##### 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 SEPTEMBER 30, 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
    
    83-0423116(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (703) 287-5800
 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




---



##### 



GLADSTONE INVESTMENT CORPORATION
TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATION:Item 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Assets and Liabilities as of September 30, 2010 and March 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three and six months ended September 30, 2010
and September 30, 2009
    
    
    4Condensed Consolidated Statements of Changes in Net Assets for the six months ended September 30, 2010
and September 30, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the six months ended September 30, 2010 and
September 30, 2009
    
    
    6Condensed Consolidated Schedules of Investments as of September 30, 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
    
    
    40Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    49Item 4.
    
    Controls and Procedures
    
    
    49PART II.
    
    OTHER INFORMATION:Item 1.
    
    Legal Proceedings
    
    
    51Item 1A.
    
    Risk Factors
    
    
    51Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    51Item 3.
    
    Defaults Upon Senior Securities
    
    
    51Item 4.
    
    Reserved
    
    
    51Item 5.
    
    Other Information
    
    
    51Item 6.
    
    Exhibits
    
    
    51SIGNATURES
    
    
    52EX-31.1EX-31.2EX-32.1EX-32.2




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 September 30,
    
    
    March 31,2010
    
    
    2010ASSETSCash and cash equivalents
    
    $
    64,299
    
    
    $
    87,717Investments at fair valueNon-Control/Non-Affiliate investments (Cost of $15,332and $22,674, respectively)
    
    
    14,060
    
    
    
    20,946Control investments (Cost of $126,153and $152,166, respectively)
    
    
    95,050
    
    
    
    148,248Affiliate investments (Cost of $45,928and $52,727, respectively)
    
    
    32,504
    
    
    
    37,664Total investments (Cost of $187,413and $227,567, respectively)
    
    
    141,614
    
    
    
    206,858Interest receivable
    
    
    969
    
    
    
    1,234Due from Custodian
    
    
    1,323
    
    
    
    935Deferred financing fees
    
    
    559
    
    
    
    83Prepaid assets
    
    
    457
    
    
    
    221Other assets
    
    
    4,088
    
    
    
    113TOTAL ASSETS
    
    $
    213,309
    
    
    $
    297,161LIABILITIESBorrowings at fair valueShort-term loan (Cost of $25,000and $75,000, respectively)
    
    $
    25,000
    
    
    $
    75,000Line of credit (Cost of $0and $27,800, respectively)
    
    
    
    
    
    
    27,812Total borrowings (Cost of $25,000and $102,800, respectively)
    
    
    25,000
    
    
    
    102,812Accounts payable and accrued expenses
    
    
    203
    
    
    
    206Fee due to Administrator(1)
    
    
    261
    
    
    
    149Fees due to Adviser(1)
    
    
    395
    
    
    
    721Other liabilities
    
    
    1,253
    
    
    
    295TOTAL LIABILITIES
    
    
    27,112
    
    
    
    104,183NET ASSETS
    
    $
    186,197
    
    
    $
    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 September 30, 2010 and March 31, 2010
    
    $
    22
    
    
    $
    22Capital in excess of par value
    
    
    257,216
    
    
    
    257,206Net unrealized depreciation of investment portfolio
    
    
    (45,799
    )
    
    
    (20,710
    )Net unrealized depreciation of derivatives
    
    
    (77
    )
    
    
    (39
    )Net unrealized appreciation of borrowings
    
    
    
    
    
    
    (12
    )Accumulated net realized investment loss
    
    
    (25,165
    )
    
    
    (43,489
    )TOTAL NET ASSETS
    
    $
    186,197
    
    
    $
    192,978NET ASSETS PER SHARE
    
    $
    8.43
    
    
    $
    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




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months Ended
    
    
    Six Months EndedSeptember 30,
    
    
    September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate investments
    
    $
    380
    
    
    $
    619
    
    
    $
    784
    
    
    $
    1,436Control investments
    
    
    2,124
    
    
    
    2,870
    
    
    
    5,144
    
    
    
    5,741Affiliate investments
    
    
    978
    
    
    
    1,453
    
    
    
    2,061
    
    
    
    2,934Cash and cash equivalents
    
    
    14
    
    
    
    1
    
    
    
    15
    
    
    
    1Total interest income
    
    
    3,496
    
    
    
    4,943
    
    
    
    8,004
    
    
    
    10,012Other income
    
    
    805
    
    
    
    
    
    
    
    3,546
    
    
    
    Total investment income
    
    
    4,301
    
    
    
    4,943
    
    
    
    11,550
    
    
    
    10,112EXPENSESLoan servicing fee(1)
    
    
    666
    
    
    
    938
    
    
    
    1,490
    
    
    
    2,006Base management fee(1)
    
    
    303
    
    
    
    164
    
    
    
    503
    
    
    
    477Incentive fee(1)
    
    
    
    
    
    
    
    
    
    
    1,052
    
    
    
    Administration fee(1)
    
    
    261
    
    
    
    198
    
    
    
    439
    
    
    
    371Interest expense
    
    
    149
    
    
    
    552
    
    
    
    423
    
    
    
    1,255Amortization of deferred financing fees
    
    
    103
    
    
    
    438
    
    
    
    267
    
    
    
    751Professional fees
    
    
    98
    
    
    
    118
    
    
    
    222
    
    
    
    320Stockholder related costs
    
    
    115
    
    
    
    146
    
    
    
    220
    
    
    
    227Insurance expense
    
    
    72
    
    
    
    62
    
    
    
    144
    
    
    
    119Directors fees
    
    
    59
    
    
    
    48
    
    
    
    109
    
    
    
    99Other expenses
    
    
    95
    
    
    
    73
    
    
    
    214
    
    
    
    137Expenses before credits from Adviser
    
    
    1,921
    
    
    
    2,737
    
    
    
    5,083
    
    
    
    5,762Credits to fees from Adviser(1)
    
    
    (61
    )
    
    
    (165
    )
    
    
    (180
    )
    
    
    (466
    )Total expenses net of credits to fees
    
    
    1,860
    
    
    
    2,572
    
    
    
    4,903
    
    
    
    5,296NET INVESTMENT INCOME
    
    
    2,441
    
    
    
    2,371
    
    
    
    6,647
    
    
    
    4,816REALIZED AND UNREALIZED GAIN (LOSS) ON:Realized gain (loss) on sale of investments
    
    
    
    
    
    
    
    
    
    
    16,976
    
    
    
    (34,605
    )Realized loss on termination of derivative
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (53
    )Net unrealized appreciation (depreciation) of
Non-Control/Non-Affiliate investments
    
    
    31
    
    
    
    (1,514
    )
    
    
    456
    
    
    
    35,214Net unrealized depreciation of Control investments
    
    
    (9,723
    )
    
    
    (14,900
    )
    
    
    (27,184
    )
    
    
    (26,381
    )Net unrealized appreciation (depreciation) of Affiliate investments
    
    
    401
    
    
    
    (3,853
    )
    
    
    1,639
    
    
    
    (6,119
    )Net unrealized (depreciation) appreciation of derivatives
    
    
    (9
    )
    
    
    (16
    )
    
    
    (38
    )
    
    
    26Net unrealized (depreciation) appreciation of borrowings
    
    
    
    
    
    
    (178
    )
    
    
    12
    
    
    
    (178
    )Net loss on investments, derivatives and borrowings
    
    
    (9,300
    )
    
    
    (20,461
    )
    
    
    (8,139
    )
    
    
    (32,096
    )NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    (6,859
    )
    
    $
    (18,090
    )
    
    $
    (1,492
    )
    
    $
    (27,280
    )NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:Basic and diluted
    
    $
    (0.31
    )
    
    $
    (0.82
    )
    
    $
    (0.07
    )
    
    $
    (1.24
    )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




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Six Months Ended September 30,2010
    
    
    2009Operations:Net investment income
    
    $
    6,647
    
    
    $
    4,816Realized gain (loss) on sale of investments
    
    
    16,976
    
    
    
    (34,605
    )Realized loss on termination of derivative
    
    
    
    
    
    
    (53
    )Net unrealized (depreciation) appreciation of investment portfolio
    
    
    (25,089
    )
    
    
    2,714Unrealized (depreciation) appreciation of derivatives
    
    
    (38
    )
    
    
    26Unrealized appreciation (depreciation) of borrowings
    
    
    12
    
    
    
    (178
    )Net decrease in net assets from operations
    
    
    (1,492
    )
    
    
    (27,280
    )Capital transactions:Shelf offering registration costs
    
    
    10
    
    
    
    (178
    )Distributions to stockholders
    
    
    (5,299
    )
    
    
    (5,299
    )Net decrease in net assets from capital transactions
    
    
    (5,289
    )
    
    
    (5,477
    )Total decrease in net assets
    
    
    (6,781
    )
    
    
    (32,757
    )Net assets at beginning of period
    
    
    192,978
    
    
    
    214,802Net assets at end of period
    
    $
    186,197
    
    
    $
    182,045
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 5




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Six Months Ended September 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet decrease in net assets resulting from operations
    
    $
    (1,492
    )
    
    $
    (27,280
    )Adjustments to reconcile net decrease in net assets resulting from operations
to net cash provided by operating activities:Purchase of investments
    
    
    (4,994
    )
    
    
    (968
    )Principal repayments of investments
    
    
    40,646
    
    
    
    9,482Proceeds from sales of investments
    
    
    21,474
    
    
    
    69,222Net realized (gain) loss on sales of investments
    
    
    (16,976
    )
    
    
    34,605Net realized loss on termination of derivative
    
    
    
    
    
    
    53Net unrealized depreciation (appreciation) of investment portfolio
    
    
    25,089
    
    
    
    (2,714
    )Net unrealized depreciation (appreciation) of derivatives
    
    
    38
    
    
    
    (26
    )Net unrealized (depreciation) appreciation of borrowings
    
    
    (12
    )
    
    
    178Net amortization of premiums and discounts
    
    
    5
    
    
    
    Amortization of deferred financing fees
    
    
    267
    
    
    
    751Decrease in interest receivable
    
    
    265
    
    
    
    288(Increase) decrease in due from custodian
    
    
    (388
    )
    
    
    1,774Increase in prepaid assets
    
    
    (236
    )
    
    
    (273
    )Increase in other assets
    
    
    (3,972
    )
    
    
    (40
    )Decrease in accounts payable and accrued expenses
    
    
    
    
    
    
    (823
    )Increase in administration fee payable to Administrator(1)
    
    
    112
    
    
    
    19Increase in base management fee payable to Adviser(1)
    
    
    226
    
    
    
    113Decrease in incentive fee payable to Adviser(1)
    
    
    (486
    )
    
    
    Decrease in loan servicing fee payable to Adviser(1)
    
    
    (66
    )
    
    
    (79
    )Increase in other liabilities
    
    
    958
    
    
    
    21Net cash provided by operating activities
    
    
    60,458
    
    
    
    84,303CASH FLOWS FROM FINANCING ACTIVITIESShelf offering registration costs
    
    
    10
    
    
    
    (178
    )Borrowings from line of credit
    
    
    16,000
    
    
    
    79,000Repayments of line of credit
    
    
    (43,800
    )
    
    
    (153,165
    )Proceeds from short-term borrowings
    
    
    100,000
    
    
    
    140,000Repayments on short-term borrowings
    
    
    (150,000
    )
    
    
    (65,000
    )Purchase of derivatives
    
    
    (41
    )
    
    
    (39
    )Deferred financing fees
    
    
    (746
    )
    
    
    (547
    )Distributions paid
    
    
    (5,299
    )
    
    
    (5,299
    )Net cash used in financing activities
    
    
    (83,876
    )
    
    
    (5,228
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (23,418
    )
    
    
    79,075CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    87,717
    
    
    
    7,236CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    64,299
    
    
    $
    86,311NON-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 September 30, 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.
 6




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS
SEPTEMBER 30, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    
    Fair ValueNON-CONTROL/NON-AFFILIATE INVESTMENTS:Senior Syndicated Loans:Survey Sampling, LLC
    
    Service  telecommunications-based sampling
    
    Senior Term Debt (9.5%, Due 5/2011)(3)
    
    $
    2,340
    
    
    $
    1,494Subtotal  Syndicated Loans
    
    
    
    
    
    
    2,340
    
    
    
    1,494Non-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)
    
    
    6,579
    
    
    
    6,579Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    3,070
    
    
    
    3,070Common Stock Warrants(4)
    
    
    300
    
    
    
    799,949
    
    
    
    9,728Total Non-Control/Non-Affiliate Investments (represents 9.9% of total investments at fair value)
    
    $
    15,332
    
    
    $
    14,060CONTROL 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
    
    
    
    179Common Stock(4)
    
    
    1,045
    
    
    
    Common Stock Warrants(4)
    
    
    25
    
    
    
    22,969
    
    
    
    15,094ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $127 available (non-accrual, Due 3/2013)(4) (5)
    
    
    1,831
    
    
    
    375Senior Subordinated Term Debt (non-accrual, Due 3/2013)(4) (5)
    
    
    6,060
    
    
    
    1,250Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    4
    
    
    
    Guaranty ($750)10,395
    
    
    
    1,625Cavert 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
    
    
    
    5,150Common Stock(4)
    
    
    69
    
    
    
    5,59711,500
    
    
    
    18,068Chase II Holding Corp.
    
    Manufacturing  traffic doors
    
    Senior Term Debt (8.8%, Due 3/2011)
    
    
    7,150
    
    
    
    7,150Senior Term Debt (12.0%, Due 3/2011)(6)
    
    
    7,440
    
    
    
    7,440Senior Subordinated Term Debt (13.0%, Due 3/2013)
    
    
    6,168
    
    
    
    6,168Preferred Stock(4)
    
    
    6,961
    
    
    
    10,741Common Stock(4)
    
    
    61
    
    
    
    72427,780
    
    
    
    32,223Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.6%, Due 11/2014)(5)
    
    
    7,000
    
    
    
    6,825Preferred Stock(4)
    
    
    3,725
    
    
    
    Guaranty ($3,751)10,725
    
    
    
    6,825
 7




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
SEPTEMBER 30, 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)
    
    $
    5,220
    
    
    $
    5,220Preferred Stock(4)
    
    
    19,658
    
    
    
    147Common Stock(4)
    
    
    48
    
    
    
    24,926
    
    
    
    5,367Neville Limited(8)
    
    Real Estate  investments
    
    Common Stock(4)
    
    
    610
    
    
    
    550610
    
    
    
    550Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due 3/2011)(5)
    
    
    1,032
    
    
    
    1,017Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,333Senior Term Debt (7.4%, Due 3/2014)(5) (6)
    
    
    7,227
    
    
    
    7,010Common Stock(4)
    
    
    500
    
    
    
    Common Stock Warrants(4)
    
    
    277
    
    
    
    11,411
    
    
    
    10,360Tread Corp.(7)
    
    Manufacturing  storage and transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(5)
    
    
    5,000
    
    
    
    4,938Preferred Stock(4)
    
    
    833
    
    
    
    Common Stock(4)
    
    
    1
    
    
    
    Preferred Stock & Debt Warrants(4)
    
    
    3
    
    
    
    5,837
    
    
    
    4,938Total Control Investments (represents 67.1% of total investments at fair value)
    
    $
    126,153
    
    
    $
    95,050AFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $600 available (10.0%, Due 10/2010)(5) (9)
    
    $
    900
    
    
    $
    898Senior Term Debt (10.0%, Due 10/2012)(5)
    
    
    3,563
    
    
    
    3,553Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    9,007
    
    
    
    8,962Preferred Stock(4)
    
    
    2,500
    
    
    
    143Common Stock Warrants(4)
    
    
    2
    
    
    
    15,972
    
    
    
    13,556Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $400 available (4.3%, Due 12/2010)(5)
    
    
    1,600
    
    
    
    1,040Senior Term Debt (9.3%, Due 12/2011)(5)
    
    
    6,227
    
    
    
    4,048Senior Term Debt (10.5%, Due 12/2011)(5) (6)
    
    
    7,300
    
    
    
    4,745Preferred Stock(4)
    
    
    1,750
    
    
    
    Common Stock(4)
    
    
    1,682
    
    
    
    18,559
    
    
    
    9,833Quench Holdings Corp.
    
    Service  sales, installation and service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(5)
    
    
    8,000
    
    
    
    6,120Preferred Stock(4)
    
    
    2,950
    
    
    
    2,995Common Stock(4)
    
    
    447
    
    
    
    11,397
    
    
    
    9,115Total Affiliate Investments (represents 23.0% of total investments at fair value)
    
    $
    45,928
    
    
    $
    32,504TOTAL INVESTMENTS
    
    
    
    
    
    $
    187,413
    
    
    $
    141,614
 
 (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 September 30, 2010, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near September 30, 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 September 30, 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)
    
    In June 2010, an additional equity investment increased the Companys fully-diluted ownership percentage above 25%, resulting in the investment
being reclassified Control during the quarter ended June 30, 2010.(8)
    
    In July 2010, Gladstone Neville Corp. changed its name to Neville Limited.(9)
    
    In October 2010, the revolver maturity date was extended to October 2011. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 8




---



##### Table of Contents



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
 9




---



##### 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




---



##### Table of Contents



GLADSTONE INVESTMENT CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 September 30, 2010
 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA OR UNLESS 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




---



##### 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:
 12




---



##### Table of Contents




    
    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, 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 that 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
 13




---



##### 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
 14




---



##### Table of Contents



As of September 30, 2010Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesNon-Control/Non-Affiliate investmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    13,981
    
    
    $
    13,981Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    79Total Non-Control/Non-Affiliate investments
    
    
    
    
    
    
    
    
    
    
    14,060
    
    
    
    14,060Control investmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    27,600
    
    
    
    27,600Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    44,361
    
    
    
    44,361Preferred equity
    
    
    
    
    
    
    
    
    
    
    16,218
    
    
    
    16,218Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    6,871
    
    
    
    6,871Total Control investments
    
    
    
    
    
    
    
    
    
    
    95,050
    
    
    
    95,050Affiliate investmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    23,246
    
    
    
    23,246Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    6,120
    
    
    
    6,120Preferred equity
    
    
    
    
    
    
    
    
    
    
    3,138
    
    
    
    3,138Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    32,504
    
    
    
    32,504Total investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    141,614
    
    
    $
    141,614Cash Equivalents
    
    
    60,002
    
    
    
    
    
    
    
    
    
    
    
    60,002Total Investments and Cash Equivalents
    
    $
    60,002
    
    
    $
    
    
    
    $
    141,614
    
    
    $
    201,616
 Changes in Level 3 Fair Value Measurements of Investments
  Fair value measurements using unobservable data inputs (Level 3)
 Period ended September 30, 2010:
 Non-Control/Non-Affiliate
    
    
    Control
    
    
    AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended September 30, 2010:Fair value as of June 30, 2010
    
    $
    14,079
    
    
    $
    101,574
    
    
    $
    32,676
    
    
    $
    148,329Total unrealized gains (losses)
    
    
    31
    
    
    
    (9,723
    )
    
    
    401
    
    
    
    (9,291
    )Issuances/Originations
    
    
    
    
    
    
    3,640
    
    
    
    
    
    
    
    3,640Settlements/Repayments
    
    
    (50
    )
    
    
    (441
    )
    
    
    (573
    )
    
    
    (1,064
    )Fair value as of September 30, 2010
    
    $
    14,060
    
    
    $
    95,050
    
    
    $
    32,504
    
    
    $
    141,614Six months ended September 30, 2010:Fair value as of March 31, 2010
    
    $
    20,946
    
    
    $
    148,248
    
    
    $
    37,664
    
    
    $
    206,858Total realized gains(1)
    
    
    19
    
    
    
    16,957
    
    
    
    
    
    
    
    16,976Total unrealized gains (losses)(1)
    
    
    456
    
    
    
    (27,184
    )
    
    
    1,639
    
    
    
    (25,089
    )Issuances/Originations
    
    
    
    
    
    
    4,994
    
    
    
    
    
    
    
    4,994Sales
    
    
    
    
    
    
    (21,474
    )
    
    
    
    
    
    
    (21,474
    )Settlements/Repayments
    
    
    (7,361
    )
    
    
    (32,244
    )
    
    
    (1,046
    )
    
    
    (40,651
    )Transfers(2)
    
    
    
    
    
    
    5,753
    
    
    
    (5,753
    )
    
    
    Fair value as of September 30, 2010
    
    $
    14,060
    
    
    $
    95,050
    
    
    $
    32,504
    
    
    $
    141,614
 15




---



##### Table of Contents



Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended September 30, 2010:Fair value as of June 30, 2010
    
    $
    64,893
    
    
    $
    62,018
    
    
    $
    16,510
    
    
    $
    4,908
    
    
    $
    148,329Total unrealized gains (losses)(1)
    
    
    921
    
    
    
    470
    
    
    
    (12,725
    )
    
    
    2,043
    
    
    
    (9,291
    )Issuances/Originations
    
    
    
    
    
    
    369
    
    
    
    3,271
    
    
    
    
    
    
    
    3,640Settlements/Repayments
    
    
    (988
    )
    
    
    (76
    )
    
    
    
    
    
    
    
    
    
    
    (1,064
    )Transfers(3)
    
    
    
    
    
    
    (12,300
    )
    
    
    12,300
    
    
    
    
    
    
    
    Fair value as of September 30, 2010
    
    $
    64,826
    
    
    $
    50,481
    
    
    $
    19,356
    
    
    $
    6,951
    
    
    $
    141,614Six months ended September 30, 2010:Fair value as of March 31, 2010
    
    $
    94,359
    
    
    $
    71,112
    
    
    $
    20,425
    
    
    $
    20,962
    
    
    $
    206,858Total realized gains(1)
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    16,957
    
    
    
    16,976Total unrealized gains (losses)(1)
    
    
    1,412
    
    
    
    302
    
    
    
    (12,311
    )
    
    
    (14,492
    )
    
    
    (25,089
    )Issuances/Originations
    
    
    
    
    
    
    1,054
    
    
    
    3,329
    
    
    
    611
    
    
    
    4,994Sales
    
    
    
    
    
    
    
    
    
    
    (4,387
    )
    
    
    (17,087
    )
    
    
    (21,474
    )Settlements/Repayments
    
    
    (30,964
    )
    
    
    (9,687
    )
    
    
    
    
    
    
    
    
    
    
    (40,651
    )Transfers(3)
    
    
    
    
    
    
    (12,300
    )
    
    
    12,300
    
    
    
    
    
    
    
    Fair value as of September 30, 2010
    
    $
    64,826
    
    
    $
    50,481
    
    
    $
    19,356
    
    
    $
    6,951
    
    
    $
    141,614
 Period ended September 30, 2009:
 Non-Control/Non-Affiliate
    
    
    Control
    
    
    AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended September 30, 2009:Fair value as of June 30, 2009
    
    $
    26,961
    
    
    $
    149,509
    
    
    $
    50,539
    
    
    $
    227,009Total unrealized losses(1)
    
    
    (1,514
    )
    
    
    (14,900
    )
    
    
    (3,853
    )
    
    
    (20,267
    )Issuances/Originations
    
    
    
    
    
    
    105
    
    
    
    214
    
    
    
    319Settlements/Repayments
    
    
    (443
    )
    
    
    (2,315
    )
    
    
    
    
    
    
    (2,758
    )Fair value as of September 30, 2009
    
    $
    25,004
    
    
    $
    132,399
    
    
    $
    46,900
    
    
    $
    204,303Six months ended September 30, 2009:Fair value as of March 31, 2009
    
    $
    94,740
    
    
    $
    166,163
    
    
    $
    53,027
    
    
    $
    313,930Total realized losses(1)
    
    
    (34,605
    )
    
    
    
    
    
    
    
    
    
    
    (34,605
    )Total unrealized gains (losses)(1)
    
    
    35,214
    
    
    
    (26,381
    )
    
    
    (6,119
    )
    
    
    2,714Issuances/Originations
    
    
    150
    
    
    
    105
    
    
    
    713
    
    
    
    968Sales
    
    
    (69,222
    )
    
    
    
    
    
    
    
    
    
    
    (69,222
    )Settlements/Repayments
    
    
    (1,273
    )
    
    
    (7,488
    )
    
    
    (721
    )
    
    
    (9,482
    )Fair value as of September 30, 2009
    
    $
    25,004
    
    
    $
    132,399
    
    
    $
    46,900
    
    
    $
    204,303
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended September 30, 2009:Fair value as of June 30, 2009
    
    $
    108,591
    
    
    $
    71,323
    
    
    $
    32,505
    
    
    $
    14,590
    
    
    $
    227,009Total unrealized losses(1)
    
    
    (3,060
    )
    
    
    (857
    )
    
    
    (7,276
    )
    
    
    (9,074
    )
    
    
    (20,267
    )Issuances/Originations
    
    
    319
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    319Settlements/Repayments
    
    
    (2,758
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (2,758
    )Fair value as of September 30, 2009
    
    $
    103,092
    
    
    $
    70,466
    
    
    $
    25,229
    
    
    $
    5,516
    
    
    $
    204,303Six months ended September 30, 2009:Fair value as of March 31, 2009
    
    $
    179,676
    
    
    $
    72,061
    
    
    $
    40,043
    
    
    $
    22,150
    
    
    $
    313,930Total realized gains(1)
    
    
    (34,605
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,605
    )Total unrealized gains (losses)(1)
    
    
    34,007
    
    
    
    155
    
    
    
    (14,814
    )
    
    
    (16,634
    )
    
    
    2,714Issuances/Originations
    
    
    968
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    968Sales
    
    
    (69,222
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,222
    )Settlements/Repayments
    
    
    (8,232
    )
    
    
    (1,250
    )
    
    
    
    
    
    
    
    
    
    
    (9,482
    )Transfers(4)
    
    
    500
    
    
    
    (500
    )
    
    
    
    
    
    
    
    
    
    
    Fair value as of September 30, 2009
    
    $
    103,092
    
    
    $
    70,466
    
    
    $
    25,229
    
    
    $
    5,516
    
    
    $
    204,303
 16




---



##### Table of Contents



(1)
    
    Included in the realized and unrealized gain (loss) section on the accompanying
Condensed Consolidated Statement of Operationsfor the three and six months ended September
30, 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 quarter 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 quarter ended September 30, 2010.(4)
    
    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 quarter ended
June 30, 2009. United States Treasury Bills
 Condensed Consolidated Statements of Assets and Liabilities
 Non-Proprietary Investment Activity
   Proprietary Investment Activity
  
    
    In September 2010, Cavert prepaid $767 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 $21.7 million, resulting in a realized gain of $17.0 million. 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 Companys Condensed Consolidated Schedule of Investmentsas of September
30, 2010.
    
    In June and July 2010, the Company disbursed $84 to Tread Corporation (Tread) in the
form of preferred and common equity. The Companys investment in Tread was reclassified
from an Affiliate to a Control investment during the six months ended June 30, 2010.
    
    In June 2010, the Company entered into agreements with Noble Logistics, Inc. (Noble)
to extend the maturity date of its revolving line of credit to December 2010, and
restructured the senior LOT note. These were non-cash transactions.
    
    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




---



##### Table of Contents



Investment Concentrations
  September 30, 2010
    
    
    March 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueSenior Term Debt
    
    $
    71,502
    
    
    $
    64,826
    
    
    $
    102,446
    
    
    $
    94,359Senior Subordinated Term Debt
    
    
    58,866
    
    
    
    50,481
    
    
    
    79,799
    
    
    
    71,112Preferred Equity
    
    
    51,973
    
    
    
    19,356
    
    
    
    40,728
    
    
    
    20,425Common Equity/Equivalents
    
    
    5,072
    
    
    
    6,951
    
    
    
    4,594
    
    
    
    20,962Total Investments
    
    $
    187,413
    
    
    $
    141,614
    
    
    $
    227,567
    
    
    $
    206,858
  September 30, 2010
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsDiversified/Conglomerate Manufacturing
    
    $
    45,779
    
    
    
    32.3
    %
    
    $
    43,054
    
    
    
    20.8
    %Containers, Packaging and Glass
    
    
    18,068
    
    
    
    12.8
    
    
    
    18,731
    
    
    
    9.1Chemicals, Plastics and Rubber
    
    
    15,094
    
    
    
    10.7
    
    
    
    13,585
    
    
    
    6.6Machinery
    
    
    10,360
    
    
    
    7.3
    
    
    
    60,692
    
    
    
    29.3Buildings and Real Estate
    
    
    10,278
    
    
    
    7.3
    
    
    
    10,220
    
    
    
    4.9Cargo Transport
    
    
    9,833
    
    
    
    6.9
    
    
    
    9,394
    
    
    
    4.5Healthcare, Education and Childcare
    
    
    9,115
    
    
    
    6.4
    
    
    
    9,374
    
    
    
    4.5Automobile
    
    
    8,450
    
    
    
    6.0
    
    
    
    9,040
    
    
    
    4.4Aerospace and Defense
    
    
    5,367
    
    
    
    3.8
    
    
    
    17,099
    
    
    
    8.3Oil and Gas
    
    
    4,938
    
    
    
    3.5
    
    
    
    4,943
    
    
    
    2.4Printing and Publishing
    
    
    2,838
    
    
    
    2.0
    
    
    
    2,895
    
    
    
    1.4Telecommunications
    
    
    1,494
    
    
    
    1.0
    
    
    
    7,831
    
    
    
    3.8Total Investments
    
    $
    141,614
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  September 30, 2010
    
    
    March 31, 2010Percent of
    
    
    
    
    
    
    Percent ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsMidwest
    
    $
    60,621
    
    
    
    42.8
    %
    
    $
    68,802
    
    
    
    33.3
    %Mid-Atlantic
    
    
    39,425
    
    
    
    27.8
    
    
    
    88,501
    
    
    
    42.8Southeast
    
    
    18,068
    
    
    
    12.8
    
    
    
    25,493
    
    
    
    12.3West
    
    
    15,181
    
    
    
    10.7
    
    
    
    16,124
    
    
    
    7.8Northeast
    
    
    8,319
    
    
    
    5.9
    
    
    
    7,938
    
    
    
    3.8Total Investments
    
    $
    141,614
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  18




---



##### Table of Contents



Investment Principal Repayments
  AmountFor the remaining six months ending March 31:2011
    
    $
    19,665For the fiscal year ending March 31:2012
    
    
    31,5592013
    
    
    21,0542014
    
    
    34,3312015
    
    
    20,9422016
    
    
    Thereafter
    
    
    3,043Total contractual repayments
    
    $
    130,594Investments in equity securities
    
    
    57,045Adjustments to cost basis on debt securities
    
    
    (226
    )Total cost basis of investments held at
September 30, 2010:
    
    $
    187,413
 Note 4. Related Party Transactions
 Investment Advisory and Management Agreement
  Condensed Consolidated Statements of Operations
 Three Months Ended September 30,
    
    
    Six Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    193,800
    
    
    $
    220,400
    
    
    $
    199,300
    
    
    $
    248,300Multiplied by pro-rated annual base management fee of 2.0%
    
    
    0.5
    %
    
    
    0.5
    %
    
    
    1.0
    %
    
    
    1.0
    %Unadjusted base management fee
    
    $
    969
    
    
    $
    1,102
    
    
    $
    1,993
    
    
    $
    2,483Reduction for loan servicing fees(2)
    
    
    (666
    )
    
    
    (938
    )
    
    
    (1,490
    )
    
    
    (2,006
    )Base management fee(2)
    
    
    303
    
    
    
    164
    
    
    
    503
    
    
    
    477Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans
to 0.5%
    
    
    
    
    
    
    (48
    )
    
    
    (15
    )
    
    
    (231
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (61
    )
    
    
    (117
    )
    
    
    (165
    )
    
    
    (235
    )Credit to base management fee from Adviser(2)
    
    
    (61
    )
    
    
    (165
    )
    
    
    (180
    )
    
    
    (466
    )Net base management fee
    
    $
    242
    
    
    $
    (1
    )
    
    $
    323
    
    
    $
    11Incentive fee(2)
    
    $
    
    
    
    $
    
    
    
    $
    1,052
    
    
    $
    
 
 (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
  19




---



##### Table of Contents




    
    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. For the three and six months ended
September 30, 2010, the Company recorded loan servicing fees due to the Adviser of $0.7
million and $1.5 million, respectively, as compared to $0.9 million and $2.0 million for
the three and six months ended September 30, 2009, respectively, all of which were
deducted against the 2.0% base management fee in order to derive the base management fee
line item in the accompanying Condensed Consolidated Statements of Operations.
    
    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 six months
ended September 30, 2010 and 2009. For the three and six months ended September 30,
2010, the Company recorded waivers related to investments in senior syndicated loan
participations of zero and $15, respectively, as compared to $48 and $231 for the three
and six months ended September 30, 2009, respectively, all of which were credited against
the 2.0% base management fee.
    
    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
are credited against the base management fee that the Company would otherwise be required
to pay to the Adviser. For the three and six months ended September 30, 2010, the
Company recorded credits for fees received by the Adviser from portfolio companies of $61
and $165, respectively, as compared to $117 and $235 for the three and six months ended
September 30, 2009, respectively, all of which were credited against the 2.0% base
management fee.
 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).
  20




---



##### Table of Contents



Administration Agreement
 Condensed Consolidated Statements of Operations
 Related Party Fees Due
 Condensed Consolidated Statements of Assets and
Liabilities
 As of September 30,
    
    
    As of March 31,2010
    
    
    2010Unpaid base management fee due to Adviser
    
    $
    242
    
    
    $
    16Unpaid loan servicing fee due to Adviser
    
    
    153
    
    
    
    219Unpaid incentive fee due to Adviser
    
    
    
    
    
    
    486Total Fees due to Adviser
    
    
    395
    
    
    
    721Unpaid administration fee due to Administrator
    
    
    261
    
    
    
    149Total related party fees due
    
    $
    656
    
    
    $
    870
 Note 5. Borrowings
 Line of Credit
    21




---



##### Table of Contents



Short-Term Loan
  Fair Value
 Condensed Consolidated Statements of Assets and Liabilities
 As of September 30, 2010Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesCredit Facility
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    Short-Term Loan
    
    
    
    
    
    
    
    
    
    
    25,000
    
    
    
    25,000Total
    
    $
    
    
    
    $
    
    
    
    $
    25,000
    
    
    $
    25,000
 Total Fair ValueReported in CondensedCredit
    
    
    Short-Term
    
    
    Consolidated Statement ofFacility
    
    
    Loan
    
    
    Assets and LiabilitiesThree months ended September 30, 2010:Fair value at June 30, 2010
    
    $
    16,500
    
    
    $
    75,000
    
    
    $
    91,500Borrowings
    
    
    
    
    
    
    25,000
    
    
    
    25,000Repayments
    
    
    (16,500
    )
    
    
    (75,000
    )
    
    
    (91,500
    )Net unrealized depreciation of Credit Facility
    
    
    
    
    
    
    
    
    
    
    Fair value at September 30, 2010
    
    $
    
    
    
    $
    25,000
    
    
    $
    25,000Six months ended September 30, 2010:Fair value at March 31, 2010
    
    $
    27,812
    
    
    $
    75,000
    
    
    $
    102,812Borrowings
    
    
    16,000
    
    
    
    100,000
    
    
    
    116,000Repayments
    
    
    (43,800
    )
    
    
    (150,000
    )
    
    
    (193,800
    )Net unrealized depreciation of Credit Facility(1)
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Fair value at September 30, 2010
    
    $
    
    
    
    $
    25,000
    
    
    $
    25,000
 22




---



##### Table of Contents



Total Fair ValueReported in CondensedCredit
    
    
    Short-Term
    
    
    Consolidated Statement ofFacility
    
    
    Loan
    
    
    Assets and LiabilitiesThree months ended September 30, 2009:Fair value at June 30, 2009(2)
    
    $
    46,940
    
    
    $
    65,000
    
    
    $
    111,940Borrowings
    
    
    16,500
    
    
    
    75,000
    
    
    
    91,500Repayments
    
    
    (27,340
    )
    
    
    (65,000
    )
    
    
    (92,340
    )Net unrealized appreciation of Credit Facility(1)
    
    
    178
    
    
    
    
    
    
    
    178Fair value at September 30, 2009
    
    $
    36,278
    
    
    $
    75,000
    
    
    $
    111,278Six months ended September 30, 2009:Fair value at March 31, 2009(2)
    
    $
    110,265
    
    
    $
    
    
    
    $
    110,265Borrowings
    
    
    79,000
    
    
    
    140,000
    
    
    
    219,000Repayments
    
    
    (153,165
    )
    
    
    (65,000
    )
    
    
    (218,165
    )Net unrealized appreciation of Credit Facility(1)
    
    
    178
    
    
    
    
    
    
    
    178Fair value at September 30, 2009
    
    $
    36,278
    
    
    $
    75,000
    
    
    $
    111,278
 
 (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 and June 30, 2009 in the table above.  Note 6. Interest Rate Cap Agreements
 Condensed Consolidated Statement of Operations
   Note 7. Common Stock
  Registration Statement
 .
 23




---



##### Table of Contents



Note 8. Net Decrease in Net Assets Resulting from Operations per Share
  Three months ended September 30,
    
    
    Six months ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Numerator for basic and diluted net decrease in net
assets per share resulting from operations
    
    $
    6,859
    
    
    $
    18,090
    
    
    $
    1,492
    
    
    $
    27,280Denominator for basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133
    
    
    
    22,080,133Basic and diluted net decrease in net assets per share
resulting from operations
    
    $
    0.31
    
    
    $
    0.82
    
    
    $
    0.07
    
    
    $
    1.24
 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
    
    
    0.04Six Months Ended September 30, 2010:
    
    $
    0.24
 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
    
    
    0.04Six
Months Ended September 30, 2009:
    
    $
    0.24
  Note 10. Commitments and Contingencies
    24




---



##### Table of Contents



Note 11. Financial Highlights
 Three Months Ended September 30,
    
    
    Six Months Ended September 30,2010
    
    
    2009
    
    
    2010
    
    
    2009Per Share Data (1)Net asset value at beginning of period
    
    $
    8.86
    
    
    $
    9.19
    
    
    $
    8.74
    
    
    $
    9.73Income from investment operationsNet investment income(2)
    
    
    0.11
    
    
    
    0.11
    
    
    
    0.30
    
    
    
    0.22Realized gain (loss) on exit(2)
    
    
    
    
    
    
    
    
    
    
    0.77
    
    
    
    (1.57
    )Net unrealized depreciation(2)
    
    
    (0.42
    )
    
    
    (0.93
    )
    
    
    (1.14
    )
    
    
    0.11Total from investment operations
    
    
    (0.31
    )
    
    
    (0.82
    )
    
    
    (0.07
    )
    
    
    (1.24
    )Distributions from:Net investment income
    
    
    (0.12
    )
    
    
    (0.12
    )
    
    
    (0.24
    )
    
    
    (0.24
    )Total distributions(3)
    
    
    (0.12
    )
    
    
    (0.12
    )
    
    
    (0.24
    )
    
    
    (0.24
    )Shelf registration offering costs
    
    
    
    
    
    
    (0.01
    )
    
    
    
    
    
    
    (0.01
    )Net asset value at end of period
    
    $
    8.43
    
    
    $
    8.24
    
    
    $
    8.43
    
    
    $
    8.24Per share market value at beginning of period
    
    $
    5.62
    
    
    
    4.88
    
    
    $
    6.01
    
    
    $
    3.67Per share market value at end of period
    
    
    6.70
    
    
    
    4.85
    
    
    
    6.70
    
    
    
    4.85Total return(4)
    
    
    21.47
    %
    
    
    1.75
    %
    
    
    15.93
    %
    
    
    39.03
    %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
    
    $
    186,197
    
    
    $
    182,045
    
    
    $
    186,197
    
    
    $
    182,045Average net assets(5)
    
    
    191,384
    
    
    
    195,005
    
    
    
    192,239
    
    
    
    202,596Senior Securities Data:Total borrowings
    
    $
    25,000
    
    
    $
    111,278
    
    
    $
    25,000
    
    
    $
    111,278Asset coverage ratio(6)
    
    
    715
    %
    
    
    262
    %
    
    
    715
    %
    
    
    262
    %Asset coverage per unit(7)
    
    $
    7,153
    
    
    $
    2,622
    
    
    $
    7,153
    
    
    $
    2,622Ratios/Supplemental Data:Ratio of expenses to average net assets(8), (9)
    
    
    4.01
    %
    
    
    5.61
    %
    
    
    5.29
    %
    
    
    5.69
    %Ratio of net expenses to average net assets(8), (10)
    
    
    3.89
    %
    
    
    5.28
    %
    
    
    5.10
    %
    
    
    5.23
    %Ratio of net investment income to average net assets(8)
    
    
    5.10
    %
    
    
    4.86
    %
    
    
    6.92
    %
    
    
    4.75
    %
 
 (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




---



##### Table of Contents



Note 12. Subsequent Events
 Investment Activity
 
    
    In October 2010, the Company closed on a $25.0 million subordinated debt and equity
investment in Venyu Solutions Inc. The new portfolio company, which provides data
protection, data hosting and disaster recovery services, is currently
a control investment.
    
    In October 2010, the Company extended the Danco Acquisition Corporation revolver
maturity date one year.
 Short-Term Loan
  Distributions
  Record Date
    
    Payment Date
    
    Distribution per ShareOctober 21, 2010
    
    October 29, 2010
    
    $
    0.04November 19, 2010
    
    November 30, 2010
    
    
    0.04December 23, 2010
    
    December 31, 2010
    
    
    0.04
 26




---



##### 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 unless 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




---



##### Table of Contents



28




---



##### Table of Contents



Investment Highlights
  Recent Developments
 Short-Term Loan
  Investment Activity
  29




---



##### Table of Contents




    
    In September 2010, Cavert II Holding Corp. (Cavert) prepaid $767 of its success fee on
its senior term debt and senior subordinated term debt.
    
    In July and August 2010, we restructured Galaxy Tool
Holding Corp. (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.
    
    As discussed previously, 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 $21.7 million, resulting in a realized gain of $17.0 million. 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 is reflected as a control investment, Neville Limited, on our Condensed
Consolidated Schedule of Investmentsas of September 30, 2010.
    
    In June and July 2010, we disbursed $84 to Tread Corporation (Tread) in the form of
preferred and common equity. Our investment in Tread was reclassified from an Affiliate to
a Control investment during the quarter ended June 30, 2010.
    
    In June 2010, we entered into agreements with Noble Logistics, Inc. (Noble) to extend
the maturity date of its revolving line of credit to December 2010, and restructured the
senior LOT note. These were non-cash transactions.
    
    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, 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




---



##### Table of Contents



RESULTS OF OPERATIONS
 Comparison of the Three Months Ended September 30, 2010 to the Three Months Ended September 30, 2009
 A comparison of our operating results for the three months ended September 30, 2010 and 2009 is
below:
 For the three months ended September 30,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    3,496
    
    
    $
    4,943
    
    
    $
    (1,447
    )
    
    
    (29.3
    )%Other income
    
    
    805
    
    
    
    
    
    
    
    805
    
    
    NMTotal investment income
    
    
    4,301
    
    
    
    4,943
    
    
    
    (642
    )
    
    
    (13.0
    )EXPENSESLoan servicing fee
    
    
    666
    
    
    
    938
    
    
    
    (272
    )
    
    
    (29.0
    )Base management fee
    
    
    303
    
    
    
    164
    
    
    
    139
    
    
    
    84.8Administration fee
    
    
    261
    
    
    
    198
    
    
    
    63
    
    
    
    31.8Interest expense
    
    
    149
    
    
    
    552
    
    
    
    (403
    )
    
    
    (73.0
    )Amortization of deferred financing fees
    
    
    103
    
    
    
    438
    
    
    
    (335
    )
    
    
    (76.5
    )Other
    
    
    439
    
    
    
    447
    
    
    
    (8
    )
    
    
    (1.8
    )Expenses before credits from Adviser
    
    
    1,921
    
    
    
    2,737
    
    
    
    (816
    )
    
    
    (29.8
    )Credits to fees
    
    
    (61
    )
    
    
    (165
    )
    
    
    104
    
    
    
    (63.0
    )Total expenses net of credits to fee
    
    
    1,860
    
    
    
    2,572
    
    
    
    (712
    )
    
    
    (27.7
    )NET INVESTMENT INCOME
    
    
    2,441
    
    
    
    2,371
    
    
    
    70
    
    
    
    3.0REALIZED AND UNREALIZED LOSS ON:Net unrealized depreciation on investments
    
    
    (9,291
    )
    
    
    (20,267
    )
    
    
    10,976
    
    
    
    (54.2
    )Net unrealized depreciation on other
    
    
    (9
    )
    
    
    (194
    )
    
    
    185
    
    
    
    (95.4
    )Net loss on investments and other
    
    
    (9,300
    )
    
    
    (20,461
    )
    
    
    11,161
    
    
    
    (54.5
    )NET DECREASE IN NET ASSETS RESULTING FROM
OPERATIONS
    
    $
    (6,859
    )
    
    $
    (18,090
    )
    
    $
    11,231
    
    
    
    (62.1
    )%
 NM = Not Meaningful
 Investment Income
     31




---



##### Table of Contents



As of September 30, 2010
    
    
    Three Months Ended September 30, 2010Company
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    % of Total RevenuesChase II Holding Corp.
    
    $
    32,223
    
    
    
    22.7
    %
    
    
    $
    595
    
    
    
    13.8
    %Cavert II Holding Corp.
    
    
    18,068
    
    
    
    12.8
    
    
    
    
    989
    
    
    
    23.0Acme Cryogenics, Inc.
    
    
    15,094
    
    
    
    10.7
    
    
    
    
    440
    
    
    
    10.2Danco Acquisition Corp.
    
    
    13,556
    
    
    
    9.6
    
    
    
    
    406
    
    
    
    9.4Mathey Investments, Inc.
    
    
    10,360
    
    
    
    7.3
    
    
    
    
    230
    
    
    
    5.4Subtotalfive largest investments
    
    
    89,301
    
    
    
    63.1
    
    
    
    
    2,660
    
    
    
    61.8Other portfolio companies
    
    
    52,313
    
    
    
    36.9
    
    
    
    
    1,641
    
    
    
    38.2Total investment portfolio
    
    $
    141,614
    
    
    
    100.0
    %
    
    
    $
    4,301
    
    
    
    100.0
    %
 As of September 30, 2009
    
    
    Three Months Ended September 30, 2009Company
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    % of Total RevenuesA. Stucki Holding Corp.
    
    $
    36,431
    
    
    
    17.8
    %
    
    
    $
    575
    
    
    
    11.6
    %Chase II Holding Corp.
    
    
    35,953
    
    
    
    17.6
    
    
    
    
    663
    
    
    
    13.4Acme Cryogenics, Inc.
    
    
    18,328
    
    
    
    9.0
    
    
    
    
    426
    
    
    
    8.6Galaxy Tool Holding Corp.
    
    
    16,862
    
    
    
    8.3
    
    
    
    
    595
    
    
    
    12.1Cavert II Holding Corp.
    
    
    16,349
    
    
    
    8.0
    
    
    
    
    314
    
    
    
    6.4Subtotalfive largest investments
    
    
    123,923
    
    
    
    60.7
    
    
    
    
    2,573
    
    
    
    52.1Other portfolio companies
    
    
    80,380
    
    
    
    39.3
    
    
    
    
    2,370
    
    
    
    47.9Total investment portfolio
    
    $
    204,303
    
    
    
    100.0
    %
    
    
    $
    4,943
    
    
    
    100.0
    %
  Operating Expenses
   Investment
Advisory and Management Agreement Condensed
Consolidated Financial Statements
 32




---



##### Table of Contents



Three Months Ended September 30,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    193,800
    
    
    $
    220,400Multiplied by pro-rated annual base management fee of 2.0%
    
    
    0.5
    %
    
    
    0.5
    %Unadjusted base management fee
    
    
    969
    
    
    
    1,102Reduction for loan servicing fees(2)
    
    
    (666
    )
    
    
    (938
    )Base management fee(2)
    
    $
    303
    
    
    $
    164Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans
to 0.5%
    
    
    
    
    
    
    (48
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (61
    )
    
    
    (117
    )Credit to base management fee from Adviser(2)
    
    
    (61
    )
    
    
    (165
    )Net base management fee
    
    $
    242
    
    
    $
    (1
    )
 
 (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
  Three Months Ended September 30, 2010Net UnrealizedPortfolio Company
    
    Investment Classification
    
    Appreciation (Depreciation)Chase II Holding Corp.
    
    Control
    
    $
    3,466Cavert II Holding Corp.
    
    Control
    
    
    1,617Acme Cryogenics, Inc.
    
    Control
    
    
    1,074Noble Logistics, Inc.
    
    Affiliate
    
    
    741Danco Acquisition Corp.
    
    Affiliate
    
    
    195Survey Sampling, LLC
    
    Non-Control / Non-Affiliate
    
    
    104Quench Holdings Corp.
    
    Affiliate
    
    
    (535
    )ASH Holdings Corp.
    
    Control
    
    
    (761
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    (15,093
    )Other, net (<$100)
    
    
    
    
    (99
    )Total:
    
    
    
    $
    (9,291
    )
 33




---



##### Table of Contents



Three Months Ended September 30, 2009
 Net UnrealizedAppreciationPortfolio Company
    
    Investment Classification
    
    (Depreciation)Cavert II Holding Corp.
    
    Control
    
    $
    450Interstate FiberNet, Inc.
    
    Non-Control / Non-Affiliate
    
    
    347B-Dry, LLC
    
    Non-Control / Non-Affiliate
    
    
    122Country Club Enterprises,
LLC
    
    Control
    
    
    (158
    )ASH Holdings Corp.
    
    Control
    
    
    (347
    )HMTBP Acquisition II Corp.
    
    Non-Control / Non-Affiliate
    
    
    (583
    )Tread Corp.
    
    Affiliate(1)
    
    
    (831
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    (1,331
    )Survey Sampling, LLC
    
    Non-Control / Non-Affiliate
    
    
    (1,434
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    (1,630
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    (1,989
    )Chase II Holding Corp.
    
    Control
    
    
    (2,183
    )Acme Cryogenics, Inc.
    
    Control
    
    
    (3,913
    )A. Stucki Holding Corp.
    
    Control
    
    
    (6,760
    )Other, net (<$100)
    
    
    
    
    
    
    (28
    )Total:
    
    
    
    
    
    $
    (20,267
    )
 
 (1)
    
    Investment was reclassified from an Affiliate
investment to a Control investment in the third quarter of the
fiscal year ended March 31, 2010.   Net Decrease in Net Assets Resulting from Operations
  34




---



##### Table of Contents



Comparison of the Six Months Ended September 30, 2010 to the Six Months Ended September 30, 2009
 A comparison of our operating results for the six months ended September 30, 2010 and 2009 is
below:
 For the six months ended September 30,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    8,004
    
    
    $
    10,112
    
    
    $
    (2,108
    )
    
    
    (20.8
    )%Other income
    
    
    3,546
    
    
    
    
    
    
    
    3,546
    
    
    NMTotal investment income
    
    
    11,550
    
    
    
    10,112
    
    
    
    1,438
    
    
    
    14.2EXPENSESLoan servicing fee
    
    
    1,490
    
    
    
    2,006
    
    
    
    (516
    )
    
    
    (25.7
    )Base management fee
    
    
    503
    
    
    
    477
    
    
    
    26
    
    
    
    5.5Incentive fee
    
    
    1,052
    
    
    
    
    
    
    
    1,052
    
    
    NMAdministration fee
    
    
    439
    
    
    
    371
    
    
    
    68
    
    
    
    18.3Interest expense
    
    
    423
    
    
    
    1,255
    
    
    
    (832
    )
    
    
    (66.3
    )Amortization of deferred financing fees
    
    
    267
    
    
    
    751
    
    
    
    (484
    )
    
    
    (64.4
    )Other
    
    
    909
    
    
    
    902
    
    
    
    7
    
    
    
    0.8Expenses before credits from Adviser
    
    
    5,083
    
    
    
    5,762
    
    
    
    (679
    )
    
    
    (11.8
    )Credits to fees
    
    
    (180
    )
    
    
    (466
    )
    
    
    286
    
    
    
    (61.4
    )Total expenses net of credits to fee
    
    
    4,903
    
    
    
    5,296
    
    
    
    (393
    )
    
    
    (7.4
    )NET INVESTMENT INCOME
    
    
    6,647
    
    
    
    4,816
    
    
    
    1,831
    
    
    
    38.0REALIZED AND UNREALIZED GAIN (LOSS) ON:Net realized gain (loss) on investments
    
    
    16,976
    
    
    
    (34,605
    )
    
    
    51,581
    
    
    NMNet realized loss on other
    
    
    
    
    
    
    (53
    )
    
    
    53
    
    
    
    (100.0
    )Net unrealized (depreciation) appreciation on investments
    
    
    (25,089
    )
    
    
    2,714
    
    
    
    (27,803
    )
    
    NMNet unrealized depreciation on other
    
    
    (26
    )
    
    
    (152
    )
    
    
    126
    
    
    
    (82.9
    )Net loss on investments and other
    
    
    (8,139
    )
    
    
    (32,096
    )
    
    
    23,957
    
    
    
    (74.6
    )NET DECREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    (1,492
    )
    
    $
    (27,280
    )
    
    $
    25,788
    
    
    
    (94.5
    )%
 
 NM = Not Meaningful
 Investment Income
     35




---



##### Table of Contents



As of September 30, 2010
    
    
    Six Months Ended September 30, 2010Company
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    % of Total RevenuesA. Stucki Holding Corp.
    
    $
    
    
    
    
    
    %
    
    
    $
    3,287
    
    
    
    28.5
    %Chase II Holding Corp.
    
    
    32,223
    
    
    
    22.7
    
    
    
    
    1,191
    
    
    
    10.3Cavert II Holding Corp.
    
    
    18,068
    
    
    
    12.8
    
    
    
    
    1,234
    
    
    
    10.7Acme Cryogenics, Inc.
    
    
    15,094
    
    
    
    10.7
    
    
    
    
    868
    
    
    
    7.5Danco Acquisition Corp.
    
    
    13,556
    
    
    
    9.6
    
    
    
    
    816
    
    
    
    7.0Subtotalfive largest investments
    
    
    78,941
    
    
    
    55.8
    
    
    
    
    7,396
    
    
    
    64.0Other portfolio companies
    
    
    62,673
    
    
    
    44.2
    
    
    
    
    4,154
    
    
    
    36.0Total investment portfolio
    
    $
    141,614
    
    
    
    100.0
    %
    
    
    $
    11,550
    
    
    
    100.0
    %
 
 (1)
    
    A. Stucki was sold on June 29, 2010. As of September 30, 2009
    
    
    Six Months Ended September 30, 2009Company
    
    Fair Value
    
    % of Portfolio
    
    
    Revenues
    
    % of Total RevenuesA. Stucki Holding Corp.
    
    $
    36,431
    
    
    
    17.8
    %
    
    
    $
    1,151
    
    
    
    11.4
    %Chase II Holding Corp.
    
    
    35,953
    
    
    
    17.6
    
    
    
    
    1,326
    
    
    
    13.1Acme Cryogenics, Inc.
    
    
    18,328
    
    
    
    9.0
    
    
    
    
    847
    
    
    
    8.4Galaxy Tool Holding Corp.
    
    
    16,862
    
    
    
    8.3
    
    
    
    
    1,184
    
    
    
    11.7Cavert II Holding Corp.
    
    
    16,349
    
    
    
    8.0
    
    
    
    
    641
    
    
    
    6.3Subtotalfive largest investments
    
    
    123,923
    
    
    
    60.7
    
    
    
    
    5,149
    
    
    
    50.9Other portfolio companies
    
    
    80,380
    
    
    
    39.3
    
    
    
    
    4,963
    
    
    
    49.1Total investment portfolio
    
    $
    204,303
    
    
    
    100.0
    %
    
    
    $
    10,112
    
    
    
    100.0
    %
  Operating Expenses
   Investment Advisory and
Management Agreement Condensed Consolidated Financial
Statements
 36




---



##### Table of Contents



Six Months Ended September 30,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    199,300
    
    
    $
    248,300Multiplied by pro-rated annual base management fee of 2.0%
    
    
    1.0
    %
    
    
    1.0
    %Unadjusted base management fee
    
    $
    1,993
    
    
    $
    2,483Reduction for loan servicing fees(2)
    
    
    (1,490
    )
    
    
    (2,006
    )Base management fee(2)
    
    
    503
    
    
    
    477Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans
to 0.5%
    
    
    (15
    )
    
    
    (231
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (165
    )
    
    
    (235
    )Credit to base management fee from Adviser(2)
    
    
    (180
    )
    
    
    (466
    )Net base management fee
    
    $
    323
    
    
    $
    11Incentive fee(2)
    
    $
    1,052
    
    
    $
    
 
 (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
  37




---



##### Table of Contents



Six Months Ended September 30, 2010
 Net UnrealizedAppreciationPortfolio Company
    
    Investment Classification
    
    (Depreciation)Chase II Holding Corp.
    
    Control
    
    $
    3,753Cavert II Holding Corp.
    
    Control
    
    
    2,262Acme Cryogenics, Inc.
    
    Control
    
    
    1,095Noble Logistics, Inc.
    
    Affiliate
    
    
    839Survey Sampling, LLC
    
    Non-Control / Non-Affiliate
    
    
    470Danco Acquisition Corp.
    
    Affiliate
    
    
    249Quench Holdings Corp.
    
    Affiliate
    
    
    (259
    )ASH Holdings Corp.
    
    Control
    
    
    (684
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    (15,248
    )A. Stucki Holding Corp.
    
    Control
    
    
    (17,405
    )(1)Other, net (<$100)
    
    
    
    
    
    
    (161
    )Total:
    
    
    
    
    
    $
    (25,089
    )
 
 (1)
    
    Reflects the reversal of the unrealized
appreciation in connection with the $17.0 million realized gain
on the sale of A. Stucki.   Six Months Ended September 30, 2009
 Net UnrealizedAppreciationPortfolio Company
    
    Investment Classification

    
    (Depreciation)Aggregate
Non-Proprietary Investments
    
    Non-Control / Non-Affiliate
    
    $
    34,954
    (1)Cavert II Holding Corp.
    
    Control
    
    
    780B-Dry, LLC
    
    Non-Control / Non-Affiliate
    
    
    260Mathey Investments, Inc.
    
    Affiliate
    
    
    (619
    )(2)Quench Holdings Corp.
    
    Affiliate
    
    
    (723
    )Tread Corp.
    
    Affiliate(1)
    
    
    (1,052
    )Noble Logistics, Inc.
    
    Affiliate
    
    
    (1,552
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    (2,172
    )Acme Cryogenics, Inc.
    
    Control
    
    
    (3,093
    )Country Club Enterprises, LLC
    
    Control
    
    
    (3,883
    )Chase II Holding Corp.
    
    Control
    
    
    (4,401
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    (5,575
    )A. Stucki Holding Corp.
    
    Control
    
    
    (10,306
    )Other, net (<$100)
    
    
    
    
    
    
    96Total:
    
    
    
    
    
    $
    2,714
 
 (1)
    
    Includes the reversal of approximately $34.4 million of
previously-recorded unrealized depreciation relating to Syndicated
Loan Sales during the six months ended September 30, 2009, as well as
the net unrealized appreciation experienced during the period on
non-proprietary investments held at September 30, 2009.(2)
    
    Investment was reclassified from an Affiliate investment to
a Control investment in the third quarter of the fiscal year ended
March 31, 2010.  38




---



##### Table of Contents



Net Decrease in Net Assets Resulting from Operations
  39




---



##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES (dollar amounts in thousands, except per share amounts or
unless otherwise indicated)
 Operating Activities
   Six Months Ended September 30,2010
    
    
    2009Beginning investment portfolio, at fair value
    
    $
    206,858
    
    
    $
    313,930New investments
    
    
    95
    
    
    
    Disbursements to existing investments
    
    
    4,384
    
    
    
    968Scheduled principal repayments
    
    
    (1,821
    )
    
    
    (2,391
    )Unscheduled principal repayments
    
    
    (38,594
    )
    
    
    (7,091
    )Amortization of premiums and discounts
    
    
    (5
    )
    
    
    Proceeds from sales
    
    
    (21,474
    )
    
    
    (69,222
    )Net realized gain (loss)
    
    
    16,976
    
    
    
    (34,605
    )Net unrealized (depreciation) appreciation(1)
    
    
    (25,089
    )
    
    
    2,714Other cash activity, net
    
    
    (231
    )
    
    
    Other non-cash activity, net
    
    
    515
    
    
    
    Ending investment portfolio, at fair value
    
    $
    141,614
    
    
    $
    204,303
 
 (1)
    
    Includes the reversal of unrealized (appreciation) depreciation due to investment exits for the six months ended
September 30, 2010 and 2009 of ($17.4) and $34.4 million, respectively.  AmountFor the remaining six months ending March 31:2011
    
    $
    19,665For the fiscal year ending March 31:2012
    
    
    31,5592013
    
    
    21,0542014
    
    
    34,3312015
    
    
    20,9422016
    
    
    Thereafter
    
    
    3,043Total contractual repayments
    
    $
    130,594Investments in equity securities
    
    
    57,045Adjustments to cost basis on debt securities
    
    
    (226
    )Total cost basis of investments held at September 30, 2010:
    
    $
    187,413
  40




---



##### Table of Contents



Financing Activities
   Distributions
  Section 19(a) Disclosure
 Section 19(a) Disclosure
   Payment Date
    
    Ordinary Income
    
    Return of Capital(1)
    
    Total DistributionJuly 30, 2010
    
    $
    0.035
    
    
    $
    0.005
    
    
    $
    0.040August 31, 2010
    
    
    0.036
    
    
    
    0.004
    
    
    
    0.040September 30, 2010
    
    
    0.041
    
    
    
    (0.001
    )
    
    
    0.040
  Payment Date
    
    Ordinary Income
    
    Return of Capital(1)
    
    Total DistributionJuly 30, 2010
    
    $
    0.029
    
    
    $
    0.011
    
    
    $
    0.040August 31, 2010
    
    
    0.026
    
    
    
    0.014
    
    
    
    0.040September 30, 2010
    
    
    0.056
    
    
    
    (0.016
    )
    
    
    0.040
 
 (1)
    
    A positive number under Return of Capital indicates a return of capital was
estimated whereas a negative number indicates that a surplus of income above the distribution
was estimated. Issuance of Equity
  41




---



##### Table of Contents



Future Capital Resources
  Revolving Credit Facility
        42




---



##### Table of Contents



Short-Term Note
  Contractual Obligations and Off-Balance Sheet Arrangements
     43




---



##### Table of Contents



Condensed Consolidated Statements of Assets and Liabilities
 As of September 30,
    
    As of March 31,2010
    
    2010Unused lines of credit
    
    $
    1,845
    
    
    $
    1,814Guarantees
    
    
    4,501
    
    
    
    2,250
  Payments Due by PeriodLess than 1Contractual Obligations(1)
    
    Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    TotalBorrowings:Short-term loan(2)
    
    $
    25,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    25,000Credit Facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total borrowings
    
    $
    25,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    25,000
 
 (1)
    
    Excludes the unused commitments to extend credit to our customers of $1.8
million, as discussed above.(2)
    
    On October 7, 2010, we repaid the entire short-term loan. 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
  44




---



##### Table of Contents




    
    Publicly-traded securities;
    
    Securities for which a limited market exists; and
    
    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.
  45




---



##### Table of Contents



Condensed
Consolidated Financial Statements
  (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.
  (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
 46




---



##### Table of Contents



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:
  47




---



##### Table of Contents



Company's
    
    First
    
    SecondSystem
    
    NRSRO
    
    NRSRO
    
    Gladstone Investment's Description(a)>10
    
    Baa2
    
    BBB
    
    Probability of Default (PD) during the next ten years is 4% and the
Expected Loss (EL) is 1% or less10
    
    Baa3
    
    BBB-
    
    PD is 5% and the EL is 1% to 2%9
    
    Ba1
    
    BB+
    
    PD is 10% and the EL is 2% to 3%8
    
    Ba2
    
    BB
    
    PD is 16% and the EL is 3% to 4%7
    
    Ba3
    
    BB-
    
    PD is 17.8% and the EL is 4% to 5%6
    
    B1
    
    B+
    
    PD is 22% 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%0
    
    N/A
    
    D
    
    PD is 85% or there is a payment default and the EL is greater than 20%
 
 (a)
    
    The default rates set forth 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 September 30,
    
    As of March 31,Rating
    
    2010
    
    2010Highest
    
    
    10.0
    
    
    
    9.0Average
    
    
    5.8
    
    
    
    5.3Weighted Average
    
    
    6.6
    
    
    
    5.9Lowest
    
    
    3.0
    
    
    
    2.0
  Tax Status
 Federal Income Taxes
   Revenue Recognition
 Interest and Dividend Income Recognition
  48




---



##### Table of Contents



Condensed Consolidated
Statements of Operations
 Recent Accounting Pronouncements
 Condensed
Consolidated Financial Statements
 
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  3.0
    %
    
    Variable rates51.9
    
    
    Variable rates with a floor45.1
    
    
    Fixed rates100.0
    %
    
    Total
    
 ITEM 4. CONTROLS AND PROCEDURES.
   49




---



##### Table of Contents



50




---



##### 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
  51




---



##### Table of Contents



SIGNATURE
  GLADSTONE INVESTMENT CORPORATIONBy:
    /s/ David WatsonDavid WatsonChief Financial Officer  52




---



##### Table of Contents



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.
  53