, 2019		0.068
	April 9, 2019	June 5, 2019	June 14, 2019		0.090	^(A)
	April 9, 2019	June 19, 2019	June 28, 2019		0.068
	July 9, 2019	July 22, 2019	July 31, 2019		0.068
	July 9, 2019	August 20, 2019	August 30, 2019		0.068
	July 9, 2019	September 4, 2019	September 13, 2019		0.030	^(A)
	July 9, 2019	September 17, 2019	September 30, 2019		0.068

		Six months ended September 30, 2019:		$	0.528


Fiscal Year	Declaration Date	Record Date	Payment Date	Distribution per Common Share
2019	April 10, 2018	April 20, 2018	April 30, 2018	$	0.067
	April 10, 2018	May 22, 2018	May 31, 2018		0.067
	April 10, 2018	June 6, 2018	June 15, 2018		0.060	^(A)
	April 10, 2018	June 20, 2018	June 29, 2018		0.067
	July 10, 2018	July 20, 2018	July 31, 2018		0.067
	July 10, 2018	August 21, 2018	August 31, 2018		0.067
	July 10, 2018	September 19, 2018	September 28, 2018		0.067

		Six months ended September 30, 2018:		$	0.462

^(A)	Represents a supplemental distribution to common stockholders.

Aggregate cash distributions to our common stockholders declared quarterly and paid were $17.3 million and $15.2 million for the six months ended September 30, 2019 and 2018, respectively, and were declared based on estimates of Investment Company Taxable Income and net long-term capital gains for the respective periods, as well as amounts to be distributed in accordance with Section 855(a) of the Code.

For the fiscal year ended March 31, 2019, Investment Company Taxable Income exceeded distributions declared and paid and, in accordance with Section 855(a) of the Code, we elected to treat $16.0 million of the first distributions paid subsequent to fiscal year-end, as having been paid in the prior year. In addition, for the fiscal year ended March 31, 2019, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $13.2 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year.

For the three and six months ended September 30, 2019, we recorded $0.9 million and $1.3 million, respectively, of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed (Overdistributed) net investment income for both periods on our accompanying Consolidated Statements of Assets and Liabilities.

For the three and six months ended September 30, 2018, we recorded $2.5 million and $2.7 million, respectively, of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and increased Overdistributed net investment income and Accumulated net realized gain in excess of distributions for both periods on our accompanying Consolidated Statements of Assets and Liabilities.

We may distribute our net long-term capital gains, if any, in cash or elect to retain some or all of such gains, pay taxes at the U.S. federal corporate-level income tax rate on the amount retained, and designate the retained amount as a “deemed distribution.” If we elect to retain net long-term capital gains and deem them distributed, each U.S. common stockholder will be treated as if they received a distribution of their pro rata share of the retained net long-term capital gain and the U.S. federal income tax paid. As a result, each U.S. common stockholder will (i) be required to report their pro rata share of the retained gain on their tax return as long-term capital gain, (ii) receive a refundable tax credit for their pro rata share of federal tax paid by us on the retained gain, and (iii) increase the tax basis of their shares of common stock by an amount equal to the deemed distribution less the tax credit. In order to use the deemed distribution approach, we must provide written notice to our common stockholders prior to the expiration of 60 days after the close of the relevant taxable year. For the year ended March 31, 2019, we elected to retain $50.0 million, or $1.52 per common share, of long-term capital gains and to treat them as deemed distributions to common stockholders. We incurred $10.5 million, or $0.32 per common share, of federal taxes

on behalf of common stockholders, which was included in Taxes on deemed distribution of long-term capital gains on our Consolidated Statements of Operations for the year ended March 31, 2019 and in Other liabilities on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2019.

In addition, we recorded a reserve for uncertain tax positions related to potential Virginia state tax exposure related to the deemed distribution of $3.0 million for the year ended March 31, 2019, which was included in Taxes on deemed distribution of long-term capital gains on our Consolidated Statements of Operations for the year ended March 31, 2019 and in Other liabilities on our accompanying Consolidated Statements of Assets and Liabilities as of September 30, 2019 and March 31, 2019. We have requested clarification of the treatment of deemed distributions with respect to Virginia state taxes from the Virginia Department of Revenue. We expect to obtain such clarification during our fiscal year ending March 31, 2020.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to certain legal proceedings incidental to the normal course of our business. 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, 2019 and March 31, 2019, we had no established reserves for such loss contingencies.

Escrow Holdbacks

From time to time, we 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, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves and holdbacks against escrow amounts were $3.0 million and $1.7 million as of September 30, 2019 and March 31, 2019, respectively.

Financial Commitments and Obligations

We have lines of credit commitments to certain of our portfolio companies that have not been fully drawn. Since these line of credit commitments have expiration dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the unused line of credit commitments as of September 30, 2019 and March 31, 2019 to be immaterial.

We have also extended a guaranty on behalf of one of our portfolio companies. As of September 30, 2019, we have not been required to make any payments on this guaranty, or any guaranties that existed in previous periods, and we consider the credit risk to be remote and the fair value of the guaranty as of September 30, 2019 and March 31, 2019 to be immaterial.

As of September 30, 2019, the following guaranty was outstanding:

•

A $1.0 million continuing guaranty of a wholesale financing facility agreement (the “Floor Plan Facility”) between DLL Finance LLC (f/k/a Agricredit Acceptance, LLC) and Country Club Enterprises, LLC (“CCE”). The Floor Plan Facility provides CCE with financing to bridge the time and cash flow gap between the order and delivery of golf carts to customers.

The following table summarizes the principal balances of unused line of credit commitments and guaranties as of September 30, 2019 and March 31, 2019, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:


	September 30, 2019		March 31, 2019
Unused line of credit commitments	$	4,415	$	1,259
Guaranties		1,000		1,000

Total	$	5,415	$	2,259

NOTE 11. FINANCIAL HIGHLIGHTS


	Three Months Ended September 30,						Six Months Ended September 30,
	2019			2018			2019			2018
Per Common Share Data:
Net asset value at beginning of period^(A)	$	12.29		$	11.57		$	12.40		$	10.85
Income from investment operations^(B)
Net investment income (loss)		0.20			(0.12	)		0.47			(0.12	)
Net realized gain (loss) on investments and other		0.65			(0.14	)		0.66			0.29
Net unrealized (depreciation) appreciation of investments and other		(0.51	)		1.19			(0.61	)		1.74

Total from investment operations		0.34			0.93			0.52			1.91
Effect of equity capital activity^(B)
Cash distributions to common stockholders from net investment income^(C)		(0.16	)		(0.20	)		(0.36	)		(0.41	)
Cash distributions to common stockholders from realized gains^(C)		(0.07	)		—			(0.17	)		(0.05	)
Discounts, commissions, and offering costs		—			—			—			—
Net dilutive effect of equity offering^(D)		—			—			—			—

Total from equity capital activity		(0.23	)		(0.20	)		(0.53	)		(0.46	)
Other, net^(B)(E)		(0.01	)		—			—			—

Net asset value at end of period^(A)	$	12.39		$	12.30		$	12.39		$	12.30

Per common share market value at beginning of period	$	11.23		$	11.77		$	11.60		$	10.10
Per common share market value at end of period		12.34			11.43			12.34			11.43
Total investment return^(F)		12.07	%		(0.61	)%		11.26	%		17.77	%
Common stock outstanding at end of period^(A)		32,822,459			32,822,459			32,822,459			32,822,459
Statement of Assets and Liabilities Data:
Net assets at end of period	$	406,830		$	403,574		$	406,830		$	403,574
Average net assets^(G)		407,970			386,747			407,929			375,487
Senior Securities Data:
Total borrowings, at cost	$	51,896		$	120,796		$	51,896		$	120,796
Mandatorily redeemable preferred stock^(H)		132,250			132,250			132,250			132,250
Ratios/Supplemental Data:
Ratio of net expenses to average net assets – annualized^(I)		9.86	%		17.67	%		9.07	%		17.33	%
Ratio of net investment income to average net assets – annualized^(J)		6.45			(4.13	)		7.57			(2.10	)

^(A)	Based on actual shares of common stock outstanding at the beginning or end of the corresponding period, as appropriate.

^(B)	Based on weighted-average basic common share data for the corresponding period.

^(C)

The tax character of distributions is determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP. For further information on the estimated character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9 — Distributions to Common Stockholders.

^(D)	During the three and six months ended September 30, 2018, the net dilutive effect of issuing common shares was $0.00 per common share as a result of the small number of shares sold at a slight discount to NAV per share and resulting rounding.

^(E)	Represents the impact of the different share amounts (weighted-average basic common shares outstanding for the corresponding period and actual common shares outstanding at the end of the period) in the Per Common Share Data calculations and rounding impacts.

^(F)

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 c