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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 FOR THE QUARTER ENDED JUNE 30, 2005
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
 COMMISSION FILE NUMBER: 000-51233
 GLADSTONE INVESTMENT CORPORATION
  DELAWARE
    
    83-0423116(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (703) 287-5800
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GLADSTONE INVESTMENT CORPORATION
 TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATIONItem 1.
    
    Financial Statements (Unaudited)Statement of
Assets and Liabilities as of June 30, 2005Statement of Operations for the period June 22, 2005* to June 30, 2005Statement of Changes in Net Assets for the period June 22, 2005* to June 30, 2005Statement of Cash Flows for the period June 22, 2005* to June 30, 2005Financial Highlights for the period June 22, 2005* to June 30, 2005Notes to Financial Statements* denotes the date operations commencedItem 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of OperationsOverviewResults of OperationsLiquidity and Capital ResourcesItem 3.
    
    Quantitative and Qualitative Disclosure About Market RiskItem 4.
    
    Controls and ProceduresPART II.
    
    OTHER INFORMATIONItem 1.
    
    Legal ProceedingsItem 2.
    
    Unregistered Sales of Equity Securities and Use of ProceedsItem 3.
    
    Defaults Upon Senior SecuritiesItem 4.
    
    Submission of Matters to a Vote of Security HoldersItem 5.
    
    Other InformationItem 6.
    
    ExhibitsSIGNATURES




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GLADSTONE INVESTMENT CORPORATION
 STATEMENT OF ASSETS AND LIABILITIES
(Unaudited)
 June 30,2005ASSETSCash and cash equivalents
    
    $
    200,611,011Prepaid assets
    
    
    17,792Deferred offering costs
    
    
    TOTAL ASSETS
    
    $
    200,628,803LIABILITIESAccounts payable
    
    $
    128,029Administration fee payable to Gladstone Administration
    
    
    27,083Loan payable to affiliate
    
    
    Accrued
offering costs and expenses
    
    
    335,711Total Liabilities
    
    
    490,823NET ASSETS
    
    $
    200,137,980ANALYSIS OF NET ASSETS:Common stock, $0.001 par value, 100,000,000 shares authorized and 14,400,100 shares
issued and outstanding
    
    $
    14,400Capital in excess of par value
    
    
    200,103,780Undistributed net investment income
    
    
    19,800Total Net Assets
    
    $
    200,137,980
 THE
ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 STATEMENT OF OPERATIONS
(UNAUDITED)
  INVESTMENT INCOMEInterest income  cash and cash equivalents
    
    $
    48,198EXPENSESAdministration fee to Gladstone Administration
    
    
    27,083Interest
    
    
    378Stockholder related costs
    
    
    635General and administrative
    
    
    302Expenses
    
    
    28,398NET INVESTMENT INCOME
    
    
    19,800NET INCREASE IN STOCKHOLDERS EQUITY RESULTING FROM
OPERATIONS
    
    $
    19,800NET INCREASE IN STOCKHOLDERS EQUITY RESULTING FROM
OPERATIONS PER COMMON SHARE: (Refer to Note 4)Basic and Diluted
    
    $
    0.00SHARES OF COMMON STOCK OUTSTANDING:Basic and Diluted
    
    
    14,400,100
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 STATEMENT OF CHANGES IN NET ASSETS
For the Period June 22, 2005 (Commencement of Operations) to June 30, 2005
(UNAUDITED)
 Increase in net assets from operationsInvestment income-net
    
    $
    19,800Issuance of common stock
    
    
    200,116,680Total increase
    
    
    200,136,480Net AssetsCommencement of operations
    
    
    1,500End of period
    
    $
    200,137,980
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 STATEMENT OF CASH FLOWS
For the Period June 22, 2005 (Commencement of Operations) to June 30, 2005
 (UNAUDITED)
 CASH FLOWS FROM OPERATING ACTIVITIESNet increase in stockholders equity resulting from operations
    
    $
    19,800Adjustments to reconcile net increase in stockholders equity
resulting from operations to net cash provided by operating activities:Increase in prepaid assets
    
    
    (17,792
    )Increase in accounts payable
    
    
    128,029Increase in administration fee payable to Gladstone Administration
    
    
    27,083Increase in accrued expenses
    
    
    335,711Net cash provided by operating activities
    
    
    492,831CASH FLOWS FROM FINANCING ACTIVITIES:Net proceeds from the issuance of common stock
    
    
    200,164,544Decrease in loan payable to affiliate
    
    
    (50,000
    )Net cash provided by financing activities
    
    
    200,114,544NET INCREASE IN CASH AND CASH EQUIVALENTS (1)
    
    
    200,607,375CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    3,636CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    200,611,011CASH PAID DURING PERIOD FOR INTEREST
    
    $
    378
  THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 FINANCIAL HIGHLIGHTS
For the Period June 22, 2005 (Commencement of Operations) to June 30, 2005
 (UNAUDITED)
 Per Share Data(1)Net proceeds from initial public offering (2)
    
    $
    13.95Offering costs
    
    
    (0.05
    )Income from investment operations:Net investment income
    
    
    0.00Total from investment operations
    
    
    0.00Distributions
    
    
    Net asset value at end of period
    
    $
    13.90Per share market value at beginning of period
    
    $
    15.00Per share market value at end of period
    
    
    15.05Total Return (3) (4)
    
    
    0.33
    %Shares outstanding at end of period
    
    
    14,400,100Ratios/Supplemental DataNet assets at end of period
    
    $
    200,137,980Average net assets (5)
    
    $
    200,137,980Ratio of expenses to average net assets-annualized
    
    
    0.06
    %Ratio of net investment income to average net assets-annualized
    
    
    0.04
    %
 
 (1)
    
    Based on actual shares outstanding.(2)
    
    Net of initial underwriting discount of $1.05 per share.(3)
    
    Total return equals the increase of the ending market value over the beginning market value
divided by the monthly beginning market value.(4)
    
    Amounts were not annualized.(5)
    
    Average net assets calculated from June 22, 2005
(commencement of operations) to June 30,
2005. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART TO THESE FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
 NOTES TO FINANCIAL STATEMENTS
 June 30, 2005
 (UNAUDITED)
        Interim Financial Statements
  Use of Estimates
  Cash and Cash Equivalents
  Organizational Costs
  7




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Income Taxes
   Loan Payable to Affiliate
  Administration Agreement
   License Agreement
  Investment Advisory and Management Agreement
    8




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
    
    no incentive fee in any calendar quarter in which pre-incentive fee net investment
income does not exceed the 1.75% hurdle rate (7% annualized);
    
    100% of 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 125% of the hurdle rate (2.1875%) in any calendar quarter (8.75% annualized). This
portion of the income-based incentive fee is referred to as the catch-up. The catch-up
provision is intended to provide Gladstone Management with an incentive fee of 20% on all
of pre-incentive fee investment income up to 125% of the quarterly hurdle rate once the
hurdle rate has been surpassed; and
    
    20% of the amount of pre-incentive fee net investment income, if any, that exceeds 125%
of the quarterly hurdle rate (2.1875%) in any calendar quarter (8.75% annualized).
     9




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Common StockShares
    
    AmountBeginning
balance
    
    
    100
    
    
    $
    1,500Issuance of common shares in
public offering (net of offering
costs of $763,320)
    
    
    14,400,000
    
    
    
    200,116,680Balance at June 30, 2005
    
    
    14,400,100
    
    
    $
    200,118,180
   Numerator for basic and diluted net increase in
stockholders equity resulting from operations per share
    
    $
    19,800Denominator for basic and diluted shares
    
    
    14,400,100Basic and diluted net increase in stockholers equity
per share resulting from operations
    
    $
    0.00
   Record Date
    
    Payment Date
    
    Dividend per ShareSept. 22, 2005
    
    Sept. 30, 2005
    
    $
    0.02Aug. 23, 2005
    
    Aug. 31, 2005
    
    $
    0.02July 21, 2005
    
    July 29, 2005
    
    $
    0.02
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Payment Due by PeriodMore thanContractual Obligations
    
    Total
    
    Less than 1 Year
    
    1-3 Years
    
    3-5 Years
    
    5 YearsInvestments
    
    
    3,500,000
    
    
    
    3,500,000Total
    
    $
    3,500,000
    
    
    $
    3,500,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
 All statements contained herein, other than historical facts, may constitute forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements may relate to,
among other things, future events or our future performance or financial condition. In some cases,
you can identify forward-looking statements by terminology such as may, might, believe,
will, provided, anticipate, future, could, growth, plan, intend, expect,
should, would, if, seek, possible, potential, likely or the negative of such terms or
comparable terminology. These forward-looking statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, levels of activity, performance
or achievements to be materially different from any future results, levels of activity, performance
or achievements expressed or implied by such forward-looking statements. Such factors include,
among others: (1) our future operating results as we are a company with a limited operating
history; (2) the impact of the investments that we make and the ability of these investments to
achieve their objectives; (3) our contractual relationships with third parties; (4) the adequacy of
our cash resources and working capital; (5) our ability to obtain future financing, if at all; and
(6) those factors listed under the caption Risk Factors of the Companys prospectus dated June
22, 2005, as filed with the Securities and Exchange Commission on June 23, 2005. We caution readers
not to place undue reliance on any such forward-looking statements, which are made pursuant to the
Private Securities Litigation Reform Act of 1995 and, as such, speak only as of the date made. We
undertake no obligation to publicly update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise, after the date of this Form 10-Q
 The following analysis of our financial condition and results of operations should be read in
conjunction with our financial statements and the notes thereto contained elsewhere in this report.
 OVERVIEW
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
    
    determine the composition of our portfolio, the nature and
timing of the changes to our portfolio, and the manner of
implementing such changes;
    
    identify, evaluate, and negotiate the structure of the
investments we make (including performing due diligence on
our prospective portfolio companies);
    
    close and monitor the investments we make; and
    
    make available on our behalf, and provide if requested,
managerial assistance to our portfolio companies.
  Managerial Assistance
  Administration Agreement
   License Agreement
  Investment Advisory and Management Agreement
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
    
    no incentive fee in any calendar quarter in which pre-incentive fee net investment
income does not exceed the hurdle rate (1.75%) (7% annualized);
    
    100% of 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 125% of the hurdle rate (2.1875%) in any calendar quarter (8.75% annualized). This
portion of the income-based incentive fee is referred to as the catch-up. The catch-up
provision is intended to provide Gladstone Management with an incentive fee of 20% on all
of pre-incentive fee investment income up to 125% of the quarterly hurdle rate once the
hurdle rate has been surpassed; and
    
    20% of the amount of pre-incentive fee net investment income, if any, that exceeds 125%
of the quarterly hurdle rate (2.1875%) in any calendar quarter (8.75% annualized).
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Critical Accounting Policies
  Investment Valuation
  General Valuation Policy
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Credit Information:
 Loan Grading and Risk Rating:
  Companys
    
    
    
    First
    
    SecondSystem
    
    
    NRSRO
    
    NRSRO
    
    Gladstone Capitals Description(a)>10
    
    
    Baa2
    
    BBB
    
    Probability of Default (PD during the next ten years is 4% and the
Expected Loss (EL) is 1% or less10
    
    
    Baa3
    
    BBB-
    
    PD is 5% and the EL is 1% to 2%9
    
    
    Ba1
    
    BB+
    
    PD is 10% and the EL is 2% to 3%8
    
    
    Ba2
    
    BB
    
    PD is 16% and the EL is 3% to 4%7
    
    
    Ba3
    
    BB-
    
    PD is 17.8% and the EL is 4% to 5%6
    
    
    B1
    
    B+
    
    PD is 22.0% and the EL is 5% to 6.5%5
    
    
    B2
    
    B
    
    PD is 25% and the EL is 6.5% to 8%4
    
    
    B3
    
    B-
    
    PD is 27% and the EL is 8% to 10%3
    
    
    Caa1
    
    CCC+
    
    PD is 30% and the EL is 10.0% to 13.3%2
    
    
    Caa2
    
    CCC
    
    PD is 35% and the EL is 13.3% to 16.7%1
    
    
    Caa3
    
    CC
    
    PD is 65% and the EL is 16.7% to 20%0
    
    
    N/a
    
    D
    
    PD is 85% or there is a Payment Default: and the EL is greater than 20%
 
 (a)
    
    the default rates set forth herein are for a ten year term debt, if the companys debt security
is less than ten years then the probability of default is adjusted to a lower percentage for the
shorter period which may move the security higher on our risk rating scale. Valuation Methods:
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
    
    financial standing of the issuer of the security;
    
    comparison of the business and financial plan of the issuer with actual results;
    
    the cost of the security;
    
    the size of the security held as it relates to the liquidity of the market for such securities;
    
    contractual restrictions on the disposition of the security;
    
    pending public offering of the issuer of the security;
    
    pending reorganization activity affecting the issuer such as mergers or debt restructuring;
    
    reported prices of similar securities of the issuer or comparable issuers;
    
    ability of the issuer to obtain needed financing;
    
    changes in the economy affecting the issuer;
    
    recent purchases or sale of a security of the issuer;
    
    pricing by other buyers or sellers of similar securities;
    
    financial statements of the borrower;
    
    reports from portfolio company senior management and ownership;
    
    the type of security;
    
    cost at date of purchase;
    
    size of holding;
    
    discount from market value of unrestricted securities of the same class at the time of purchase;
    
    special reports prepared by analysts;
    
    information as to any transactions or offers with respect to the security;
    
    existence of merger proposals or tender offers affecting the securities;
    
    the collateral;
    
    the issuers ability to make payments;
    
    the current and forecasted earnings of the issuer;
    
    sales to third parties of similar securities;
    
    statistical ratios compared to lending standards;
    
    statistical ratios compared to other similar securities; and
    
    other pertinent factors.
   Tax Status
 Federal Income Taxes
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Revenue Recognition
 Interest Income Recognition
  18




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RESULTS OF OPERATIONS
 For the period June 22, 2005 (commencement of operations) to June 30, 2005
 Investment Income
  Operating Expenses
      Net Increase in Stockholders Equity from Operations
    LIQUIDITY AND CAPITAL RESOURCES
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
     ITEM 4. CONTROLS AND PROCEDURES.
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PART IIOTHER INFORMATION
 ITEM 1. LEGAL PROCEEDINGS.
  ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
      ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
  ITEM 5. OTHER INFORMATION.
  ITEM 6. EXHIBITS
  21




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SIGNATURE
  GLADSTONE CAPITAL CORPORATIONBy:
    /s/ HARRY BRILLHarry BrillChief Financial Officer and Treasurer  22




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EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Articles of Amendment and Restatement of the Articles of Incorporation, incorporated by reference
to Exhibit a.2 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File
No. 333-123699), filed March 31, 2005.3.2
    
    By-laws, incorporated by reference to Exhibit b to the Registration Statement on Form N-2 (File
No. 333-123699), filed March 31, 2005.10.1
    
    Form of Investment Advisory and Management Agreement between the Company and Gladstone Management
Corporation, dated June 22, 2005, incorporated by reference to Exhibit g to the Registration
Statement on Form N-2 (File No. 333-123699), filed March 31, 2005.10.2
    
    Form of Administration Agreement between the Company and Gladstone Administration, LLC, dated June
22, 2005, incorporated by reference to Exhibit k.2 to the Registration Statement on Form N-2 (File
No. 333-123699), filed March 31, 2005.10.3
    
    Trademark License Agreement between the Company and Gladstone Management Corporation,
incorporated by reference to Exhibit k.3 to the Registration Statement on Form N-2 (File No. 333-123699), filed on March 31, 2005.11
    
    Computation of Per Share Earnings (included in the notes to the unaudited financial statements
contained in this report).31.1
    
    Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
  23