##### Table of Contents



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 DECEMBER 31, 2010
 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
(State or other jurisdiction of incorporation or organization)
    
    83-0423116
(I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (703) 287-5800
  þ o
  o o
  Large accelerated filer o
Accelerated filer þ
Non-accelerated
filer o(Do not check if a smaller reporting company)Smaller reporting company o. o þ




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##### 



GLADSTONE INVESTMENT CORPORATION
TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATION:Item 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Assets and Liabilities as of December 31, 2010 and March 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2010
and 2009
    
    
    4Condensed Consolidated Statements of Changes in Net Assets for the nine months ended December 31,
2010 and 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2010 and 2009
    
    
    6Condensed Consolidated Schedules of Investments as of December 31, 2010 and March 31, 2010
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    27Overview
    
    
    27Results of Operations
    
    
    31Liquidity and Capital Resources
    
    
    41Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    50Item 4.
    
    Controls and Procedures
    
    
    51PART II.
    
    OTHER INFORMATION:Item 1.
    
    Legal Proceedings
    
    
    52Item 1A.
    
    Risk Factors
    
    
    52Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    52Item 3.
    
    Defaults Upon Senior Securities
    
    
    52Item 4.
    
    Reserved
    
    
    52Item 5.
    
    Other Information
    
    
    52Item 6.
    
    Exhibits
    
    
    52SIGNATURES
    
    
    53EX-31.1EX-31.2EX-32.1EX-32.2




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##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 December 31,
    
    
    March 31,2010
    
    
    2010ASSETSCash and cash equivalents
    
    $
    79,963
    
    
    $
    87,717Investments at fair valueNon-Control/Non-Affiliate investments (Cost of $15,784and $22,674, respectively)
    
    
    14,565
    
    
    
    20,946Control investments (Cost of $134,293and $152,166, respectively)
    
    
    101,791
    
    
    
    148,248Affiliate investments (Cost of $45,805and $52,727, respectively)
    
    
    34,754
    
    
    
    37,664Total investments (Cost of $195,882and $227,567, respectively)
    
    
    151,110
    
    
    
    206,858Interest receivable
    
    
    748
    
    
    
    1,234Due from custodian
    
    
    40,289
    
    
    
    935Deferred financing fees
    
    
    480
    
    
    
    83Prepaid assets
    
    
    319
    
    
    
    221Other assets
    
    
    5,031
    
    
    
    113TOTAL ASSETS
    
    $
    277,940
    
    
    $
    297,161LIABILITIESBorrowings at fair valueShort-term loan (Cost of $67,400and $75,000, respectively)
    
    $
    67,400
    
    
    $
    75,000Credit Facility (Cost of $8,000and $27,800, respectively)
    
    
    8,000
    
    
    
    27,812Total borrowings (Cost of $75,400and $102,800, respectively)
    
    
    75,400
    
    
    
    102,812Accounts payable and accrued expenses
    
    
    198
    
    
    
    206Fee due to Administrator(1)
    
    
    143
    
    
    
    149Fees due to Adviser(1)
    
    
    2,184
    
    
    
    721Other liabilities
    
    
    1,333
    
    
    
    295TOTAL LIABILITIES
    
    
    79,258
    
    
    
    104,183NET ASSETS
    
    $
    198,682
    
    
    $
    192,978ANALYSIS OF NET ASSETS:Common stock, $0.001 par value per share, 100,000,000 shares authorized, 22,080,133
shares issued and outstanding at December 31, 2010 and March 31, 2010
    
    $
    22
    
    
    $
    22Capital in excess of par value
    
    
    257,216
    
    
    
    257,206Net unrealized depreciation of investment portfolio
    
    
    (44,772
    )
    
    
    (20,710
    )Net unrealized depreciation of derivatives
    
    
    (74
    )
    
    
    (39
    )Net unrealized appreciation of borrowings
    
    
    
    
    
    
    (12
    )Accumulated net realized investment loss
    
    
    (13,710
    )
    
    
    (43,489
    )TOTAL NET ASSETS
    
    $
    198,682
    
    
    $
    192,978NET ASSETS PER SHARE
    
    $
    9.00
    
    
    $
    8.74
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
 3




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##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months EndedDecember 31,
    
    
    Nine Months EndedDecember 31,2010
    
    
    2009
    
    
    2010
    
    
    2009INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate investments
    
    $
    391
    
    
    $
    489
    
    
    $
    1,175
    
    
    $
    1,840Control investments
    
    
    2,557
    
    
    
    2,856
    
    
    
    7,701
    
    
    
    8,593Affiliate investments
    
    
    970
    
    
    
    1,605
    
    
    
    3,031
    
    
    
    4,533Cash and cash equivalents
    
    
    7
    
    
    
    1
    
    
    
    21
    
    
    
    1Total interest income
    
    
    3,925
    
    
    
    4,951
    
    
    
    11,928
    
    
    
    14,967Other income
    
    
    6,812
    
    
    
    970
    
    
    
    10,358
    
    
    
    1,066Total investment income
    
    
    10,737
    
    
    
    5,921
    
    
    
    22,286
    
    
    
    16,033EXPENSESLoan servicing fee(1)
    
    
    634
    
    
    
    886
    
    
    
    2,124
    
    
    
    2,892Base management fee(1)
    
    
    343
    
    
    
    113
    
    
    
    846
    
    
    
    588Incentive fee(1)
    
    
    1,898
    
    
    
    588
    
    
    
    2,949
    
    
    
    588Administration fee(1)
    
    
    142
    
    
    
    156
    
    
    
    582
    
    
    
    527Interest expense
    
    
    135
    
    
    
    385
    
    
    
    558
    
    
    
    1,640Amortization of deferred financing fees
    
    
    116
    
    
    
    436
    
    
    
    383
    
    
    
    1,187Professional fees
    
    
    84
    
    
    
    182
    
    
    
    306
    
    
    
    502Stockholder related costs
    
    
    26
    
    
    
    49
    
    
    
    245
    
    
    
    276Insurance expense
    
    
    74
    
    
    
    71
    
    
    
    219
    
    
    
    190Directors fees
    
    
    43
    
    
    
    48
    
    
    
    152
    
    
    
    147Other expenses
    
    
    101
    
    
    
    61
    
    
    
    314
    
    
    
    198Expenses before credits from Adviser
    
    
    3,596
    
    
    
    2,975
    
    
    
    8,678
    
    
    
    8,735Credits to fees from Adviser(1)
    
    
    (450
    )
    
    
    (127
    )
    
    
    (630
    )
    
    
    (591
    )Total expenses net of credits to fees
    
    
    3,146
    
    
    
    2,848
    
    
    
    8,048
    
    
    
    8,144NET INVESTMENT INCOME
    
    
    7,591
    
    
    
    3,073
    
    
    
    14,238
    
    
    
    7,889REALIZED AND UNREALIZED GAIN (LOSS) ON:Realized gain (loss) on sale of investments
    
    
    6,514
    
    
    
    (1,318
    )
    
    
    23,489
    
    
    
    (35,922
    )Realized loss on termination of derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Net unrealized appreciation of Non-Control/Non-Affiliate
investments
    
    
    52
    
    
    
    1,383
    
    
    
    509
    
    
    
    36,597Net unrealized depreciation of Control investments
    
    
    (1,399
    )
    
    
    (8,853
    )
    
    
    (28,583
    )
    
    
    (35,234
    )Net unrealized appreciation (depreciation) of Affiliate investments
    
    
    2,373
    
    
    
    1,257
    
    
    
    4,011
    
    
    
    (4,862
    )Net unrealized appreciation (depreciation) of derivatives
    
    
    4
    
    
    
    (7
    )
    
    
    (34
    )
    
    
    19Net unrealized depreciation (appreciation) of borrowings
    
    
    
    
    
    
    45
    
    
    
    13
    
    
    
    (133
    )Net gain (loss) on investments, derivatives and borrowings
    
    
    7,544
    
    
    
    (7,493
    )
    
    
    (595
    )
    
    
    (39,588
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    15,135
    
    
    $
    (4,420
    )
    
    $
    13,643
    
    
    $
    (31,699
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER
COMMON SHARE:Basic and diluted
    
    $
    0.69
    
    
    $
    (0.20
    )
    
    $
    0.62
    
    
    $
    (1.44
    )WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:Basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
 4




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GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Nine Months Ended December 31,2010
    
    
    2009Operations:Net investment income
    
    $
    14,238
    
    
    $
    7,889Realized gain (loss) on sale of investments
    
    
    23,489
    
    
    
    (35,922
    )Realized loss on termination of derivative
    
    
    
    
    
    
    (53
    )Net unrealized depreciation of investment portfolio
    
    
    (24,063
    )
    
    
    (3,499
    )Unrealized (depreciation) appreciation of derivatives
    
    
    (34
    )
    
    
    19Unrealized appreciation (depreciation) of borrowings
    
    
    13
    
    
    
    (133
    )Net increase (decrease) in net assets from operations
    
    
    13,643
    
    
    
    (31,699
    )Capital transactions:Shelf offering registration costs, net
    
    
    10
    
    
    
    (153
    )Distributions to stockholders
    
    
    (7,949
    )
    
    
    (7,949
    )Net decrease in net assets from capital transactions
    
    
    (7,939
    )
    
    
    (8,102
    )Total increase (decrease) in net assets
    
    
    5,704
    
    
    
    (39,801
    )Net assets at beginning of period
    
    
    192,978
    
    
    
    214,802Net assets at end of period
    
    $
    198,682
    
    
    $
    175,001
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Nine Months Ended December 31,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations
    
    $
    13,643
    
    
    $
    (31,699
    )Adjustments to reconcile net decrease in net assets resulting from operations
to net cash provided by operating activities:Purchase of investments
    
    
    (41,616
    )
    
    
    (2,413
    )Principal repayments of investments
    
    
    61,774
    
    
    
    14,828Proceeds from sales of investments
    
    
    35,010
    
    
    
    74,706Net realized (gain) loss on sales of investments
    
    
    (23,489
    )
    
    
    35,922Net realized loss on termination of derivative
    
    
    
    
    
    
    53Net unrealized depreciation of investment portfolio
    
    
    24,063
    
    
    
    3,499Net unrealized depreciation (appreciation) of derivatives
    
    
    34
    
    
    
    (19
    )Net unrealized (depreciation) appreciation of borrowings
    
    
    (13
    )
    
    
    133Net amortization of premiums and discounts
    
    
    6
    
    
    
    2Amortization of deferred financing fees
    
    
    383
    
    
    
    1,187Decrease in interest receivable
    
    
    486
    
    
    
    127(Increase) decrease in due from custodian
    
    
    (39,354
    )
    
    
    1,940Increase in prepaid assets
    
    
    (98
    )
    
    
    (128
    )(Increase) decrease in other assets
    
    
    (4,911
    )
    
    
    67Decrease in accounts payable and accrued expenses
    
    
    (42
    )
    
    
    (1,083
    )Decrease in administration fee payable to Administrator(1)
    
    
    (6
    )
    
    
    (23
    )Increase in fees due to Adviser(1)
    
    
    1,463
    
    
    
    606Increase in other liabilities
    
    
    1,038
    
    
    
    119Net cash provided by operating activities
    
    
    28,371
    
    
    
    97,824CASH FLOWS FROM FINANCING ACTIVITIESShelf offering registration costs, net
    
    
    10
    
    
    
    (153
    )Borrowings from Credit Facility
    
    
    24,000
    
    
    
    93,000Repayments on Credit Facility
    
    
    (43,800
    )
    
    
    (176,515
    )Proceeds from short-term borrowings
    
    
    167,400
    
    
    
    215,000Repayments on short-term borrowings
    
    
    (175,000
    )
    
    
    (140,000
    )Purchase of derivatives
    
    
    (41
    )
    
    
    (39
    )Deferred financing fees
    
    
    (745
    )
    
    
    (532
    )Distributions paid
    
    
    (7,949
    )
    
    
    (7,949
    )Net cash used in financing activities
    
    
    (36,125
    )
    
    
    (17,188
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (7,754
    )
    
    
    80,636CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    87,717
    
    
    
    7,236CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    79,963
    
    
    $
    87,872NON-CASH ACTIVITIES(2)
    
    $
    515
    
    
    $
    850
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information.(2)
    
    2010: Non- cash activities represent real property distributed to shareholders of
A. Stucki Holding Corp. prior to its sale in June 2010. This property is included in the
Companys Schedule of Investments under Neville Limited at December 31, 2010, and its fair
market value was recognized as other income during the quarter ended June 30, 2010.2009: Non-cash activities represent an investment disbursement to Cavert II Holding Corp. on
its revolving line of credit, which proceeds were used to make the next four quarterly payments
due under normal amortization for both its senior term A and senior term B loans in a non-cash
transaction. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS
DECEMBER 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    
    Fair ValueNON-CONTROL/NON-AFFILIATE INVESTMENTS:Senior Syndicated Loans:Fifth Third Processing Solutions, LLC
    
    Service  electronic payment processing
    
    Senior Subordinated Term Debt (8.3%, Due 11/2017)(3)
    
    $
    495
    
    
    $
    507Survey Sampling, LLC
    
    Service  telecommunications-based sampling
    
    Senior Term Debt (10.4%, Due 5/2011)(3)
    
    
    2,324
    
    
    
    1,509Subtotal
 Syndicated Loans
    
    
    
    
    
    
    2,819
    
    
    
    2,016Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design  greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(3)
    
    
    3,043
    
    
    
    2,838B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    6,562
    
    
    
    6,554Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    3,060
    
    
    
    3,056Common Stock Warrants(4)
    
    
    300
    
    
    
    1019,922
    
    
    
    9,711Total Non-Control/Non-Affiliate Investments (represents 9.6% of total investments at fair value)
    
    $
    15,784
    
    
    $
    14,565CONTROL INVESTMENTS:Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    $
    14,500
    
    
    $
    14,500Senior Subordinated Term Debt (12.5%, Due 12/2011)
    
    
    415
    
    
    
    415Preferred Stock(4)
    
    
    6,984
    
    
    
    4,113Common Stock(4)
    
    
    1,045
    
    
    
    Common Stock Warrants(4)
    
    
    24
    
    
    
    22,968
    
    
    
    19,028ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $931 available (non-accrual, Due 3/2013)(4)
    
    
    2,528
    
    
    
    Senior Subordinated Term Debt (non-accrual, Due 3/2013)(4)
    
    
    6,060
    
    
    
    Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    4
    
    
    
    Guaranty ($750)11,092
    
    
    
    Cavert II Holding Corp.
    
    Manufacturing  bailing wire
    
    Senior Term Debt (10.0%, Due 10/2012)(6)
    
    
    2,650
    
    
    
    2,650Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671Preferred Stock(4)
    
    
    4,110
    
    
    
    5,252Common Stock(4)
    
    
    69
    
    
    
    5,00711,500
    
    
    
    17,580Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.6%, Due 11/2014)(5)
    
    
    7,000
    
    
    
    6,720Preferred Stock(4)
    
    
    3,725
    
    
    
    Guaranty ($3,751)10,725
    
    
    
    6,720Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due 8/2013)
    
    
    5,220
    
    
    
    5,220Preferred Stock(4)
    
    
    19,658
    
    
    
    2,158Common Stock(4)
    
    
    48
    
    
    
    24,926
    
    
    
    7,378Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due 3/2011)(5)
    
    
    1,032
    
    
    
    1,018Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,339Senior Term Debt (12.0%, Due 3/2014)(5)
    
    
    3,727
    
    
    
    3,624Senior Term Debt (2.5%, Due 3/2014)(5)(6)
    
    
    3,500
    
    
    
    3,404Common Stock(4)
    
    
    500
    
    
    
    Common Stock Warrants(4)
    
    
    277
    
    
    
    11,411
    
    
    
    10,385Neville Limited(9)
    
    Real Estate  investments
    
    Common Stock(4)
    
    
    610
    
    
    
    551610
    
    
    
    551
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GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
DECEMBER 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    
    Fair ValueCONTROL INVESTMENTS(Continued):Precision Southeast, Inc.
    
    Manufacturing  injection molding and plastics
    
    Revolving Credit Facility, $551 available (7.5%, Due 12/2011)(7)
    
    $
    449
    
    
    $
    449Senior Term Debt (14.0%, Due 12/2015)(7)
    
    
    7,775
    
    
    
    7,775Preferred Stock(4)(7)
    
    
    1,909
    
    
    
    1,909Common Stock(4)(7)
    
    
    91
    
    
    
    9110,224
    
    
    
    10,224Tread Corp.(8)
    
    Manufacturing  storage and transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(5)
    
    
    5,000
    
    
    
    4,925Preferred Stock(4)
    
    
    833
    
    
    
    Common Stock(4)
    
    
    1
    
    
    
    Preferred Stock & Debt Warrants(4)
    
    
    3
    
    
    
    5,837
    
    
    
    4,925Venyu Solutions, Inc.
    
    Service  online servicing suite
    
    Senior Subordinated Term Debt (11.3%, Due 10/2015)(7)
    
    
    7,000
    
    
    
    7,000Senior Subordinated Term Debt (14.0%, Due 10/2015)(7)
    
    
    12,000
    
    
    
    12,000Preferred Stock(4)(7)
    
    
    6,000
    
    
    
    6,00025,000
    
    
    
    25,000Total Control Investments (represents 67.4% of total investments at fair value)
    
    $
    134,293
    
    
    $
    101,791AFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $400 available (10.0%, Due 10/2011)(5)
    
    $
    1,100
    
    
    $
    1,092Senior Term Debt (10.0%, Due 10/2012)(5)
    
    
    3,262
    
    
    
    3,238Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    8,984
    
    
    
    8,894Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    3
    
    
    
    15,849
    
    
    
    13,224Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $0 available (4.3%, Due 6/2011)(5)
    
    
    600
    
    
    
    393Senior Term Debt (9.2%, Due 12/2012)(5)
    
    
    7,227
    
    
    
    4,734Senior Term Debt (10.5%, Due 12/2012)(5)
    
    
    3,650
    
    
    
    2,391Senior Term Debt (10.5%, Due 12/2012)(5)(6)
    
    
    3,650
    
    
    
    2,390Preferred Stock(4)
    
    
    1,750
    
    
    
    2,072Common Stock(4)
    
    
    1,682
    
    
    
    18,559
    
    
    
    11,980Quench Holdings Corp.
    
    Service  sales, installation and service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(5)
    
    
    8,000
    
    
    
    6,090Preferred Stock(4)
    
    
    2,950
    
    
    
    3,460Common Stock(4)
    
    
    447
    
    
    
    11,397
    
    
    
    9,550Total Affiliate Investments (represents 23.0% of total investments at fair value)
    
    $
    45,805
    
    
    $
    34,754TOTAL INVESTMENTS
    
    
    
    
    
    $
    195,882
    
    
    $
    151,110
 
 (1)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.(2)
    
    Percentage represents the weighted average interest rates in effect at December 31, 2010, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near December 31, 2010, offered by the respective syndication agents trading desk or secondary desk.(4)
    
    Security is non-income producing.(5)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. at December 31, 2010.(6)
    
    Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior debt and before the senior subordinated debt.(7)
    
    New proprietary portfolio investment valued at cost, as it was determined that the price paid by the Company through an orderly transaction during the current quarter best represents fair value as of December 31, 2010.(8)
    
    In June 2010, an additional equity investment increased the Companys fully-diluted ownership percentage above 25%, resulting in the investment being reclassified as Control during the quarter ended June 30, 2010.(9)
    
    In July 2010, Gladstone Neville Corp. changed its name to Neville Limited. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
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GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
MARCH 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    
    Fair ValueNON-CONTROL/NON-AFFILIATE INVESTMENTS:Senior Syndicated Loans:Interstate FiberNet, Inc.
    
    Service  provider of voice and data telecommunications services
    
    Senior Term Debt (4.3%, Due 7/2013)(8)
    
    $
    6,743
    
    
    $
    6,762Survey Sampling, LLC
    
    Service  telecommunications-based sampling
    
    Senior Term Debt (9.5%, Due 5/2011)(3)
    
    
    2,385
    
    
    
    1,069Subtotal
 Syndicated Loans
    
    
    
    
    
    $
    9,128
    
    
    $
    7,831Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design  greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(3)
    
    $
    3,043
    
    
    $
    2,895B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    6,613
    
    
    
    6,596Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    3,590
    
    
    
    3,581Common Stock Warrants(4)
    
    
    300
    
    
    
    4310,503
    
    
    
    10,220Total Non-Control/Non-Affiliate Investments (represents 10.1% of total investments at fair value)
    
    $
    22,674
    
    
    $
    20,946CONTROL INVESTMENTS:A. Stucki Holding Corp.
    
    Manufacturing  railroad freight car products
    
    Senior Term Debt (4.7%, Due 3/2012)
    
    $
    9,101
    
    
    $
    9,101Senior Term Debt (7.0%, Due 3/2012)(6)
    
    
    9,900
    
    
    
    9,900Senior Subordinated Term Debt (13.0%, Due 3/2014)
    
    
    9,456
    
    
    
    9,456Preferred Stock
    
    
    4,387
    
    
    
    4,529Common Stock(4)
    
    
    130
    
    
    
    17,39332,974
    
    
    
    50,379Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    
    14,500
    
    
    
    13,585Preferred Stock(4)
    
    
    6,984
    
    
    
    Common Stock(4)
    
    
    1,045
    
    
    
    Common Stock Warrants(4)
    
    
    24
    
    
    
    22,553
    
    
    
    13,585ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $496 available (non-accrual, Due 3/2013)(5)
    
    
    1,504
    
    
    
    421Senior Subordinated Term Debt (non-accrual, Due 3/2013)(5)
    
    
    6,250
    
    
    
    1,750Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    4
    
    
    
    Guaranty ($250)10,258
    
    
    
    2,171Cavert II Holding Corp.
    
    Manufacturing  bailing wire
    
    Senior Term Debt (8.3%, Due 10/2012)(10)
    
    
    2,875
    
    
    
    2,875Senior Term Debt (10.0%, Due 10/2012)(6)
    
    
    2,700
    
    
    
    2,700Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671Preferred Stock(4)
    
    
    4,110
    
    
    
    4,959Common Stock(4)
    
    
    69
    
    
    
    3,52614,425
    
    
    
    18,731Chase II Holding Corp.
    
    Manufacturing  traffic doors
    
    Senior Term Debt (8.8%, Due 3/2011)
    
    
    7,700
    
    
    
    7,700Senior Term Debt (12.0%, Due 3/2011)(6)
    
    
    7,520
    
    
    
    7,520Senior Subordinated Term Debt (13.0%, Due 3/2013)
    
    
    6,168
    
    
    
    6,168Preferred Stock(4)
    
    
    6,961
    
    
    
    7,713Common Stock(4)
    
    
    61
    
    
    
    28,410
    
    
    
    29,101Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.6%, Due 11/2014)(5)
    
    
    7,000
    
    
    
    6,869Preferred Stock(4)
    
    
    3,725
    
    
    
    Guaranty ($2,000)10,725
    
    
    
    6,869
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##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
MARCH 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    
    Fair ValueCONTROL INVESTMENTS(Continued):Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due 8/2013)(5)
    
    $
    17,250
    
    
    $
    17,099Preferred Stock(4)
    
    
    4,112
    
    
    
    Common Stock(4)
    
    
    48
    
    
    
    21,410
    
    
    
    17,099Mathey Investments, Inc.(7)
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due 3/2011)(5)
    
    
    1,032
    
    
    
    1,011Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,328Senior Term Debt (17.0%, Due 3/2014)(5) (6) (9)
    
    
    7,227
    
    
    
    6,974Common Stock(4)
    
    
    500
    
    
    
    Common Stock Warrants(4)
    
    
    277
    
    
    
    11,411
    
    
    
    10,313Total Control Investments (represents 71.7% of total investments at fair value)
    
    $
    152,166
    
    
    $
    148,248AFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $600 available (10.0%, Due 10/2010)(5)
    
    $
    900
    
    
    $
    893Senior Term Debt (10.0%, Due 10/2012)(5)
    
    
    4,163
    
    
    
    4,131Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    9,053
    
    
    
    8,929Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    2
    
    
    
    16,618
    
    
    
    13,953Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $0 available (4.2%, Due 5/2010)(5)
    
    
    2,000
    
    
    
    1,210Senior Term Debt (9.3%, Due 12/2011)(5)
    
    
    6,227
    
    
    
    3,767Senior Term Debt (10.5%, Due 12/2011)(5) (6)
    
    
    7,300
    
    
    
    4,417Preferred Stock(4)
    
    
    1,750
    
    
    
    Common Stock(4)
    
    
    1,682
    
    
    
    18,959
    
    
    
    9,394Quench Holdings Corp.
    
    Service  sales, installation and service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(5)
    
    
    8,000
    
    
    
    6,150Preferred Stock(4)
    
    
    2,950
    
    
    
    3,224Common Stock(4)
    
    
    447
    
    
    
    11,397
    
    
    
    9,374Tread Corp.
    
    Manufacturing  storage and transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(5)
    
    
    5,000
    
    
    
    4,943Preferred Stock(4)
    
    
    750
    
    
    
    Common Stock & Debt Warrants(4)
    
    
    3
    
    
    
    5,753
    
    
    
    4,943Total Affiliate Investments (represents 18.2% of total investments at fair value)
    
    $
    52,727
    
    
    $
    37,664TOTAL INVESTMENTS
    
    
    
    
    
    $
    227,567
    
    
    $
    206,858
 
 (1)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.(2)
    
    Percentage represents the weighted average interest rates in effect at March 31, 2010, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near March 31, 2010, offered by the respective syndication agents trading desk or secondary desk.(4)
    
    Security is non-income producing.(5)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. at March 31, 2010.(6)
    
    LOT of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior debt and before the senior subordinated debt.(7)
    
    Restructured in December 2009, resulting in the Company owning 100% of Mathey Investments, Inc. and thus reclassifying it as a Control investment.(8)
    
    Security was paid off, at par, subsequent to March 31, 2010 and was valued based on the pay off.(9)
    
    Loan was restructured into two separate term loans with face values of $3.7 million and $3.5 million effective February 2010.(10)
    
    Loan was repaid, in full, subsequent to March 31, 2010. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 10




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GLADSTONE INVESTMENT CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)  DECEMBER 31, 2010  (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED)
 NOTE 1. ORGANIZATION
    NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Unaudited Interim Financial Statements and Basis of Presentation
  Condensed Consolidated Statement of Assets and Liabilities
 Reclassifications
  Investment Valuation Policy
   11




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##### Table of Contents



Publicly-traded securities:
 Securities for which a limited market exists:
   Securities for which no market exists:
 (1)
    
    Portfolio investments comprised solely of debt securities:Debt securities that are not
publicly traded on an established securities market, or for which a limited market does not
exist (Non-Public Debt Securities), and that are issued by portfolio companies in which the
Company has no equity, or equity-like securities, are fair valued in accordance with the terms
of the Policy, which utilizes opinions of value submitted to the Company by Standard & Poors
Securities Evaluations, Inc. (SPSE). The Company may also submit paid in kind (PIK)
interest to SPSE for its evaluation when it is determined that PIK interest is likely to be
received.(2)
    
    Portfolio investments in controlled companies comprised of a bundle of investments, which can
include debt and equity securities:The fair value of these investments is determined based on
the total enterprise value (TEV) of the portfolio company, or issuer, utilizing a liquidity
waterfall approach under ASC 820 for the Companys Non-Public Debt Securities and equity or
equity-like securities (e.g. preferred equity, common equity, or other equity-like securities)
that are purchased together as part of a package, where the Company has control or could gain
control through an option or warrant security; both the debt and equity securities of the
portfolio investment would exit in the mergers and acquisition market as the principal market,
generally through a sale or recapitalization of the portfolio company. In accordance with ASC
820, the Company applies the in-use premise of value which assumes the debt and equity
securities are sold together. Under this liquidity waterfall approach, the Company first
calculates the TEV of the issuer by incorporating some or all of the following factors to
determine the TEV of the issuer:
 
    
    the issuers ability to make payments;
    
    the earnings of the issuer;
 12




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##### Table of Contents




    
    recent sales to third parties of similar securities;
    
    the comparison to publicly traded securities; and
    
    DCF or other pertinent factors.
 In gathering the sales to third parties of similar securities, the Company may reference
industry statistics and use outside experts. Once the Company has estimated the TEV of the
issuer, the Company will subtract the value of all the debt securities of the issuer, which are
valued at the contractual principal balance. Fair values of these debt securities are discounted
for any shortfall of TEV over the total debt outstanding for the issuer. Once the values for all
outstanding senior securities (which include the debt securities) have been subtracted from the
TEV of the issuer, the remaining amount, if any, is used to determine the value of the issuers
equity or equity-like securities. If, in the Advisers judgment, the liquidity waterfall
approach does not accurately reflect the value of the debt component, the Adviser may recommend
that the Company use a valuation by SPSE, or, if that is unavailable, a DCF valuation technique.(3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:The Company values Non-Public Debt Securities that are
purchased together with equity or equity-like securities from the same portfolio company, or
issuer, for which the Company does not control or cannot gain control as of the measurement
date, using a hypothetical secondary market as the Companys principal market. In accordance
with ASC 820, the Company determines its fair value of these debt securities of non-control
investments assuming the sale of an individual debt security using the in-exchange premise of
value. As such, the Company estimates the fair value of the debt component using estimates of
value provided by SPSE and its own assumptions in the absence of observable market data,
including synthetic credit ratings, estimated remaining life, current market yield and
interest rate spreads of similar securities as of the measurement date. Subsequent to June 30,
2009, for equity or equity-like securities of investments for which the Company does not
control or cannot gain control as of the measurement date, the Company estimates the fair
value of the equity using the in-exchange premise of value based on factors such as the
overall value of the issuer, the relative fair value of other units of account including debt,
or other relative value approaches. Consideration is also given to capital structure and other
contractual obligations that may impact the fair value of the equity. Further, the Company may
utilize comparable values of similar companies, recent investments and indices with similar
structures and risk characteristics or its own assumptions in the absence of other observable
market data and may also employ DCF valuation techniques.
   Interest and Dividend Income Recognition
   Condensed
Consolidated Statements of Operations
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##### Table of Contents



Recent Accounting Pronouncements
  NOTE 3. INVESTMENTS
  
    
    Level 1  inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets;
    
    Level 2  inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
financial instrument. Level 2 inputs are in those markets for
which there are few transactions, the prices are not current,
little public information exists or instances where prices vary
substantially over time or among brokered market makers; and
    
    Level 3  inputs to the valuation methodology are unobservable and
significant to the fair value measurement. Unobservable inputs are
those inputs that reflect the Companys own assumptions that
market participants would use to price the asset or liability
based upon the best available information.
  Condensed Consolidated Statements of Assets and Liabilities
 As of December 31, 2010Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesNon-Control/Non-Affiliate investmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    13,956
    
    
    $
    13,956Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    508
    
    
    
    508Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    101
    
    
    
    101Total Non-Control/Non-Affiliate
investments
    
    
    
    
    
    
    
    
    
    
    14,565
    
    
    
    14,565Control investmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    21,259
    
    
    
    21,259Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    55,451
    
    
    
    55,451Preferred equity
    
    
    
    
    
    
    
    
    
    
    19,432
    
    
    
    19,432Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    5,649
    
    
    
    5,649Total Control investments
    
    
    
    
    
    
    
    
    
    
    101,791
    
    
    
    101,791Affiliate investmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    23,132
    
    
    
    23,132Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    6,090
    
    
    
    6,090Preferred equity
    
    
    
    
    
    
    
    
    
    
    5,532
    
    
    
    5,532Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    34,754
    
    
    
    34,754Total investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    151,110
    
    
    $
    151,110Cash Equivalents
    
    
    75,000
    
    
    
    
    
    
    
    
    
    
    
    75,000Total Investments and Cash Equivalents
    
    $
    75,000
    
    
    $
    
    
    
    $
    151,110
    
    
    $
    226,110
 14




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Changes in Level 3 Fair Value Measurements of Investments
  Fair value measurements using unobservable data inputs (Level 3)
 Periods ended December 31, 2010:
 Non-Control/Non-Affiliate
    
    
    Control
    
    
    AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended December 31, 2010:Fair value as of September 30, 2010
    
    $
    14,060
    
    
    $
    95,050
    
    
    $
    32,504
    
    
    $
    141,614Total realized gains(1)(6)
    
    
    
    
    
    
    6,857
    
    
    
    
    
    
    
    6,857Total unrealized gains (losses)(1)
    
    
    52
    
    
    
    (1,399
    )
    
    
    2,373
    
    
    
    1,026Issuances/Originations
    
    
    502
    
    
    
    35,920
    
    
    
    200
    
    
    
    36,622Sales(6)
    
    
    
    
    
    
    (13,879
    )
    
    
    
    
    
    
    (13,879
    )Settlements/Repayments
    
    
    (49
    )
    
    
    (20,758
    )
    
    
    (323
    )
    
    
    (21,130
    )Fair value as of December 31, 2010
    
    $
    14,565
    
    
    $
    101,791
    
    
    $
    34,754
    
    
    $
    151,110Nine months ended December 31, 2010:Fair value as of March 31, 2010
    
    $
    20,946
    
    
    $
    148,248
    
    
    $
    37,664
    
    
    $
    206,858Total realized gains(1)
    
    
    18
    
    
    
    23,471
    
    
    
    
    
    
    
    23,489Total unrealized gains (losses)(1)
    
    
    509
    
    
    
    (28,583
    )
    
    
    4,011
    
    
    
    (24,063
    )Issuances/Originations
    
    
    502
    
    
    
    40,914
    
    
    
    200
    
    
    
    41,616Sales
    
    
    
    
    
    
    (35,010
    )
    
    
    
    
    
    
    (35,010
    )Settlements/Repayments
    
    
    (7,410
    )
    
    
    (53,001
    )
    
    
    (1,369
    )
    
    
    (61,780
    )Transfers(2)
    
    
    
    
    
    
    5,752
    
    
    
    (5,752
    )
    
    
    Fair value as of December 31, 2010
    
    $
    14,565
    
    
    $
    101,791
    
    
    $
    34,754
    
    
    $
    151,110
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended December 31, 2010:Fair value as of September 30, 2010
    
    $
    64,826
    
    
    $
    50,481
    
    
    $
    19,356
    
    
    $
    6,951
    
    
    $
    141,614Total realized gains(1)(6)
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,857
    
    
    
    6,857Total unrealized gains (losses)(1)
    
    
    53
    
    
    
    (2,456
    )
    
    
    4,660
    
    
    
    (1,231
    )
    
    
    1,026Issuances/Originations
    
    
    8,431
    
    
    
    20,191
    
    
    
    7,909
    
    
    
    91
    
    
    
    36,622Sales(6)
    
    
    
    
    
    
    
    
    
    
    (6,961
    )
    
    
    (6,918
    )
    
    
    (13,879
    )Settlements/Repayments
    
    
    (14,962
    )
    
    
    (6,168
    )
    
    
    
    
    
    
    
    
    
    
    (21,130
    )Fair value as of December 31, 2010
    
    $
    58,348
    
    
    $
    62,048
    
    
    $
    24,964
    
    
    $
    5,750
    
    
    $
    151,110Nine months ended December 31, 2010:Fair value as of March 31, 2010
    
    $
    94,359
    
    
    $
    71,112
    
    
    $
    20,425
    
    
    $
    20,962
    
    
    $
    206,858Total realized gains(1)
    
    
    18
    
    
    
    
    
    
    
    
    
    
    
    23,471
    
    
    
    23,489Total unrealized gains (losses)(1)
    
    
    1,465
    
    
    
    (2,154
    )
    
    
    (7,651
    )
    
    
    (15,723
    )
    
    
    (24,063
    )Issuances/Originations
    
    
    8,431
    
    
    
    21,245
    
    
    
    11,238
    
    
    
    702
    
    
    
    41,616Sales
    
    
    
    
    
    
    
    
    
    
    (11,348
    )
    
    
    (23,662
    )
    
    
    (35,010
    )Settlements/Repayments
    
    
    (45,925
    )
    
    
    (15,855
    )
    
    
    
    
    
    
    
    
    
    
    (61,780
    )Transfers(3)
    
    
    
    
    
    
    (12,300
    )
    
    
    12,300
    
    
    
    
    
    
    
    Fair value as of December 31, 2010
    
    $
    58,348
    
    
    $
    62,048
    
    
    $
    24,964
    
    
    $
    5,750
    
    
    $
    151,110
 15




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##### Table of Contents



Periods ended December 31, 2009:
 Non-Control/Non-Affiliate
    
    
    Control
    
    
    AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended December 31, 2009:Fair value as of September 30, 2009
    
    $
    25,004
    
    
    $
    132,399
    
    
    $
    46,900
    
    
    $
    204,303Total realized losses(1)
    
    
    (1,318
    )
    
    
    
    
    
    
    
    
    
    
    (1,318
    )Total unrealized gains (losses)(1)
    
    
    1,383
    
    
    
    (8,853
    )
    
    
    1,257
    
    
    
    (6,213
    )Issuances/Originations
    
    
    
    
    
    
    595
    
    
    
    
    
    
    
    595Settlements/Repayments
    
    
    (182
    )
    
    
    (4,315
    )
    
    
    (1
    )
    
    
    (4,498
    )Sales
    
    
    (5,483
    )
    
    
    
    
    
    
    
    
    
    
    (5,483
    )Transfers(4)
    
    
    
    
    
    
    11,129
    
    
    
    (11,129
    )
    
    
    Fair value as of December 31, 2009
    
    $
    19,404
    
    
    $
    130,955
    
    
    $
    37,027
    
    
    $
    187,386Nine months ended December 31, 2009:Fair value as of March 31, 2009
    
    $
    94,740
    
    
    $
    166,163
    
    
    $
    53,027
    
    
    $
    313,930Total realized losses(1)
    
    
    (35,922
    )
    
    
    
    
    
    
    
    
    
    
    (35,922
    )Total unrealized gains (losses)(1)
    
    
    36,597
    
    
    
    (35,234
    )
    
    
    (4,862
    )
    
    
    (3,499
    )Issuances/Originations
    
    
    150
    
    
    
    700
    
    
    
    713
    
    
    
    1,563Settlements/Repayments
    
    
    (1,455
    )
    
    
    (11,803
    )
    
    
    (722
    )
    
    
    (13,980
    )Sales
    
    
    (74,706
    )
    
    
    
    
    
    
    
    
    
    
    (74,706
    )Transfers(4)
    
    
    
    
    
    
    11,129
    
    
    
    (11,129
    )
    
    
    Fair value as of December 31, 2009
    
    $
    19,404
    
    
    $
    130,955
    
    
    $
    37,027
    
    
    $
    187,386
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended December 31, 2009:Fair value as of September 30, 2009
    
    $
    103,092
    
    
    $
    70,466
    
    
    $
    25,229
    
    
    $
    5,516
    
    
    $
    204,303Total realized losses(1)
    
    
    (1,318
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,318
    )Total unrealized gains (losses)(1)
    
    
    585
    
    
    
    201
    
    
    
    (5,975
    )
    
    
    (1,024
    )
    
    
    (6,213
    )Issuances/Originations
    
    
    283
    
    
    
    312
    
    
    
    
    
    
    
    
    
    
    
    595Settlements/Repayments
    
    
    (3,998
    )
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    (4,498
    )Sales
    
    
    (5,483
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (5,483
    )Fair value as of December 31, 2009
    
    $
    93,161
    
    
    $
    70,479
    
    
    $
    19,254
    
    
    $
    4,492
    
    
    $
    187,386Nine months ended December 31, 2009:Fair value as of March 31, 2009
    
    $
    179,676
    
    
    $
    72,061
    
    
    $
    40,043
    
    
    $
    22,150
    
    
    $
    313,930Total realized losses(1)
    
    
    (35,922
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (35,922
    )Total unrealized gains (losses)(1)
    
    
    34,593
    
    
    
    355
    
    
    
    (20,789
    )
    
    
    (17,658
    )
    
    
    (3,499
    )Issuances/Originations
    
    
    1,250
    
    
    
    313
    
    
    
    
    
    
    
    
    
    
    
    1,563Settlements/Repayments
    
    
    (12,230
    )
    
    
    (1,750
    )
    
    
    
    
    
    
    
    
    
    
    (13,980
    )Sales
    
    
    (74,706
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (74,706
    )Transfers(5)
    
    
    500
    
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    Fair value as of December 31, 2009
    
    $
    93,161
    
    
    $
    70,479
    
    
    $
    19,254
    
    
    $
    4,492
    
    
    $
    187,386
 
 (1)
    
    Included in the realized and unrealized gain (loss) section on the
accompanying Condensed Consolidated Statement of Operationsfor the three and nine months
ended December 31, 2010 and 2009.(2)
    
    Transfer represents the cost basis as of March 31, 2010 of Tread
Corporation, which was reclassified from an Affiliate to a Control investment during the
three months ended June 30, 2010.(3)
    
    Transfer represents $12.3 million of senior subordinated term debt of
Galaxy Tool Holding Corp. at cost as of June 30, 2010 that was converted to preferred and
common equity during the three months ended September 30, 2010.(4)
    
    Transfer represents the cost basis of Mathey as of September 30, 2009,
which was reclassified from an Affiliate to a Control investment during the three months
ended December 31, 2009. 16




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##### Table of Contents



(5)
    
    Transfer represents the cost basis as of March 31, 2009 of Noble senior
subordinated term debt that was converted into senior term debt during the three months
ended June 30, 2009.(6)
    
    There was a $0.3 million realized loss adjustment in the three months
ended December 31, 2010 related to the A Stucki sale due to a
subsequent cost that arose from the closing statement. This amount is not
included in the three month Level 3 rollforward because the A Stucki investment is not in
the beginning balance as of September 30, 2010. However, the $0.3 million realized loss
adjustment is included in the realized gain (loss) section on the accompanying Condensed
Consolidated Statement of Operationsfor the three months ended December 31, 2010. Non-Proprietary Investment Activity
   Proprietary Investment Activity
  
    
    In December 2010, the Company sold its equity investment and received full repayment of
its debt investment in Chase in connection with the sale of 100% of the outstanding capital
stock of Chase. The net cash proceeds to the Company from the sale of its equity in Chase
were $13.9 million, resulting in a realized gain of $6.9 million. In connection with the
equity sale, the Company accrued and received cash dividend proceeds of $4.0 million from
its preferred stock investment in Chase. At the same time, the Company received $22.9
million in repayment of its principal, accrued interest and success fees on the loans to
Chase.
    
    In December 2010, the Company invested $10.8 million in Precision Southeast, Inc.
(Precision), consisting of senior debt and preferred and common equity. Precision,
headquartered in Myrtle Beach, South Carolina, is a custom injection molding company,
focused on the filtration, consumer and industrial markets and is included as a Control
investment on the accompanying Condensed Consolidated Schedule of Investmentsas of
December 31, 2010
    
    In October and November 2010, Mathey prepaid $0.4 million of its success fee on its
senior term debt.
    
    In October 2010, the Company invested $25.0 million in Venyu Solutions, Inc. (Venyu),
consisting of subordinated debt and preferred equity. Venyu, headquartered in Baton Rouge,
Louisiana, is a leader in commercial-grade, customizable solutions for data protection,
data hosting and disaster recovery and is included as a Control investment on the
accompanying Condensed Consolidated Schedule of Investmentsas of December 31, 2010
    
    In September 2010, Cavert prepaid $0.8 million of its success fee on its senior term
debt and senior subordinated term debt.
    
    In July and August 2010, the Company restructured Galaxy Tool Holding Corp. (Galaxy)
by converting $12.3 million of its senior subordinated term note into preferred and common
stock and investing an additional $3.2 million into preferred stock. After the
restructuring, the Companys investments at cost in Galaxy consisted of a $5.2 million
senior subordinated term note, $19.6 million in preferred stock and $0.1 million in common
stock.
    
    In June 2010, the Company sold its equity investment and received full repayment of its
debt investment in A. Stucki in connection with the sale of 100% of the outstanding capital
stock of A. Stucki. The net cash proceeds to the Company from the sale of its equity in A.
Stucki were $21.4 million, resulting in a realized gain of
$16.7 million, which includes a $0.3 million closing adjustment
decrease during the three months ended December 31, 2010. In connection
with the equity sale, the Company accrued and received cash dividend proceeds of $0.2
million from its preferred stock investment in A. Stucki. At the same time, the Company
received $30.6 million in repayment of its principal, accrued interest and success fees on
the loans to A. Stucki. Additionally, immediately prior to the sale of A. Stucki, the
Company received a special distribution of property with a fair value of $0.5 million,
which was recorded as dividend income and is reflected as a Control investment, Neville
Limited, on the accompanying Condensed Consolidated Schedule of Investmentsas of December
31, 2010.
    
    In May 2010, Cavert made full repayment of its senior term A debt owed to the Company resulting in
the receipt of approximately $2.9 million in cash proceeds.
 17




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##### Table of Contents



Investment Concentrations
  December 31, 2010
    
    
    March 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueSenior term debt
    
    $
    64,970
    
    
    $
    58,348
    
    
    $
    102,446
    
    
    $
    94,359Senior subordinated term debt
    
    
    72,889
    
    
    
    62,048
    
    
    
    79,799
    
    
    
    71,112Preferred equity
    
    
    52,921
    
    
    
    24,964
    
    
    
    40,728
    
    
    
    20,425Common equity/equivalents
    
    
    5,102
    
    
    
    5,750
    
    
    
    4,594
    
    
    
    20,962Total investments
    
    $
    195,882
    
    
    $
    151,110
    
    
    $
    227,567
    
    
    $
    206,858
  December 31, 2010
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage of TotalFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    InvestmentsContainers, packaging and glass
    
    $
    27,804
    
    
    
    18.4
    %
    
    $
    18,731
    
    
    
    9.1
    %Electronics
    
    
    25,000
    
    
    
    16.5
    
    
    
    
    
    
    
    Chemicals, plastics and rubber
    
    
    19,028
    
    
    
    12.6
    
    
    
    13,585
    
    
    
    6.6Diversified/Conglomerate manufacturing
    
    
    13,224
    
    
    
    8.8
    
    
    
    43,054
    
    
    
    20.8Cargo transport
    
    
    11,980
    
    
    
    7.9
    
    
    
    9,394
    
    
    
    4.5Machinery
    
    
    10,385
    
    
    
    6.9
    
    
    
    60,692
    
    
    
    29.3Buildings and real estate
    
    
    10,262
    
    
    
    6.8
    
    
    
    10,220
    
    
    
    4.9Home and office furnishings/consumer
products
    
    
    9,550
    
    
    
    6.3
    
    
    
    9,374
    
    
    
    4.5Aerospace and defense
    
    
    7,378
    
    
    
    4.9
    
    
    
    17,099
    
    
    
    8.3Automobile
    
    
    6,720
    
    
    
    4.4
    
    
    
    9,040
    
    
    
    4.4Oil and gas
    
    
    4,925
    
    
    
    3.3
    
    
    
    4,943
    
    
    
    2.4Printing and publishing
    
    
    2,838
    
    
    
    1.9
    
    
    
    2,895
    
    
    
    1.4Telecommunications
    
    
    1,509
    
    
    
    1.0
    
    
    
    7,831
    
    
    
    3.8Diversified/Conglomerate service
    
    
    507
    
    
    
    0.3
    
    
    
    
    
    
    
    Total investments
    
    $
    151,110
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  December 31, 2010
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsSouth
    
    $
    89,805
    
    
    
    59.4
    %
    
    $
    60,363
    
    
    
    29.2
    %Northeast
    
    
    37,358
    
    
    
    24.7
    
    
    
    81,276
    
    
    
    39.3West
    
    
    13,224
    
    
    
    8.8
    
    
    
    16,124
    
    
    
    7.8Midwest
    
    
    10,723
    
    
    
    7.1
    
    
    
    49,095
    
    
    
    23.7Total investments
    
    $
    151,110
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  18




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##### Table of Contents



Investment Principal Repayments
  AmountFor the remaining three months ending March 31, 2011:
    
    $
    1,640For the fiscal year ending March 31:2012
    
    
    20,7532013
    
    
    30,1092014
    
    
    34,3312015
    
    
    20,9422016
    
    
    26,775Thereafter
    
    
    3,543Total contractual repayments
    
    $
    138,093Investments in equity securities
    
    
    58,023Adjustments to cost basis on debt securities
    
    
    (234
    )Total cost basis of investments held at
December 31, 2010:
    
    $
    195,882
 NOTE 4. RELATED PARTY TRANSACTIONS
 Investment Advisory and Management Agreement
  Condensed Consolidated Statements of Operations
 Three Months Ended December 31,
    
    
    Nine Months Ended December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    195,400
    
    
    $
    199,800
    
    
    $
    198,000
    
    
    $
    232,000Multiplied by pro-rated annual base management fee of 2.0%
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    1.5
    %
    
    
    1.5
    %Unadjusted base management fee
    
    
    977
    
    
    
    999
    
    
    
    2,970
    
    
    
    3,480Reduction for loan servicing fees(2)
    
    
    (634
    )
    
    
    (886
    )
    
    
    (2,124
    )
    
    
    (2,892
    )Base management fee(2)
    
    $
    343
    
    
    $
    113
    
    
    $
    846
    
    
    $
    588Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated
loans to 0.5%
    
    $
    
    
    
    $
    (34
    )
    
    $
    (15
    )
    
    $
    (265
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (450
    )
    
    
    (93
    )
    
    
    (615
    )
    
    
    (326
    )Credit to base management fee from Adviser(2)
    
    
    (450
    )
    
    
    (127
    )
    
    
    (630
    )
    
    
    (591
    )Net base management fee
    
    $
    (107
    )
    
    $
    (14
    )
    
    $
    216
    
    
    $
    (3
    )Incentive fee(2)
    
    $
    1,898
    
    
    $
    588
    
    
    $
    2,949
    
    
    $
    588
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from
borrowings, valued at the end of the four most recently completed quarters and appropriately adjusted for any share issuances or repurchases during the current year.(2)
    
    Reflected as a line item on the Condensed Consolidated Statement of Operationslocated elsewhere in this report. Base Management Fee
  
    
    Loan Servicing FeesThe Adviser also services the loans held by Business Investment, in return for which it
receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans
pledged under the Companys line of credit. Since the Company owns these loans, all loan
servicing fees paid to the Adviser are treated as reductions directly against the 2.0%
base management fee under the Advisory Agreement.
 19




---



##### Table of Contents




    
    Senior Syndicated Loan Fee WaiverThe Companys Board of Directors accepted an unconditional and irrevocable voluntary
waiver from the Adviser to reduce the annual 2.0% base management fee on senior
syndicated loan participations to 0.5%, to the extent that proceeds resulting from
borrowings were used to purchase such syndicated loan participations, for the nine months
ended December 31, 2010 and 2009.
    
    Portfolio Company FeesUnder the Advisory Agreement, the Adviser has also provided, and continues to provide,
managerial assistance and other services to the Companys portfolio companies and may
receive fees for services other than managerial assistance. 50% of certain of these fees
and 100% of others are credited against the base management fee that the Company would
otherwise be required to pay to the Adviser.
 Incentive Fee
  
    
    no incentive fee in any calendar quarter in which its pre-incentive fee net
investment income does not exceed the hurdle rate (7.0% annualized);
    
    100% of the Companys 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% in any calendar quarter (8.75% annualized); and
    
    20% of the amount of the Companys pre-incentive fee net investment income,
if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
   Administration Agreement
  20




---



##### Table of Contents



Condensed Consolidated Statements of Operations
 Related Party Fees Due
 Condensed Consolidated Statements of Assets and
Liabilities
 As of December 31,
    
    
    As of March 31,2010
    
    
    2010Unpaid base management fee due (from) to Adviser
    
    $
    (107
    )
    
    $
    16Unpaid loan servicing fee due to Adviser
    
    
    172
    
    
    
    219Unpaid incentive fee due to Adviser
    
    
    1,898
    
    
    
    486Unpaid loan closing fees due to Adviser(1)
    
    
    221
    
    
    
    Total Fees due to Adviser
    
    
    2,184
    
    
    
    721Unpaid administration fee due to Administrator
    
    
    142
    
    
    
    149Total related party fees due
    
    $
    2,326
    
    
    $
    870
 
 (1)
    
    Represents closing fees owed to Adviser
relating to the funding of Precision in December 2010. NOTE 5. BORROWINGS
 Line of Credit
     21




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##### Table of Contents



Short-Term Loan
  Fair Value
 Condensed Consolidated Statements of Assets and Liabilities
 As of December 31, 2010Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesCredit Facility
    
    $
    
    
    
    $
    
    
    
    $
    8,000
    
    
    $
    8,000Short-term loan
    
    
    
    
    
    
    
    
    
    
    67,400
    
    
    
    67,400Total
    
    $
    
    
    
    $
    
    
    
    $
    75,400
    
    
    $
    75,400
 Total Fair ValueReported in CondensedCredit
    
    
    Short-Term
    
    
    Consolidated Statement ofFacility
    
    
    Loan
    
    
    Assets and LiabilitiesThree months ended December 31, 2010:Fair value at September 30, 2010
    
    $
    
    
    
    $
    25,000
    
    
    $
    25,000Borrowings
    
    
    8,000
    
    
    
    67,400
    
    
    
    75,400Repayments
    
    
    
    
    
    
    (25,000
    )
    
    
    (25,000
    )Net unrealized depreciation of Credit Facility(1)
    
    
    
    
    
    
    
    
    
    
    Fair value at December 31, 2010
    
    $
    8,000
    
    
    $
    67,400
    
    
    $
    75,400Nine months ended December 31, 2010:Fair value at March 31, 2010
    
    $
    27,812
    
    
    $
    75,000
    
    
    $
    102,812Borrowings
    
    
    24,000
    
    
    
    167,400
    
    
    
    191,400Repayments
    
    
    (43,800
    )
    
    
    (175,000
    )
    
    
    (218,800
    )Net unrealized depreciation of Credit Facility(1)
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Fair value at December 31, 2010
    
    $
    8,000
    
    
    $
    67,400
    
    
    $
    75,400
 22




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##### Table of Contents



Total Fair ValueReported in CondensedCredit
    
    
    Short-Term
    
    
    Consolidated Statement ofFacility
    
    
    Loan
    
    
    Assets and LiabilitiesThree months ended December 31, 2009:Fair value at September 30, 2009
    
    $
    36,278
    
    
    $
    75,000
    
    
    $
    111,278Borrowings
    
    
    14,000
    
    
    
    75,000
    
    
    
    89,000Repayments
    
    
    (23,350
    )
    
    
    (75,000
    )
    
    
    (98,350
    )Net unrealized appreciation of Credit Facility(1)
    
    
    (45
    )
    
    
    
    
    
    
    (45
    )Fair value at December 31, 2009
    
    $
    26,883
    
    
    $
    75,000
    
    
    $
    101,883Nine months ended December 31, 2009:Fair value at March 31, 2009(2)
    
    $
    110,265
    
    
    $
    
    
    
    $
    110,265Borrowings
    
    
    93,000
    
    
    
    215,000
    
    
    
    308,000Repayments
    
    
    (176,515
    )
    
    
    (140,000
    )
    
    
    (316,515
    )Net unrealized appreciation of Credit Facility(1)
    
    
    133
    
    
    
    
    
    
    
    133Fair value at December 31, 2009
    
    $
    26,883
    
    
    $
    75,000
    
    
    $
    101,883
 
 (1)
    
    Unrealized appreciation (depreciation) is reported on the
accompanying Condensed Consolidated Statements of Operations.(2)
    
    ASC 825 was not adopted until the second quarter of fiscal year
2010; therefore, the Credit Facility is shown at its principal balance outstanding at
March 31, 2009 in the table above.  NOTE 6. INTEREST RATE CAP AGREEMENTS
 Condensed Consolidated Statement of Operations
   NOTE 7. COMMON STOCK
  Registration Statement
 .
 23




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##### Table of Contents



NOTE 8. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE
  Three months ended December 31,
    
    
    Nine months ended December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator for basic and diluted net increase (decrease)
in net assets per share resulting from operations
    
    $
    15,135
    
    
    $
    (4,420
    )
    
    $
    13,643
    
    
    $
    (31,699
    )Denominator for basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133Basic and diluted net increase (decrease) in net assets
per share resulting from operations
    
    $
    0.69
    
    
    $
    (0.20
    )
    
    $
    0.62
    
    
    $
    (1.44
    )
 NOTE 9. DISTRIBUTIONS
  DistributionDeclaration Date
    
    Record Date
    
    Payment Date
    
    per ShareApril 7, 2010
    
    April 22, 2010
    
    April 30, 2010
    
    $
    0.04April 7, 2010
    
    May 20, 2010
    
    May 28, 2010
    
    
    0.04April 7, 2010
    
    June 22, 2010
    
    June 30, 2010
    
    
    0.04July 7, 2010
    
    July 22, 2010
    
    July 30, 2010
    
    
    0.04July 7, 2010
    
    August 23, 2010
    
    August 31, 2010
    
    
    0.04July 7, 2010
    
    September 22, 2010
    
    September 30, 2010
    
    
    0.04October 5, 2010
    
    October 21, 2010
    
    October 29, 2010
    
    
    0.04October 5, 2010
    
    November 19, 2010
    
    November 30, 2010
    
    
    0.04October 5, 2010
    
    December 23, 2010
    
    December 31, 2010
    
    
    0.04Nine months ended December 31, 2010:
    
    
    
    $
    0.36
 DistributionDeclaration Date
    
    Record Date
    
    Payment Date
    
    per ShareApril 16, 2009
    
    April 27, 2009
    
    May 8, 2009
    
    $
    0.04April 16, 2009
    
    May 20, 2009
    
    May 29, 2009
    
    
    0.04April 16, 2009
    
    June 22, 2009
    
    June 30, 2009
    
    
    0.04July 8, 2009
    
    July 23, 2009
    
    July 31, 2009
    
    
    0.04July 8, 2009
    
    August 21, 2009
    
    August 31, 2009
    
    
    0.04July 8, 2009
    
    September 22, 2009
    
    September 30, 2009
    
    
    0.04October 6, 2009
    
    October 22, 2009
    
    October 30, 2009
    
    
    0.04October 6, 2009
    
    November 19, 2009
    
    November 30, 2009
    
    
    0.04October 6, 2009
    
    December 22, 2009
    
    December 31, 2009
    
    
    0.04Nine months ended December 31, 2009:
    
    
    
    $
    0.36
  NOTE 10. COMMITMENTS AND CONTINGENCIES
   24




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NOTE 11. FINANCIAL HIGHLIGHTS
 Three months ended December 31,
    
    
    Nine months ended December 31,2010
    
    
    2009
    
    
    2010
    
    
    2009Per Share Data (1)Net asset value at beginning of period
    
    $
    8.43
    
    
    $
    8.24
    
    
    $
    8.74
    
    
    $
    9.73Income from investment operationsNet investment income(2)
    
    
    0.34
    
    
    
    0.14
    
    
    
    0.65
    
    
    
    0.36Realized gain (loss) on exit(2)
    
    
    0.30
    
    
    
    (0.05
    )
    
    
    1.06
    
    
    
    (1.63
    )Net unrealized appreciation (depreciation)(2)
    
    
    0.05
    
    
    
    (0.28
    )
    
    
    (1.09
    )
    
    
    (0.17
    )Total from investment operations
    
    
    0.69
    
    
    
    (0.19
    )
    
    
    0.62
    
    
    
    (1.44
    )Distributions from:Net investment income
    
    
    (0.12
    )
    
    
    (0.12
    )
    
    
    (0.36
    )
    
    
    (0.36
    )Total distributions(3)
    
    
    (0.12
    )
    
    
    (0.12
    )
    
    
    (0.36
    )
    
    
    (0.36
    )Net asset value at end of period
    
    $
    9.00
    
    
    $
    7.93
    
    
    $
    9.00
    
    
    $
    7.93Per share market value at beginning of period
    
    $
    6.75
    
    
    $
    4.83
    
    
    $
    6.01
    
    
    $
    3.67Per share market value at end of period
    
    
    7.65
    
    
    
    4.56
    
    
    
    7.65
    
    
    
    4.56Total return(4)
    
    
    15.14
    %
    
    
    (3.18
    )%
    
    
    34.48
    %
    
    
    34.06
    %Shares outstanding at end of period
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133Statement of Assets and Liabilities Data:Net assets at end of period
    
    $
    198,682
    
    
    $
    175,001
    
    
    $
    198,682
    
    
    $
    175,001Average net assets(5)
    
    
    189,420
    
    
    
    179,155
    
    
    
    191,299
    
    
    
    194,783Senior Securities Data:Total borrowings
    
    $
    75,400
    
    
    $
    101,883
    
    
    $
    75,400
    
    
    $
    101,883Asset coverage ratio(6)
    
    
    343
    %
    
    
    270
    %
    
    
    343
    %
    
    
    270
    %Asset coverage per unit(7)
    
    $
    3,429
    
    
    $
    2,703
    
    
    $
    3,429
    
    
    $
    2,703Ratios/Supplemental Data:Ratio of expenses to average net assets(8), (9)
    
    
    7.59
    %
    
    
    6.64
    %
    
    
    6.05
    %
    
    
    5.98
    %Ratio of net expenses to average net assets(8), (10)
    
    
    6.64
    
    
    
    6.36
    
    
    
    5.61
    
    
    
    5.57Ratio of net investment income to average net assets(8)
    
    
    16.03
    
    
    
    6.86
    
    
    
    9.92
    
    
    
    5.40
 
 (1)
    
    Based on actual shares outstanding at the end of the corresponding period.(2)
    
    Based on weighted average basic per share data.(3)
    
    Distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from
amounts determined under accounting principles generally accepted in the United States of America.(4)
    
    Total return equals the change in the market value of the Companys common stock from the beginning of the period, taking into
account dividends reinvested in accordance with the terms of the Companys dividend reinvestment plan.(5)
    
    Calculated using the average of the balance of net assets at the end of each month of the reporting period.(6)
    
    As a business development company, the Company is generally required to maintain an asset coverage ratio of at least 200% of
total consolidated assets, less all liabilities and indebtedness not represented by senior securities, to total borrowings and
guaranty commitments.(7)
    
    Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.(8)
    
    Amounts are annualized.(9)
    
    Ratio of expenses to average net assets is computed using expenses before credits from the Adviser.(10)
    
    Ratio of net expenses to average net assets is computed using total expenses net of credits to the management fee. 25




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NOTE 12. SUBSEQUENT EVENTS
 Short-Term Loan
  Distributions
  Record Date
    
    Payment Date
    
    Distribution perShareJanuary 21, 2011
    
    January 31, 2011
    
    $
    0.04February 21, 2011
    
    February 28, 2011
    
    
    0.04March 21, 2011
    
    March 31, 2011
    
    
    0.04
 26




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##### Table of Contents



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollar amounts in thousands, except per share data and as otherwise indicated).
 All statements contained herein, other than historical facts, may constitute forward-looking
statements. 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, estimate 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. We caution readers not to place undue reliance on any such
forward-looking statements. 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 condensed consolidated financial statements and the notes thereto contained
elsewhere in this report and in our annual report on Form 10-K for the fiscal year ended March 31,
2010.
 
 OVERVIEW
 General
  Business Environment
    Condensed Consolidated Schedule of Investments
 27




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28




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##### Table of Contents



Investment Highlights
  29




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##### Table of Contents



Recent Developments
 Short-Term Loan
  Investment Activity
  
    
    In December 2010, we sold our equity investment and received full repayment of our debt
investment in Chase in connection with Chases sale of 100% of its outstanding capital
stock. The net cash proceeds to us from the sale of our equity in Chase were $13.9 million,
resulting in a realized gain of $6.9 million. In connection with the equity sale, we
accrued and received cash dividend proceeds of $4.0 million from our preferred stock
investment in Chase. At the same time, we received $22.9 million in repayment of our
principal, accrued interest and success fees on the loans to Chase.
    
    In December 2010, we invested $10.8 million in Precision, consisting of senior debt and
preferred and common equity. Precision, headquartered in Myrtle Beach, South Carolina, is a
custom injection molding company, focused on the filtration, consumer and industrial
markets and is included as a Control investment on our Condensed Consolidated Schedule of
Investmentsas of December 31, 2010.
    
    In November 2010, we participated in a syndicated loan, Fifth Third Processing Solutions
(Fifth Third), at a cost of $0.5 million.
    
    In October and November 2010, Mathey Investments, Inc. (Mathey) prepaid $0.4 million
of its success fee on its senior term debt.
    
    In October 2010, we invested $25.0 million in Venyu, consisting of subordinated debt and
preferred equity. Venyu, headquartered in Baton Rouge, Louisiana, is a leader in
commercial-grade, customizable solutions for data protection, data hosting and disaster
recovery and is included as a Control investment on our Condensed Consolidated Schedule of
Investmentsas of December 31, 2010.
    
    In September 2010, Cavert II Holding Corp. (Cavert) prepaid $0.8 million of its
success fee on its senior term debt and senior subordinated term debt.
    
    In July and August 2010, we restructured Galaxy Tool Holding Corporation (Galaxy) by
converting $12.3 million of our senior subordinated term note into preferred and common
stock and investing an additional $3.2 million into preferred stock. After the
restructuring, our investments at cost in Galaxy consisted of a $5.2 million senior
subordinated term note, $19.6 million in preferred stock and $0.1 million in common stock.
    
    In June 2010, we sold our equity investment and received full repayment of our debt
investment in A. Stucki in connection with the sale of 100% of the outstanding capital
stock of A. Stucki. The net cash proceeds to us from the sale of our equity in A. Stucki
were $21.4 million, resulting in a realized gain of
$16.7 million, which includes a $0.3 million closing adjustment
decrease during the three months ended December 31, 2010. In connection with the
equity sale, we accrued and received dividend cash proceeds of $0.2 million from our
preferred stock investment in A. Stucki. At the same time, we received $30.6 million in
payment of our principal, accrued interest and success fees on the loans to A. Stucki.
Additionally, immediately prior to the sale of A. Stucki, we received a special
distribution of property with a fair value of $0.5 million, which was recorded as dividend
income and has been reflected as a Control investment, Neville Limited, on our Condensed
Consolidated Schedule of Investmentssince June 30, 2010.
    
    In May 2010, Cavert made full repayment of its senior term A debt owed to us resulting
in the receipt of approximately $2.9 million in cash proceeds.
    
    In April 2010, Interstate FiberNet, Inc. (ITC) made full repayment of its senior term
debt owed to us resulting in the receipt of approximately $6.7 million in cash proceeds.
 30




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##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the Three months ended December 31, 2010 to the Three months ended December 31, 2009
 A comparison of our operating results for the three months ended December 31, 2010 and 2009 is
below:
 For the three months ended December 31,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    3,925
    
    
    $
    4,951
    
    
    $
    (1,026
    )
    
    
    (20.7
    )%Other income
    
    
    6,812
    
    
    
    970
    
    
    
    5,842
    
    
    
    602.3Total investment income
    
    
    10,737
    
    
    
    5,921
    
    
    
    4,816
    
    
    
    81.3EXPENSESLoan servicing fee
    
    
    634
    
    
    
    886
    
    
    
    (252
    )
    
    
    (28.4
    )Base management fee
    
    
    343
    
    
    
    113
    
    
    
    230
    
    
    
    203.5Incentive fee
    
    
    1,898
    
    
    
    588
    
    
    
    1,310
    
    
    
    222.8Administration fee
    
    
    142
    
    
    
    156
    
    
    
    (14
    )
    
    
    (9.0
    )Interest expense
    
    
    135
    
    
    
    385
    
    
    
    (250
    )
    
    
    (64.9
    )Amortization of deferred financing fees
    
    
    116
    
    
    
    436
    
    
    
    (320
    )
    
    
    (73.4
    )Other
    
    
    328
    
    
    
    411
    
    
    
    (83
    )
    
    
    (20.2
    )Expenses before credits from Adviser
    
    
    3,596
    
    
    
    2,975
    
    
    
    621
    
    
    
    20.9Credits to fees
    
    
    (450
    )
    
    
    (127
    )
    
    
    (323
    )
    
    
    254.3Total expenses net of credits to fee
    
    
    3,146
    
    
    
    2,848
    
    
    
    298
    
    
    
    10.5NET INVESTMENT INCOME
    
    
    7,591
    
    
    
    3,073
    
    
    
    4,518
    
    
    
    147.0REALIZED AND UNREALIZED GAIN (LOSS) ON:Net realized gain (loss) on sale of investments
    
    
    6,514
    
    
    
    (1,318
    )
    
    
    7,832
    
    
    NMNet unrealized appreciation (depreciation) on investments
    
    
    1,026
    
    
    
    (6,213
    )
    
    
    7,239
    
    
    NMNet unrealized appreciation on other
    
    
    4
    
    
    
    38
    
    
    
    (34
    )
    
    
    (89.5
    )Net gain (loss) on investments and other
    
    
    7,544
    
    
    
    (7,493
    )
    
    
    15,037
    
    
    NMNET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
    
    $
    15,135
    
    
    $
    (4,420
    )
    
    $
    19,555
    
    
    NM
 
 NM = Not Meaningful Investment Income
    31




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As of December 31, 2010
    
    
    Three months ended December 31, 2010Company
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    % of Total RevenuesChase II Holding Corp.(1)
    
    $
    
    
    
    
    
    %
    
    
    $
    6,902
    
    
    
    64.3
    %Venyu Solutions, Inc.
    
    
    25,000
    
    
    
    16.5
    
    
    
    
    439
    
    
    
    4.1Acme Cryogenics, Inc.
    
    
    19,028
    
    
    
    12.6
    
    
    
    
    439
    
    
    
    4.1Cavert II Holding Corp.
    
    
    17,580
    
    
    
    11.6
    
    
    
    
    223
    
    
    
    2.0Danco Acquisition Corp.
    
    
    13,224
    
    
    
    8.8
    
    
    
    
    398
    
    
    
    3.7Subtotalfive largest investments
    
    
    74,832
    
    
    
    49.5
    
    
    
    
    8,401
    
    
    
    78.2Other portfolio companies
    
    
    76,278
    
    
    
    50.5
    
    
    
    
    2,336
    
    
    
    21.8Total investment portfolio
    
    $
    151,110
    
    
    
    100.0
    %
    
    
    $
    10,737
    
    
    
    100.0
    %
 
 (1)
    
    Chase II Holding Corp. was sold on December 29, 2010. As of December 31, 2009
    
    
    Three months ended December 31, 2009Company
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    % of Total RevenuesA. Stucki Holding Corp.
    
    $
    33,601
    
    
    
    17.9
    %
    
    
    $
    1,526
    
    
    
    25.8
    %Chase II Holding Corp.
    
    
    28,917
    
    
    
    15.5
    
    
    
    
    622
    
    
    
    10.5Cavert II Holding Corp.
    
    
    18,035
    
    
    
    9.6
    
    
    
    
    285
    
    
    
    4.8Galaxy Tool Holding Corp.
    
    
    16,991
    
    
    
    9.1
    
    
    
    
    595
    
    
    
    10.0Acme Cryogenics, Inc.
    
    
    14,479
    
    
    
    7.7
    
    
    
    
    426
    
    
    
    7.2Subtotalfive largest investments
    
    
    112,023
    
    
    
    59.8
    
    
    
    
    3,454
    
    
    
    58.3Other portfolio companies
    
    
    75,363
    
    
    
    40.2
    
    
    
    
    2,467
    
    
    
    41.7Total investment portfolio
    
    $
    187,386
    
    
    
    100.0
    %
    
    
    $
    5,921
    
    
    
    100.0
    %
  Operating Expenses
   Investment
 32




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##### Table of Contents



Advisory and Management Agreement Condensed
Consolidated Financial Statements
 Three months ended December 31,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    195,400
    
    
    $
    199,800Multiplied by pro-rated annual base management fee of 2.0%
    
    
    0.5
    %
    
    
    0.5
    %Unadjusted base management fee
    
    $
    977
    
    
    $
    999Reduction for loan servicing fees(2)
    
    
    (634
    )
    
    
    (886
    )Base management fee(2)
    
    $
    343
    
    
    $
    113Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    
    
    
    
    (34
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (450
    )
    
    
    (93
    )Credit to base management fee from Adviser(2)
    
    
    (450
    )
    
    
    (127
    )Net base management fee
    
    $
    (107
    )
    
    $
    (14
    )Incentive fee(2)
    
    $
    1,898
    
    
    $
    588
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash
equivalents resulting from borrowings, valued at the end of the four most recently completed quarters and appropriately adjusted for any share issuances or repurchases during the current year.(2)
    
    Reflected as a line item on the Condensed Consolidated Statement of Operationslocated elsewhere in this report. Investment Advisory and Management Agreement Condensed Consolidated Financial Statements.
   Realized and Unrealized Gain (Loss) on Investments
 Realized Gains (Losses)
  Unrealized Appreciation (Depreciation)
  33




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Three Months Ended December 31, 2010Reversal ofUnrealized
    
    
    UnrealizedInvestment
    
    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Acme Cryogenics, Inc.
    
    Control
    
    $
    
    
    
    $
    3,933
    
    
    $
    
    
    
    $
    3,933Chase II Holding Corp.
    
    Control
    
    
    6,857
    
    
    
    
    
    
    
    (4,444
    )
    
    
    2,413Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    2,147
    
    
    
    
    
    
    
    2,147Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    2,011
    
    
    
    
    
    
    
    2,011Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    435
    
    
    
    
    
    
    
    435Country Club
Enterprises, LLC
    
    Control
    
    
    
    
    
    
    (105
    )
    
    
    
    
    
    
    (105
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    
    
    
    
    (209
    )
    
    
    
    
    
    
    (209
    )A. Stucki Holding Corp.
    
    Control
    
    
    (343
    )
    
    
    
    
    
    
    
    
    
    
    (343
    )Cavert II Holding Corp.
    
    Control
    
    
    
    
    
    
    (488
    )
    
    
    
    
    
    
    (488
    )ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    (2,321
    )
    
    
    
    
    
    
    (2,321
    )Other, net (<$100 Net)
    
    Various
    
    
    
    
    
    
    67
    
    
    
    
    
    
    
    67Total
    
    
    
    
    
    $
    6,514
    
    
    $
    5,470
    
    
    $
    (4,444
    )
    
    $
    7,540
   Three Months Ended December 31, 2009Reversal ofUnrealized
    
    
    UnrealizedInvestment
    
    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Cavert II Holding Corp.
    
    Control
    
    $
    
    
    
    $
    1,686
    
    
    $
    
    
    
    $
    1,686Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    1,150
    
    
    
    
    
    
    
    1,150American Greetings Corp.
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    306
    
    
    
    
    
    
    
    306ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    272
    
    
    
    
    
    
    
    272Danco Acquisition Corp.
    
    Affiliate
    
    
    
    
    
    
    148
    
    
    
    
    
    
    
    148Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    129
    
    
    
    
    
    
    
    129Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    128
    
    
    
    
    
    
    
    128Tread Corp.
    
    Affiliate
    
    
    
    
    
    
    (144
    )
    
    
    
    
    
    
    (144
    )Mathey Investments, Inc.
    
    Control
    
    
    
    
    
    
    (170
    )
    
    
    
    
    
    
    (170
    )HMTBP Acquisition II
Corp.
    
    Non-Control/Non-Affiliate
    
    
    (757
    )
    
    
    
    
    
    
    755
    
    
    
    (2
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    (776
    )
    
    
    
    
    
    
    (776
    )Interstate FiberNet, Inc.
    
    Non-Control/Non-Affiliate
    
    
    (561
    )
    
    
    (405
    )
    
    
    559
    
    
    
    (407
    )A. Stucki Holding Corp.
    
    Control
    
    
    
    
    
    
    (2,830
    )
    
    
    
    
    
    
    (2,830
    )Chase II Holding Corp.
    
    Control
    
    
    
    
    
    
    (3,221
    )
    
    
    
    
    
    
    (3,221
    )Acme Cryogenics, Inc.
    
    Control
    
    
    
    
    
    
    (3,849
    )
    
    
    
    
    
    
    (3,849
    )Other, net (<$100 Net)
    
    Various
    
    
    
    
    
    
    49
    
    
    
    
    
    
    
    49Total
    
    
    
    
    
    $
    (1,318
    )
    
    $
    (7,527
    )
    
    $
    1,314
    
    
    $
    (7,531
    )
   34




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##### Table of Contents



Net Increase (Decrease) in Net Assets Resulting from Operations
  35




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##### Table of Contents



Comparison of the Nine months ended December 31, 2010 to the Nine months ended December 31,
2009
 A comparison of our operating results for the nine months ended December 31, 2010 and 2009 is
below:
 For the nine months ended December 31,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    11,928
    
    
    $
    14,967
    
    
    $
    (3,039
    )
    
    
    (20.3
    )%Other income
    
    
    10,358
    
    
    
    1,066
    
    
    
    9,292
    
    
    
    871.7Total investment income
    
    
    22,286
    
    
    
    16,033
    
    
    
    6,253
    
    
    
    39.0EXPENSESLoan servicing fee
    
    
    2,124
    
    
    
    2,892
    
    
    
    (768
    )
    
    
    (26.6
    )Base management fee
    
    
    846
    
    
    
    588
    
    
    
    258
    
    
    
    43.9Incentive fee
    
    
    2,949
    
    
    
    588
    
    
    
    2,361
    
    
    
    401.5Administration fee
    
    
    582
    
    
    
    527
    
    
    
    55
    
    
    
    10.4Interest expense
    
    
    558
    
    
    
    1,640
    
    
    
    (1,082
    )
    
    
    (66.0
    )Amortization of deferred financing fees
    
    
    383
    
    
    
    1,187
    
    
    
    (804
    )
    
    
    (67.7
    )Other
    
    
    1,236
    
    
    
    1,313
    
    
    
    (77
    )
    
    
    (5.9
    )Expenses before credits from Adviser
    
    
    8,678
    
    
    
    8,735
    
    
    
    (57
    )
    
    
    (0.7
    )Credits to fees
    
    
    (630
    )
    
    
    (591
    )
    
    
    (39
    )
    
    
    6.6Total expenses net of credits to fee
    
    
    8,048
    
    
    
    8,144
    
    
    
    (96
    )
    
    
    (1.2
    )NET INVESTMENT INCOME
    
    
    14,238
    
    
    
    7,889
    
    
    
    6,349
    
    
    
    80.5REALIZED AND UNREALIZED LOSS ON:Net realized gain (loss) on investments
    
    
    23,489
    
    
    
    (35,922
    )
    
    
    59,411
    
    
    NMNet realized loss on other
    
    
    
    
    
    
    (53
    )
    
    
    53
    
    
    
    (100.0
    )Net unrealized depreciation on investments
    
    
    (24,063
    )
    
    
    (3,499
    )
    
    
    (20,564
    )
    
    
    587.7Net unrealized depreciation on other
    
    
    (21
    )
    
    
    (114
    )
    
    
    93
    
    
    
    (81.6
    )Net loss on investments and other
    
    
    (595
    )
    
    
    (39,588
    )
    
    
    38,993
    
    
    
    (98.5
    )NET INCREASE (DECREASE) IN NET ASSETS
RESULTING FROM OPERATIONS
    
    $
    13,643
    
    
    $
    (31,699
    )
    
    $
    45,342
    
    
    NM
 
 NM = Not Meaningful Investment Income
    36




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##### Table of Contents



As of December 31, 2010
    
    
    Nine months ended December 31, 2010% of TotalCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    RevenuesChase II Holding Corp.(1)
    
    $
    
    
    
    
    
    %
    
    
    $
    8,093
    
    
    
    36.3
    %A. Stucki Holding Corp.(2)
    
    
    
    
    
    
    
    
    
    
    
    3,317
    
    
    
    14.9Venyu Solutions, Inc.
    
    
    25,000
    
    
    
    16.6
    
    
    
    
    439
    
    
    
    2.0Acme Cryogenics, Inc.
    
    
    19,028
    
    
    
    12.6
    
    
    
    
    1,307
    
    
    
    5.9Cavert II Holding Corp.
    
    
    17,580
    
    
    
    11.6
    
    
    
    
    1,457
    
    
    
    6.5Subtotalfive largest investments
    
    
    61,608
    
    
    
    40.8
    
    
    
    
    14,613
    
    
    
    65.6Other portfolio companies
    
    
    89,502
    
    
    
    59.2
    
    
    
    
    7,673
    
    
    
    34.4Total investment portfolio
    
    $
    151,110
    
    
    
    100.0
    %
    
    
    $
    22,286
    
    
    
    100.0
    %
 
 (1)
    
    Chase II Holding Corp. was sold on December 29, 2010.(2)
    
    A. Stucki Holding Corp. was sold on June 29, 2010. As of December 31, 2009
    
    
    Nine months ended December 31, 2009% of TotalCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    RevenuesA. Stucki Holding Corp.
    
    $
    33,601
    
    
    
    17.9
    %
    
    
    $
    2,677
    
    
    
    16.7
    %Chase II Holding Corp.
    
    
    28,917
    
    
    
    15.5
    
    
    
    
    1,948
    
    
    
    12.2Cavert II Holding Corp.
    
    
    18,035
    
    
    
    9.6
    
    
    
    
    926
    
    
    
    5.8Galaxy Tool Holding Corp.
    
    
    16,991
    
    
    
    9.1
    
    
    
    
    1,779
    
    
    
    11.1Acme Cryogenics, Inc.
    
    
    14,479
    
    
    
    7.7
    
    
    
    
    1,274
    
    
    
    7.9Subtotalfive largest investments
    
    
    112,023
    
    
    
    59.8
    
    
    
    
    8,604
    
    
    
    53.7Other portfolio companies
    
    
    75,363
    
    
    
    40.2
    
    
    
    
    7,429
    
    
    
    46.3Total investment portfolio
    
    $
    187,386
    
    
    
    100.0
    %
    
    
    $
    16,033
    
    
    
    100.0
    %
  Operating Expenses
    37




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##### Table of Contents



Investment Advisory and Management Agreement Condensed
Consolidated Financial Statements
 Nine Months Ended December 31,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    198,000
    
    
    $
    232,000Multiplied by pro-rated annual base management fee of 2.0%
    
    
    1.5
    %
    
    
    1.5
    %Unadjusted base management fee
    
    
    2,970
    
    
    
    3,480Reduction for loan servicing fees(2)
    
    
    (2,124
    )
    
    
    (2,892
    )Base management fee(2)
    
    $
    846
    
    
    $
    588Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    (15
    )
    
    
    (265
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (615
    )
    
    
    (326
    )Credit to base management fee from Adviser(2)
    
    
    (630
    )
    
    
    (591
    )Net base management fee
    
    $
    216
    
    
    $
    (3
    )Incentive fee(2)
    
    $
    2,949
    
    
    $
    588
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash
equivalents resulting from borrowings, valued at the end of the four most recently completed quarters and appropriately adjusted for any share issuances or repurchases during the current year.(2)
    
    Reflected as a line item on the Condensed Consolidated Statement of Operationslocated elsewhere in this report. ,
  Realized and Unrealized Gain (Loss) on Investments
 Realized Gains (Losses)
  Unrealized (Depreciation) Appreciation
  38




---



##### Table of Contents



Nine Months Ended December 31, 2010Reversal ofUnrealized
    
    
    UnrealizedInvestment

    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Chase II Holding Corp.
    
    Control
    
    $
    6,857
    
    
    $
    3,753
    
    
    $
    (4,444
    )
    
    $
    6,166Acme Cryogenics, Inc.
    
    Control
    
    
    
    
    
    
    5,028
    
    
    
    
    
    
    
    5,028Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    2,986
    
    
    
    
    
    
    
    2,986Cavert II Holding Corp.
    
    Control
    
    
    
    
    
    
    1,774
    
    
    
    
    
    
    
    1,774Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    500
    
    
    
    
    
    
    
    500Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    176
    
    
    
    
    
    
    
    176Interstate FiberNet, Inc.
    
    Non-Control/Non-Affiliate
    
    
    18
    
    
    
    
    
    
    
    (19
    )
    
    
    (1
    )Tread Corp.
    
    Control
    
    
    
    
    
    
    (103
    )
    
    
    
    
    
    
    (103
    )Country Club
Enterprises, LLC
    
    Control
    
    
    
    
    
    
    (149
    )
    
    
    
    
    
    
    (149
    )A. Stucki Holding Corp.
    
    Control
    
    
    16,614
    
    
    
    
    
    
    
    (17,405
    )
    
    
    (791
    )ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    (3,005
    )
    
    
    
    
    
    
    (3,005
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    (13,238
    )
    
    
    
    
    
    
    (13,238
    )Other, net (<$100 Net)
    
    Various
    
    
    
    
    
    
    83
    
    
    
    
    
    
    
    83Total
    
    
    
    
    
    $
    23,489
    
    
    $
    (2,195
    )
    
    $
    (21,868
    )
    
    $
    (574
    )
   Nine Months Ended December 31, 2009Reversal ofUnrealized
    
    
    UnrealizedInvestment

    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Cavert II Holding Corp.
    
    Control
    
    $
    
    
    
    $
    2,466
    
    
    $
    
    
    
    $
    2,466Interstate FiberNet, Inc.
    
    Non-Control/Non-Affiliate
    
    
    (561
    )
    
    
    872
    
    
    
    559
    
    
    
    870American Greetings Corp.
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    714
    
    
    
    
    
    
    
    714Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    427
    
    
    
    
    
    
    
    427ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    368
    
    
    
    
    
    
    
    368B-Dry, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    300
    
    
    
    
    
    
    
    300HMTBP Acquisition II Corp.
    
    Non-Control/Non-Affiliate
    
    
    (757
    )
    
    
    142
    
    
    
    755
    
    
    
    140Mathey Investments, Inc.
    
    Control
    
    
    
    
    
    
    (789
    )
    
    
    
    
    
    
    (789
    )Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    (1,169
    )
    
    
    
    
    
    
    (1,169
    )Tread Corp.
    
    Affiliate
    
    
    
    
    
    
    (1,196
    )
    
    
    
    
    
    
    (1,196
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    
    
    
    
    (2,024
    )
    
    
    
    
    
    
    (2,024
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    (2,328
    )
    
    
    
    
    
    
    (2,328
    )Country Club Enterprises,
LLC
    
    Control
    
    
    
    
    
    
    (3,874
    )
    
    
    
    
    
    
    (3,874
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    (5,445
    )
    
    
    
    
    
    
    (5,445
    )Acme Cryogenics, Inc.
    
    Control
    
    
    
    
    
    
    (6,942
    )
    
    
    
    
    
    
    (6,942
    )Chase II Holding Corp.
    
    Control
    
    
    
    
    
    
    (7,623
    )
    
    
    
    
    
    
    (7,623
    )A. Stucki Holding Corp.
    
    Control
    
    
    
    
    
    
    (13,135
    )
    
    
    
    
    
    
    (13,135
    )Syndicated Loan Sales, net
    
    Non-Control/Non-Affiliate
    
    
    (34,604
    )
    
    
    
    
    
    
    34,423
    
    
    
    (181
    )Total
    
    
    
    
    
    $
    (35,922
    )
    
    $
    (39,236
    )
    
    $
    35,737
    
    
    $
    (39,421
    )
  39




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##### Table of Contents



Net Increase (Decrease) in Net Assets Resulting from Operations
  40




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (dollar amounts in thousands, except per share amounts or
unless otherwise indicated)
 Operating Activities
   Nine months ended December 31,2010
    
    
    2009Beginning investment portfolio, at fair value
    
    $
    206,858
    
    
    $
    313,930New investments
    
    
    35,814
    
    
    
    Disbursements to existing investments
    
    
    5,280
    
    
    
    2,413Scheduled principal repayments
    
    
    (2,506
    )
    
    
    (2,787
    )Unscheduled principal repayments
    
    
    (59,037
    )
    
    
    (12,041
    )Amortization of premiums and discounts
    
    
    (6
    )
    
    
    (2
    )Proceeds from sales
    
    
    (35,010
    )
    
    
    (74,706
    )Net realized gain (loss)
    
    
    23,489
    
    
    
    (35,922
    )Net unrealized depreciation
    
    
    (2,195
    )
    
    
    (39,236
    )Reversal of net unrealized (appreciation) depreciation
    
    
    (21,868
    )
    
    
    35,737Other cash activity, net
    
    
    (231
    )
    
    
    Other non-cash activity, net
    
    
    522
    
    
    
    Ending investment portfolio, at fair value
    
    $
    151,110
    
    
    $
    187,386
  AmountFor the
remaining three months ending March 31, 2011:
    

    $
    1,640For the fiscal year ending March 31:2012
    
    
    20,7532013
    
    
    30,1092014
    
    
    34,3312015
    
    
    20,9422016
    
    
    26,775Thereafter
    
    
    3,543Total contractual repayments
    
    $
    138,093Investments in equity securities
    
    
    58,023Adjustments to cost basis on debt securities
    
    
    (234
    )Total cost basis of investments held at
December 31, 2010:
    
    $
    195,882
  41




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##### Table of Contents



Financing Activities
   Distributions
  Section 19(a) Disclosure
 Section 19(a) Disclosure
  Issuance of Equity
   Future Capital Resources
  42




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##### Table of Contents



Revolving Credit Facility
          43




---



##### Table of Contents



Short-Term Note
  Contractual Obligations and Off-Balance Sheet Arrangements
     Condensed Consolidated Statements of Assets and Liabilities
 As of December 31,
    
    As of March 31,2010
    
    2010Unused lines of credit
    
    $
    2,600
    
    
    $
    1,814Guarantees
    
    
    4,501
    
    
    
    2,250
 44




---



##### Table of Contents



Payments Due by PeriodLess thanContractual Obligations(1)
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    TotalBorrowings:Short-term loan(2)
    
    $
    67,400
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    67,400Credit Facility(3)
    
    
    
    
    
    
    8,000
    
    
    
    
    
    
    
    
    
    
    
    8,000Total borrowings
    
    $
    67,400
    
    
    $
    8,000
    
    
    $
    
    
    
    $
    
    
    
    $
    75,400
 
 (1)
    
    Excludes the unused commitments to extend credit to our customers of $1.8
million, as discussed above.(2)
    
    On January 6, 2011, we repaid the entire short-term loan.(3)
    
    On January 4, 2011, we repaid the full balance outstanding on the Credit
Facility. Critical Accounting Policies
  Investment Valuation
 Condensed Consolidated Financial
Statements
 General Valuation Policy:
  
    
    Level 1 inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
    
    Level 2 inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument. Level 2 inputs are in those markets for which there are few transactions, the
prices are not current, little public information exists or instances where prices vary
substantially over time or among brokered market makers; and
    
    Level 3 inputs to the valuation methodology are unobservable and significant
to the fair value measurement. Unobservable inputs are those inputs that reflect our own
assumptions that market participants would use to price the asset or liability based upon
the best available information.
 Investments Condensed Consolidated Financial
Statements
    
    
    Publicly-traded securities;
    
    Securities for which a limited market exists; and
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
    
    Securities for which no market exists.
 Valuation Methods:
 Publicly-traded securities:
 Securities for which a limited market exists:
   Securities for which no market exists:
 (1)
    
    Portfolio investments comprised solely of debt securities:Debt securities that are not
publicly traded on an established securities market, or for which a limited market does not
exist (Non-Public Debt Securities), and that are issued by portfolio companies in which we
have no equity, or equity-like securities, are fair valued in accordance with the terms of the
policy, which utilizes opinions of value submitted to us by Standard and Poors Securities
Evaluations, Inc (SPSE). We may also submit paid in kind (PIK) interest to SPSE for its
evaluation when it is determined that PIK interest is likely to be received.In the case of Non-Public Debt Securities, we have engaged SPSE to submit opinions of value for
our debt securities that are issued by portfolio companies in which we own no equity, or
equity-like securities. SPSEs opinions of value are based on the valuations prepared by our
portfolio management team, as described below. We request that SPSE also evaluate and assign
values to success fees when we determine that there is a reasonable probability of receiving a
success fee on a given loan. SPSE will only evaluate the debt portion of our investments for
which we specifically request evaluation, and may decline to make requested evaluations for any
reason, at its sole discretion. Upon completing our collection of data with respect to the
investments (which may include the information described below under Credit Information, the
risk ratings of the loans described below under Loan Grading and Risk Rating and the factors
described hereunder), this valuation data is forwarded to SPSE for review and analysis. SPSE
makes its independent assessment of the data that we have assembled and assesses its independent
data to form an opinion as to what they consider to be the market values for the securities.
With regard to its work, SPSE has issued the following paragraph:
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SPSE opinions of the value of our debt securities that are issued by portfolio companies in
which we do not own equity, or equity-like securities, are submitted to our Board of Directors
along with our Advisers supplemental assessment and recommendation regarding valuation of each
of these investments. Our Adviser generally accepts the opinion of value given by SPSE; however,
in certain limited circumstances, such as when our Adviser may learn new information regarding
an investment between the time of submission to SPSE and the date of our Board of Directors
assessment, our Advisers conclusions as to value may differ from the opinion of value delivered
by SPSE. Our Board of Directors then reviews whether our Adviser has followed its established
procedures for determinations of fair value, and votes to accept or reject the recommended
valuation of our investment portfolio. Our Adviser and our management recommended, and our Board
of Directors voted to accept, the opinions of value delivered by SPSE on the loans in our
portfolio as denoted on the Schedule of Investments included in our accompanying Condensed
Consolidated Financial Statements.Because there is a delay between when we close an investment and when the investment can be
evaluated by SPSE, new loans are not valued immediately by SPSE; rather, management makes its
own determination about the value of these investments in accordance with our valuation policy
using the methods described herein.(2)
    
    Portfolio investments in controlled companies comprised of a bundle of investments, which can
include debt and equity securities:The fair value of these investments is determined based on
the TEV of the portfolio company, or issuer, utilizing a liquidity waterfall approach under
ASC 820. For Non-Public Debt Securities and equity or equity-like securities (e.g. preferred
equity, common equity, or other equity-like securities) that are purchased together as part of
a package, where we have control or could gain control through an option or warrant security,
both the debt and equity securities of the portfolio investment would exit in the mergers and
acquisitions market as the principal market, generally through a sale or recapitalization of
the portfolio company. In accordance with ASC 820, we apply the in-use premise of value which
assumes the debt and equity securities are sold together. Under this liquidity waterfall
approach, we continue to use the enterprise value methodology utilizing a liquidity waterfall
approach to determine the fair value of these investments under ASC 820 if we have the ability
to initiate a sale of a portfolio company as of the measurement date. Under this approach, we
first calculate the TEV of the issuer by incorporating some or all of the following factors:
 
    
    the issuers ability to make payments;
    
    the earnings of the issuer;
    
    recent sales to third parties of similar securities;
    
    the comparison to publicly traded securities; and
    
    DCF or other pertinent factors.
 In gathering the sales to third parties of similar securities, we may gather and analyze
industry statistics and use outside experts. Once we have estimated the TEV of the issuer, we
subtract the value of all the debt securities of the issuer, which are valued at the contractual
principal balance. Fair values of these debt securities are discounted for any shortfall of TEV
over the total debt outstanding for the issuer. Once the values for all outstanding senior
securities (which include the debt securities) have been subtracted from the TEV of the issuer,
the remaining amount, if any, is used to determine the value of the issuers equity or equity
like securities. If, in our Advisers judgment, the liquidity waterfall approach does not
accurately reflect the value of the debt component, our Adviser may recommend that we use a
valuation by SPSE, or if that is unavailable, a DCF valuation technique.(3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:We value Non-Public Debt Securities that are purchased
together with equity or equity-like securities from the same portfolio company, or issuer, for
which we do not control or cannot gain control as of the measurement date, using a
hypothetical secondary market as our principal market. In accordance with ASC 820, we
determine the fair value of these debt securities of non-control investments assuming the sale
of an individual debt security using the in-exchange premise of value (as defined in ASC 820).
As such, we estimate the fair value of the debt component using estimates of value provided by
SPSE and our own assumptions in the absence of observable market data, including synthetic
credit ratings, estimated remaining life, current market yield and interest rate spreads of
similar securities as of the measurement date. Subsequent to June 30, 2009, for equity or
equity-like securities of investments that we do not control or cannot gain control as of the
measurement date, we estimate the fair value of the equity using the in-exchange premise of
value based on factors such as the overall value of the issuer, the relative fair value of
other units of account, including debt, or other relative value approaches. Consideration also
is given to capital structure and other contractual obligations that may impact the fair value
of the equity. Further, we may utilize comparable values of similar companies, recent
investments and indices with similar structures and risk characteristics or our own
assumptions in the absence of other observable market data, and may also employ DCF valuation
techniques.Due to the uncertainty inherent in the valuation process, such estimates of fair value may
differ significantly from the values that would have been obtained had a ready market for the
securities existed, and the differences could be material. Additionally, changes in the market
environment and other events that may occur over the life of the investments may cause the gains
or losses
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Valuation Considerations:
 
    
    the nature and realizable value of the collateral;
    
    the portfolio companys earnings and cash flows and its ability to make payments on its obligations;
    
    the markets in which the portfolio company does business;
    
    the comparison to publicly traded companies; and
    
    DCF and other relevant factors.
  Credit Information:
 Loan Grading and Risk Rating:
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Companys
    
    First
    
    SecondSystem
    
    NRSRO
    
    NRSRO
    

Gladstone Investments Description(1)>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% 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% 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%<1
    
    N/A
    
    D
    
    PD is 85% or there is a payment default and the EL is greater than 20%
 
 (1)
    
    The default rates set forth are for a ten year term debt security. If a 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   As of December 31,
    
    As of March 31,Rating
    
    2010
    
    2010Highest
    
    
    9.0
    
    
    
    9.0Average
    
    
    5.5
    
    
    
    5.3Weighted Average
    
    
    5.8
    
    
    
    5.9Lowest
    
    
    3.0
    
    
    
    2.0
  Tax Status
 Federal Income Taxes
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Revenue Recognition
 Interest and Dividend Income Recognition
   Condensed Consolidated
Statements of Operations
  Recent Accounting Pronouncements
 Condensed
Consolidated Financial Statements
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  2.1
    %
    
    Variable rates65.1
    
    
    Variable rates with a floor32.8
    
    
    Fixed rates100.0
    %
    
    Total
  50




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ITEM 4. CONTROLS AND PROCEDURES.
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##### Table of Contents



PART IIOTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. RESERVED
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
  52




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SIGNATURE
  GLADSTONE INVESTMENT CORPORATIONBy:
    /s/ David WatsonDavid WatsonChief Financial Officer  53




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EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Amended and Restated Certificate 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 May 13, 2005.3.2
    
    Amended and Restated Bylaws, incorporated by reference to Exhibit b.2 to Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.3.3
    
    First Amendment to Amended and Restated Bylaws, incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K (File No. 814-00704), filed on July 10, 2007.4.1
    
    Specimen Stock Certificate, incorporated by reference to Exhibit 99.1 to Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.11
    
    Computation of Per Share Earnings (included in the notes to the unaudited Condensed Consolidated
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.
  54