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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q





(Mark One)

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

For the quarterly period ended December 31, 2014

OR



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

For the transition period from
                     to

Commission file number: 001-34007





GLADSTONE
INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|DELAWARE                                                       |  | 83-0423116                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)



|                                        |  |           
|--------------------------------------- |  | ----------
|1521 WESTBRANCH DRIVE, SUITE 100        |  |           
|MCLEAN, VIRGINIA                        |  | 22102     
|(Address of principal executive office) |  | (Zip Code)

(703) 287-5800

(Registrants telephone number, including area code)

Not Applicable

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





Indicate by
check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No   ̈

Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post
such files).    Yes   ̈    No   ̈

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12 b-2 of the Exchange Act. (Check one):



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. The number
of shares of the issuers Common Stock, $0.001 par value per share, outstanding as of February 3, 2015, was 26,475,958.









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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

TABLE OF CONTENTS



|           |  |                                                                                                                 |    |  |    | 
|---------- |  | --------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I.    |  | FINANCIAL INFORMATION:                                                                                          |    |  |   
|           |  |                                                                                                                
|Item 1.    |  | Financial Statements (Unaudited)                                                                                |    |  |    | 
|           |  |                                                                                                                
|           |  | Condensed Consolidated Statements of Assets and Liabilities as of December 31 and March 31, 2014                |    |  | 2  | 
|           |  | Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2014 and
2013  |    |  | 3  | 
|           |  | Condensed Consolidated Statements of Changes in Net Assets for the nine months ended December 31, 2014 and 2013 |    |  | 4  | 
|           |  | Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2014 and
2013            |    |  | 5  | 
|           |  | Condensed Consolidated Schedules of Investments as of December 31 and March 31, 2014                            |    |  | 6  | 
|           |  | Notes to Condensed Consolidated Financial Statements                                                            |    |  | 13 | 
|           |  |                                                                                                                
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |    |  |    | 
|           |  |                                                                                                                
|           |  | Overview                                                                                                        |    |  | 32 | 
|           |  | Results of Operations                                                                                           |    |  | 37 | 
|           |  | Liquidity and Capital Resources                                                                                 |    |  | 45 | 
|           |  |                                                                                                                
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |    |  | 53 | 
|           |  |                                                                                                                
|Item 4.    |  | Controls and Procedures                                                                                         |    |  | 53 | 
|           |  |                                                                                                                
|PART II.   |  | OTHER INFORMATION:                                                                                              |    |  |    | 
|           |  |                                                                                                                
|Item 1.    |  | Legal Proceedings                                                                                               |    |  | 54 | 
|           |  |                                                                                                                
|Item 1A.   |  | Risk Factors                                                                                                    |    |  | 54 | 
|           |  |                                                                                                                
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |    |  | 54 | 
|           |  |                                                                                                                
|Item 3.    |  | Defaults Upon Senior Securities                                                                                 |    |  | 54 | 
|           |  |                                                                                                                
|Item 4.    |  | Mine Safety Disclosures                                                                                         |    |  | 54 | 
|           |  |                                                                                                                
|Item 5.    |  | Other Information                                                                                               |    |  | 54 | 
|           |  |                                                                                                                
|Item 6.    |  | Exhibits                                                                                                        |    |  | 54 | 
|           | 
|SIGNATURES |  |                                                                                                                 | 55 | 



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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------ | ------- | - | --------- | - | ------- | -
|                                                                                                                                                                                                                                        |  | December 31, |         |   | March 31, |  
|                                                                                                                                                                                                                                        |  | 2014         |         |   | 2014      |  
|ASSETS                                                                                                                                                                                                                                  |  |              |         |   |           |   |         |  
|Investments at fair value                                                                                                                                                                                                               |  |              |         |   |           |   |         |  
|Non-Control/Non-Affiliate investments (Cost of $165,597 and $233,895, respectively)                                                                                                                                                     |  | $            | 165,518 |   |           | $ | 205,440 |  
|Affiliate investments (Cost of $260,936 and $120,010, respectively)                                                                                                                                                                     |  |              | 209,307 |   |           |   | 87,849  |  
|Control investments (Cost of $30,832 and $29,632 respectively)                                                                                                                                                                          |  |              | 19,320  |   |           |   | 21,104  |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|Total investments at fair value (Cost of $457,365 and $383,537, respectively)                                                                                                                                                           |  |              | 394,145 |   |           |   | 314,393 |  
|Cash and cash equivalents                                                                                                                                                                                                               |  |              | 4,909   |   |           |   | 4,553   |  
|Restricted cash and cash equivalents                                                                                                                                                                                                    |  |              | 3,105   |   |           |   | 5,314   |  
|Interest receivable                                                                                                                                                                                                                     |  |              | 1,690   |   |           |   | 1,289   |  
|Due from custodian                                                                                                                                                                                                                      |  |              | 2,410   |   |           |   | 1,704   |  
|Deferred financing costs                                                                                                                                                                                                                |  |              | 4,931   |   |           |   | 2,355   |  
|Other assets                                                                                                                                                                                                                            |  |              | 846     |   |           |   | 1,086   |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|TOTAL ASSETS                                                                                                                                                                                                                            |  | $            | 412,036 |   |           | $ | 330,694 |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|LIABILITIES                                                                                                                                                                                                                             |  |              |         |   |           |   |         |  
|Borrowings:                                                                                                                                                                                                                             |  |              |         |   |           |   |         |  
|Line of credit at fair value (Cost of $95,800 and $61,250, respectively)                                                                                                                                                                |  | $            | 95,800  |   |           | $ | 61,701  |  
|Secured borrowing                                                                                                                                                                                                                       |  |              | 5,096   |   |           |   | 5,000   |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|Total borrowings                                                                                                                                                                                                                        |  |              | 100,896 |   |           |   | 66,701  |  
|Mandatorily redeemable preferred stock, $0.001 par value per share, $25.00 liquidation preference per share;3,610,000 and
1,610,000 shares authorized, respectively; 3,256,000and 1,600,000 shares issued and outstanding, respectively |  |              | 81,400  |   |           |   | 40,000  |  
|Accounts payable and accrued expenses                                                                                                                                                                                                   |  |              | 800     |   |           |   | 665     |  
|Fees due to Adviser(A)                                                                                                                                                                                                                  |  |              | 1,588   |   |           |   | 1,225   |  
|Fee due to Administrator(A)                                                                                                                                                                                                             |  |              | 226     |   |           |   | 224     |  
|Other liabilities                                                                                                                                                                                                                       |  |              | 854     |   |           |   | 1,042   |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|TOTAL LIABILITIES                                                                                                                                                                                                                       |  | $            | 185,764 |   |           | $ | 109,857 |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|Commitments and contingencies(B)                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|                                                                                                                                                                                                                                        |  |             
|NET ASSETS                                                                                                                                                                                                                              |  |              |         |   |           |   |         |  
|Common stock, $0.001 par value per share, 100,000,000 shares authorized, 26,475,958 shares issued and outstanding                                                                                                                       |  | $            | 26      |   |           | $ | 26      |  
|Capital in excess of par value                                                                                                                                                                                                          |  |              | 286,726 |   |           |   | 287,062 |  
|Cumulative net unrealized depreciation of investments                                                                                                                                                                                   |  |              | (63,220 | ) |           |   | (69,144 | )
|Cumulative net unrealized appreciation of other                                                                                                                                                                                         |  |              | (74     | ) |           |   | (525    | )
|Net investment income in excess of distributions                                                                                                                                                                                        |  |              | 3,233   |   |           |   | 3,616   |  
|Accumulated net realized loss                                                                                                                                                                                                           |  |              | (419    | ) |           |   | (198    | )
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|TOTAL NET ASSETS                                                                                                                                                                                                                        |  | $            | 226,272 |   |           | $ | 220,837 |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  
|NET ASSET VALUE PER SHARE AT END OF PERIOD                                                                                                                                                                                              |  | $            | 8.55    |   |           | $ | 8.34    |  
|                                                                                                                                                                                                                                        |  |              |         |   |           |   |         |  



|(A) | Refer to Note 4Related Party Transactions for additional information.
|--- | ----------------------------------------------------------------------

|(B) | Refer to Note 10Commitments and Contingencies for additional information.
|--- | --------------------------------------------------------------------------

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



2



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GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|--------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | - |  | - | ---------- | -
|                                                                |  | Three Months Ended December 31, |            |   | Nine Months Ended December 31, |  
|                                                                |  | 2014                            |            |   | 2013                           |   |            | 2014 |  |   | 2013       |  
|INVESTMENT INCOME                                               |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                                 |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Non-Control/Non-Affiliate investments                           |  | $                               | 3,969      |   |                                | $ | 5,826      |      |  | $ | 13,720     |   |  | $ | 15,719     |  
|Affiliate investments                                           |  |                                 | 5,154      |   |                                |   | 160        |      |  |   | 11,310     |   |  |   | 1,091      |  
|Control investments                                             |  |                                 | 608        |   |                                |   | 1,606      |      |  |   | 1,673      |   |  |   | 5,669      |  
|Cash and cash equivalents                                       |  |                                 | 1          |   |                                |   | 1          |      |  |   | 3          |   |  |   | 2          |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total interest income                                           |  |                                 | 9,732      |   |                                |   | 7,593      |      |  |   | 26,706     |   |  |   | 22,481     |  
|Other income                                                    |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Non-Control/Non-Affiliate investments                           |  |                                 | 1,330      |   |                                |   | 304        |      |  |   | 3,230      |   |  |   | 878        |  
|Affiliate investments                                           |  |                                 | 500        |   |                                |   | 799        |      |  |   | 534        |   |  |   | 799        |  
|Control investments                                             |  |                                 |           |   |                                |   |           |      |  |   |           |   |  |   | 3,295      |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total other income                                              |  |                                 | 1,830      |   |                                |   | 1,103      |      |  |   | 3,764      |   |  |   | 4,972      |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total investment income                                         |  |                                 | 11,562     |   |                                |   | 8,696      |      |  |   | 30,470     |   |  |   | 27,453     |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|EXPENSES                                                        |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Base management fee(A)                                          |  |                                 | 1,927      |   |                                |   | 1,515      |      |  |   | 5,337      |   |  |   | 4,625      |  
|Loan servicing fee(A)                                           |  |                                 | 1,295      |   |                                |   | 1,089      |      |  |   | 3,588      |   |  |   | 3,230      |  
|Incentive fee(A)                                                |  |                                 | 1,460      |   |                                |   | 1,100      |      |  |   | 3,726      |   |  |   | 2,822      |  
|Administration fee(A)                                           |  |                                 | 226        |   |                                |   | 239        |      |  |   | 670        |   |  |   | 638        |  
|Interest expense on borrowings                                  |  |                                 | 1,042      |   |                                |   | 395        |      |  |   | 2,500      |   |  |   | 1,469      |  
|Dividends on mandatorily redeemable preferred stock             |  |                                 | 1,085      |   |                                |   | 713        |      |  |   | 2,510      |   |  |   | 2,138      |  
|Amortization of deferred financing fees                         |  |                                 | 404        |   |                                |   | 262        |      |  |   | 940        |   |  |   | 761        |  
|Professional fees                                               |  |                                 | 63         |   |                                |   | 329        |      |  |   | 610        |   |  |   | 609        |  
|Other general and administrative expenses                       |  |                                 | 383        |   |                                |   | 523        |      |  |   | 1,130      |   |  |   | 1,355      |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Expenses before credits from Adviser                            |  |                                 | 7,885      |   |                                |   | 6,165      |      |  |   | 21,011     |   |  |   | 17,647     |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Credit to base management fee - loan servicing fee(A)           |  |                                 | (1,295     | ) |                                |   | (1,089     | )    |  |   | (3,588     | ) |  |   | (3,230     | )
|Credit to fees from Adviser - other(A)                          |  |                                 | (867       | ) |                                |   | (782       | )    |  |   | (1,855     | ) |  |   | (1,627     | )
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total expenses, net of credits                                  |  |                                 | 5,723      |   |                                |   | 4,294      |      |  |   | 15,568     |   |  |   | 12,790     |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|NET INVESTMENT INCOME                                           |  |                                 | 5,839      |   |                                |   | 4,402      |      |  |   | 14,902     |   |  |   | 14,663     |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|REALIZED AND UNREALIZED (LOSS) GAIN                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net realized (loss) gain:                                       |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Non-Control/Non-Affiliate investments                           |  |                                 |           |   |                                |   | (11,361    | )    |  |   |           |   |  |   | (11,361    | )
|Affiliate investments                                           |  |                                 |           |   |                                |   | (1,754     | )    |  |   |           |   |  |   | (1,754     | )
|Control investments                                             |  |                                 | (209       | ) |                                |   |           |      |  |   | (221       | ) |  |   | 24,804     |  
|Other                                                           |  |                                 |           |   |                                |   | (29        | )    |  |   |           |   |  |   | (29        | )
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total net realized (loss) gain                                  |  |                                 | (209       | ) |                                |   | (13,144    | )    |  |   | (221       | ) |  |   | 11,660     |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net unrealized appreciation (depreciation):                     |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Non-Control/Non-Affiliate investments                           |  |                                 | 3,731      |   |                                |   | (2,548     | )    |  |   | 13,630     |   |  |   | (10,926    | )
|Affiliate investments                                           |  |                                 | (1,772     | ) |                                |   | 4,651      |      |  |   | (4,713     | ) |  |   | 1,629      |  
|Control investments                                             |  |                                 |           |   |                                |   | (4,413     | )    |  |   | (2,993     | ) |  |   | (20,103    | )
|Other                                                           |  |                                 |           |   |                                |   | 366        |      |  |   | 451        |   |  |   | 811        |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Total net unrealized appreciation (depreciation)                |  |                                 | 1,959      |   |                                |   | (1,944     | )    |  |   | 6,375      |   |  |   | (28,589    | )
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net realized and unrealized gain (loss)                         |  |                                 | 1,750      |   |                                |   | (15,088    | )    |  |   | 6,154      |   |  |   | (16,929    | )
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |  | $                               | 7,589      |   |                                | $ | (10,686    | )    |  | $ | 21,056     |   |  | $ | (2,266     | )
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|BASIC AND DILUTED PER COMMON SHARE:                             |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net investment income                                           |  | $                               | 0.22       |   |                                | $ | 0.17       |      |  | $ | 0.56       |   |  | $ | 0.55       |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Net increase (decrease) in net assets resulting from operations |  | $                               | 0.29       |   |                                | $ | (0.40      | )    |  | $ | 0.80       |   |  | $ | (0.09      | )
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Distributions declared and paid                                 |  | $                               | 0.23       |   |                                | $ | 0.23       |      |  | $ | 0.59       |   |  | $ | 0.53       |  
|                                                                |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:            |  |                                 |            |   |                                |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                                               |  |                                 | 26,475,958 |   |                                |   | 26,475,958 |      |  |   | 26,475,958 |   |  |   | 26,475,958 |  



| | Refer to Note 4Related Party Transactions for additional information.
| | ----------------------------------------------------------------------

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



3



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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)



|                                                          |  |                                |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                          |  | Nine Months Ended December 31, |        
|                                                          |  | 2014                           |         |   | 2013 |  
|OPERATIONS                                                |  |                                |         |   |      |   |         |  
|Net investment income                                     |  | $                              | 14,902  |   |      | $ | 14,663  |  
|Net realized (loss) gain on investments                   |  |                                | (221    | ) |      |   | 11,689  |  
|Net realized loss on other                                |  |                                |        |   |      |   | (29     | )
|Net unrealized appreciation (depreciation) of investments |  |                                | 5,924   |   |      |   | (29,400 | )
|Net unrealized depreciation of other                      |  |                                | 451     |   |      |   | 811     |  
|                                                          |  |                                |         |   |      |   |         |  
|Net increase (decrease) in net assets from operations     |  |                                | 21,056  |   |      |   | (2,266  | )
|                                                          |  |                                |         |   |      |   |         |  
|                                                          |  |                               
|DISTRIBUTIONS TO COMMON STOCKHOLDERS                      |  |                                | (15,621 | ) |      |   | (14,032 | )
|                                                          |  |                                |         |   |      |   |         |  
|TOTAL INCREASE (DECREASE) IN NET ASSETS                   |  |                                | 5,435   |   |      |   | (16,298 | )
|NET ASSETS, BEGINNING OF PERIOD                           |  |                                | 220,837 |   |      |   | 240,963 |  
|                                                          |  |                                |         |   |      |   |         |  
|NET ASSETS, END OF PERIOD                                 |  | $                              | 226,272 |   |      | $ | 224,665 |  
|                                                          |  |                                |         |   |      |   |         |  

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



4



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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)



|                                                                                                                                   |  |                                |         |   |      |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | -------- | -
|                                                                                                                                   |  | Nine Months Ended December 31, |        
|                                                                                                                                   |  | 2014                           |         |   | 2013 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                               |  |                                |         |   |      |   |          |  
|Net increase (decrease) in net assets resulting from operations                                                                    |  | $                              | 21,056  |   |      | $ | (2,266   | )
|Adjustments to reconcile net increase (decrease) in net assets resulting from operations to net cash used in operating
activities: |  |                                |         |   |      |   |          |  
|Purchase of investments                                                                                                            |  |                                | (79,329 | ) |      |   | (100,134 | )
|Principal repayments of investments                                                                                                |  |                                | 5,579   |   |      |   | 46,634   |  
|Increase in investment balance due to paid in kind interest                                                                        |  |                                | (78     | ) |      |   | (58      | )
|Net proceeds from the sale of investments                                                                                          |  |                                | (221    | ) |      |   | 31,602   |  
|Net realized loss (gain) on investments                                                                                            |  |                                | 221     |   |      |   | (11,689  | )
|Net realized loss on other                                                                                                         |  |                                |        |   |      |   | 29       |  
|Net unrealized (appreciation) depreciation of investments                                                                          |  |                                | (5,924  | ) |      |   | 29,400   |  
|Net unrealized appreciation of other                                                                                               |  |                                | (451    | ) |      |   | (811     | )
|Amortization of deferred financing costs                                                                                           |  |                                | 940     |   |      |   | 761      |  
|Decrease (increase) in restricted cash                                                                                             |  |                                | 2,209   |   |      |   | (4,750   | )
|Increase in interest receivable                                                                                                    |  |                                | (401    | ) |      |   | (11      | )
|(Increase) decrease in due from custodian                                                                                          |  |                                | (706    | ) |      |   | 330      |  
|Decrease in other assets                                                                                                           |  |                                | 240     |   |      |   | 340      |  
|Increase (decrease) in accounts payable and accrued expenses                                                                       |  |                                | 64      |   |      |   | (160     | )
|Increase (decrease) in fees due to Adviser(A)                                                                                      |  |                                | 363     |   |      |   | (1,044   | )
|Increase in administration fee due to Administrator(A)                                                                             |  |                                | 2       |   |      |   | 18       |  
|(Decrease) increase in other liabilities                                                                                           |  |                                | (188    | ) |      |   | 461      |  
|                                                                                                                                   |  |                                |         |   |      |   |          |  
|Net cash used in operating activities                                                                                              |  |                                | (56,624 | ) |      |   | (11,348  | )
|                                                                                                                                   |  |                                |         |   |      |   |          |  
|                                                                                                                                   |  |                               
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                               |  |                                |         |   |      |   |          |  
|Proceeds from short-term loans                                                                                                     |  |                                |        |   |      |   | 56,515   |  
|Repayments on short-term loans                                                                                                     |  |                                |        |   |      |   | (106,030 | )
|Proceeds from line of credit                                                                                                       |  |                                | 90,550  |   |      |   | 108,500  |  
|Repayments on line of credit                                                                                                       |  |                                | (56,000 | ) |      |   | (103,300 | )
|Proceeds from secured borrowing                                                                                                    |  |                                | 96      |   |      |   |         |  
|Purchase of derivative                                                                                                             |  |                                |        |   |      |   | (75      | )
|Proceeds from issuance of preferred stock                                                                                          |  |                                | 41,400  |   |      |   |         |  
|Deferred financing costs                                                                                                           |  |                                | (3,445  | ) |      |   | (1,100   | )
|Distributions paid to common stockholders                                                                                          |  |                                | (15,621 | ) |      |   | (14,032  | )
|                                                                                                                                   |  |                                |         |   |      |   |          |  
|Net cash provided by (used in) financing activities                                                                                |  |                                | 56,980  |   |      |   | (59,522  | )
|                                                                                                                                   |  |                                |         |   |      |   |          |  
|NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS                                                                               |  |                                | 356     |   |      |   | (70,870  | )
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                                     |  |                                | 4,553   |   |      |   | 85,904   |  
|                                                                                                                                   |  |                                |         |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                           |  | $                              | 4,909   |   |      | $ | 15,034   |  
|                                                                                                                                   |  |                                |         |   |      |   |          |  



|(A) | Refer to Note 4Related Party Transactions for additional information.
|--- | ----------------------------------------------------------------------

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



5



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|----------------------------------------- |  | ---------------------------------------------------------------------- |  | ---------------------------------------------------------- |  | --------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                |  | Industry                                                               |  | Investment(B)                                              |  | Principal |        |  | Cost |   |        | Fair Value | 
|NON-CONTROL/NON-AFFILIATE INVESTMENTS(N): |  |                                                                        |  |                                                            |  |           |        | 
|Auto Safety House, LLC                    |  | Automobile                                                             |  | Line of Credit, $1,000 available (7.0%, Due 10/2019)(I)(K) |  | $         |       |  |      | $ |       |            |  | $ |       | 
|                                          |  |                                                                        |  | Senior Term Debt (7.0%, Due 10/2019)(I)(K)                 |  |           | 5,000  |  |      |   | 5,000  |            |  |   | 4,863  | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 5,000  |            |  |   | 4,863  | 
|                                          |  |                                                                        |  |                                                            | 
|Cavert II Holding Corp.                   |  | Containers, Packaging, and Glass                                       |  | Preferred Stock (18,446 shares)(C)(F)(L)                   |  |           |        |  |      |   | 1,845  |            |  |   | 3,203  | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 1,845  |            |  |   | 3,203  | 
|                                          |  |                                                                        |  |                                                            | 
|Country Club Enterprises, LLC             |  | Automobile                                                             |  | Senior Subordinated Term Debt (18.6%, Due 5/2017)(L)       |  |           | 4,000  |  |      |   | 4,000  |            |  |   | 4,000  | 
|                                          |  |                                                                        |  | Preferred Stock (7,079,792 shares)(C)(F)(L)                |  |           |        |  |      |   | 7,725  |            |  |   | 2,104  | 
|                                          |  |                                                                        |  | Guaranty ($2,000)(D)                                       |  |           |        |  |      |   |        |           
|                                          |  |                                                                        |  | Guaranty ($670)(D)                                         |  |           |        |  |      |   |        |           
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 11,725 |            |  |   | 6,104  | 
|                                          |  |                                                                        |  |                                                            | 
|Drew Foam Company, Inc.                   |  | Chemicals, Plastics, and Rubber                                        |  | Senior Term Debt (13.5%, Due 8/2017)(L)                    |  |           | 10,913 |  |      |   | 10,913 |            |  |   | 10,913 | 
|                                          |  |                                                                        |  | Preferred Stock (34,045 shares)(C)(F)(L)                   |  |           |        |  |      |   | 3,375  |            |  |   | 3,245  | 
|                                          |  |                                                                        |  | Common Stock (5,372 shares)(C)(F)(L)                       |  |           |        |  |      |   | 63     |            |  |   |       | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 14,351 |            |  |   | 14,158 | 
|                                          |  |                                                                        |  |                                                            | 
|Frontier Packaging, Inc.                  |  | Containers, Packaging, and Glass                                       |  | Senior Term Debt (12.0%, Due 12/2017)(L)                   |  |           | 12,500 |  |      |   | 12,500 |            |  |   | 12,500 | 
|                                          |  |                                                                        |  | Preferred Stock (1,373 shares)(C)(F)(L)                    |  |           |        |  |      |   | 1,373  |            |  |   | 1,613  | 
|                                          |  |                                                                        |  | Common Stock (152 shares)(C)(F)(L)                         |  |           |        |  |      |   | 152    |            |  |   | 850    | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 14,025 |            |  |   | 14,963 | 
|                                          |  |                                                                        |  |                                                            | 
|Funko, LLC(M)                             |  | Personal and Non-Durable Consumer Products (Manufacturing Only)        |  | Senior Subordinated Term Debt (9.5%, Due 5/2019)(I)(J)     |  |           | 7,500  |  |      |   | 7,500  |            |  |   | 7,500  | 
|                                          |  |                                                                        |  |                                                            | 
|                                          |  |                                                                        |  | Senior Subordinated Term Debt (9.5%, Due 5/2019)(I)(J)     |  |           | 2,000  |  |      |   | 2,000  |            |  |   | 2,000  | 
|                                          |  |                                                                        |  | Preferred Stock (1,305 shares)(C)(F)(L)                    |  |           |        |  |      |   | 1,305  |            |  |   | 9,511  | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 10,805 |            |  |   | 19,011 | 
|                                          |  |                                                                        |  |                                                            | 
|Ginsey Home Solutions, Inc.               |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |  | Senior Subordinate Term Debt (13.5%, Due 1/2018)(H)(L)     |  |           | 13,300 |  |      |   | 13,300 |            |  |   | 13,300 | 
|                                          |  |                                                                        |  | Preferred Stock (18,898 shares)(C)(F)(L)                   |  |           |        |  |      |   | 9,583  |            |  |   | 3,109  | 
|                                          |  |                                                                        |  | Common Stock (63,747 shares)(C)(F)(L)                      |  |           |        |  |      |   | 8      |            |  |   |       | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 22,891 |            |  |   | 16,409 | 
|                                          |  |                                                                        |  |                                                            | 
|Jackrabbit, Inc.                          |  | Farming and Agriculture                                                |  | Senior Term Debt (13.5%, Due 4/2018)(L)                    |  |           | 11,000 |  |      |   | 11,000 |            |  |   | 11,000 | 
|                                          |  |                                                                        |  | Preferred Stock (3,556 shares)(C)(F)(L)                    |  |           |        |  |      |   | 3,556  |            |  |   | 4,063  | 
|                                          |  |                                                                        |  | Common Stock (548 shares)(C)(F)(L)                         |  |           |        |  |      |   | 94     |            |  |   | 3,803  | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 14,650 |            |  |   | 18,866 | 
|                                          |  |                                                                        |  |                                                            | 
|Mathey Investments, Inc.                  |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |  | Senior Term Debt (10.0%, Due 3/2016)(L)                    |  |           | 1,375  |  |      |   | 1,375  |            |  |   | 1,375  | 
|                                          |  |                                                                        |  | Senior Term Debt (12.0%, Due 3/2016)(L)                    |  |           | 3,727  |  |      |   | 3,727  |            |  |   | 3,727  | 
|                                          |  |                                                                        |  | Senior Term Debt (12.5%, Due 3/2016)(E)(I)(L)              |  |           | 3,500  |  |      |   | 3,500  |            |  |   | 3,500  | 
|                                          |  |                                                                        |  | Common Stock (29,102 shares)(C)(F)(L)                      |  |           |        |  |      |   | 777    |            |  |   | 7,644  | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 9,379  |            |  |   | 16,246 | 
|                                          |  |                                                                        |  |                                                            | 
|Mitchell Rubber Products, Inc.            |  | Chemicals, Plastics, and Rubber                                        |  | Subordinated Term Debt (13.0%,Due 10/2016)(I)(K)           |  |           | 13,560 |  |      |   | 13,560 |            |  |   | 10,848 | 
|                                          |  |                                                                        |  | Subordinated Term Debt (13.0%,Due 12/2015)(I)(K)           |  |           | 1,500  |  |      |   | 1,500  |            |  |   | 1,200  | 
|                                          |  |                                                                        |  | Preferred Stock (27,900 shares)(C)(F)(L)                   |  |           |        |  |      |   | 2,790  |            |  |   |       | 
|                                          |  |                                                                        |  | Common Stock (27,900 shares)(C)(F)(L)                      |  |           |        |  |      |   | 28     |            |  |   |       | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 17,878 |            |  |   | 12,048 | 
|                                          |  |                                                                        |  |                                                            | 
|Quench Holdings Corp.                     |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |  | Common Stock (4,770,392 shares)(C)(F)(L)                   |  |           |        |  |      |   | 3,397  |            |  |   | 4,753  | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 3,397  |            |  |   | 4,753  | 
|                                          |  |                                                                        |  |                                                            | 
|SBS, Industries, LLC                      |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |  | Senior Term Debt (14.0%, Due 8/2016)(L)                    |  |           | 11,355 |  |      |   | 11,355 |            |  |   | 11,355 | 
|                                          |  |                                                                        |  | Preferred Stock (19,935 shares)(C)(F)(L)                   |  |           |        |  |      |   | 1,994  |            |  |   | 2,577  | 
|                                          |  |                                                                        |  | Common Stock (221,500 shares)(C)(F)(L)                     |  |           |        |  |      |   | 221    |            |  |   | 381    | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                            |  |           |        |  |      |   | 13,570 |            |  |   | 14,313 | 

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



6



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|------------------------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- | - | ------------------------------------------------------------------------- |  | --------- | ------ | ------- | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                                        |  | Industry                                                              |   | Investment(B)                                                             |  | Principal |        |         | Cost |   |        | Fair Value | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Schylling Investments, LLC                                                                        |  | Leisure, Amusement, Motion Pictures, Entertainment                    |   | Senior Term Debt (13.0%, Due 8/2018)(L)                                   |  | $         | 13,081 |         |      | $ | 13,081 |            |  | $ | 13,081 | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (4,000 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 4,000  |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 17,081 |            |  |   | 13,081 | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Star Seed, Inc.                                                                                   |  | Farming and Agriculture                                               |   | Senior Term Debt (12.5%, Due 4/2018)(L)                                   |  |           | 7,500  |         |      |   | 7,500  |            |  |   | 7,500  | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (1,499 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 1,499  |            |  |   |       | 
|                                                                                                  |  |                                                                       |   | Common Stock (600 shares)(C)(F)(L)                                        |  |           |        |         |      |   | 1      |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 9,000  |            |  |   | 7,500  | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|Total Non-Control/Non-Affiliate Investments (represents 42.0% of total investments at fair value) |  |                                                                       | $ | 165,597                                                                   |  |           | $      | 165,518 |     
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|AFFILIATE INVESTMENTS(O):                                                                         |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |  
|Acme Cryogenics, Inc.                                                                             |  | Chemicals, Plastics, and Rubber                                       |   | Senior Subordinated Term Debt (11.5%, Due 3/2015)(I)(L)                   |  | $         | 14,500 |         |      | $ | 14,500 |            |  | $ | 14,500 | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (965,982 shares)(C)(F)(L)                                 |  |           |        |         |      |   | 7,956  |            |  |   | 8,442  | 
|                                                                                                  |  |                                                                       |   | Common Stock (549,908 shares)(C)(F)(L)                                    |  |           |        |         |      |   | 1,197  |            |  |   |       | 
|                                                                                                  |  |                                                                       |   | Common Stock Warrants (465,639shares)(C)(F)(L)                            |  |           |        |         |      |   | 25     |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 23,678 |            |  |   | 22,942 | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Alloy Die CastingCorp.(M)                                                                         |  | Diversified/Conglomerate Manufacturing                                |   | Senior Term Debt (13.5%, Due 10/2018)(K)                                  |  |           | 12,215 |         |      |   | 12,215 |            |  |   | 12,093 | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (4,064 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 4,064  |            |  |   | 3,699  | 
|                                                                                                  |  |                                                                       |   | Common Stock (630 shares)(C)(F)(L)                                        |  |           |        |         |      |   | 41     |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 16,320 |            |  |   | 15,792 | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Behrens Manufacturing,LLC(M)                                                                      |  | Diversified/Conglomerate Manufacturing                                |   | Senior Term Debt (13.0%, Due 12/2018)(L)                                  |  |           | 9,975  |         |      |   | 9,975  |            |  |   | 9,975  | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (2,923 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 2,922  |            |  |   | 2,808  | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 12,897 |            |  |   | 12,783 | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|B-Dry, LLC                                                                                        |  | Personal, Food and Miscellaneous Services                             |   | Line of Credit, $0 available (6.5% (0.8% Unused Fee), Due 5/2015)(L)      |  |           | 1,250  |         |      |   | 1,250  |            |  |   | 813    | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (13.5%, Due 5/2015)(L)                                   |  |           | 6,433  |         |      |   | 6,443  |            |  |   | 4,188  | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (13.5%, Due 5/2015)(L)                                   |  |           | 840    |         |      |   | 840    |            |  |   | 546    | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (2,250 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 2,250  |            |  |   |       | 
|                                                                                                  |  |                                                                       |   | Common Stock (2,250 shares)(C)(F)(L)                                      |  |           |        |         |      |   |       |            |  |   |       | 
|                                                                                                  |  |                                                                       |   | Common Stock Warrants (85 shares)(C)(F)(L)                                |  |           |        |         |      |   | 300    |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 11,083 |            |  |   | 5,547  | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|B+T Group Acquisition Inc.(M)                                                                     |  | Telecommunications                                                    |   | Line of Credit, $700 available (1.0% Unused Fee), Due 6/2015)(J)          |  |           | 700    |         |      |   | 700    |            |  |   | 700    | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (13.0%, Due 12/2019)(J)                                  |  |           | 14,000 |         |      |   | 14,000 |            |  |   | 14,000 | 
|                                                                                                  |  |                                                                       |   | Convertible Preferred Stock (12,841 shares)(C)(F)(J)                      |  |           |        |         |      |   | 4,197  |            |  |   | 4,197  | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 18,897 |            |  |   | 18,897 | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Cambridge Sound Management, LLC                                                                   |  | Home and office Furnishings, Housewares and Durable Consumer Products |   | Line of Credit, $1,000 available (13.0% (1.0% Unused Fee), Due 9/2015)(L) |  |           |       |         |      |   |       |            |  |   |       | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (13.0%, Due 9/2019)(L)                                   |  |           | 15,000 |         |      |   | 15,000 |            |  |   | 15,000 | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (4,500 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 4,500  |            |  |   | 7,556  | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 19,500 |            |  |   | 22,556 | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Channel Technologies Group, LLC                                                                   |  | Diversified/Conglomerate Manufacturing                                |   | Preferred Stock (2,279 shares)(C)(F)(L)                                   |  |           |        |         |      |   | 2,864  |            |  |   | 1,278  | 
|                                                                                                  |  |                                                                       |   | Common Stock (2,279,020 shares)(C)(F)(L)                                  |  |           |        |         |      |   |       |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 2,864  |            |  |   | 1,278  | 
|                                                                                                  |  |                                                                       |   |                                                                           | 
|Danco Acquisition Corp.                                                                           |  | Diversified/Conglomerate Manufacturing                                |   | Line of Credit, $550 available (4.0% (0.5% Unused Fee), Due 8/2015)(L)    |  |           | 4,000  |         |      |   | 4,000  |            |  |   | 349    | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (4.0%, Due 8/2015)(L)                                    |  |           | 2,575  |         |      |   | 2,575  |            |  |   | 225    | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (4.0%, Due 8/2015)(L)                                    |  |           | 8,795  |         |      |   | 8,795  |            |  |   | 767    | 
|                                                                                                  |  |                                                                       |   | Senior Term Debt (5.0%, Due 8/2015)(E)(L)                                 |  |           | 1,150  |         |      |   | 1,150  |            |  |   | 100    | 
|                                                                                                  |  |                                                                       |   | Preferred Stock (25 shares)(C)(F)(L)                                      |  |           |        |         |      |   | 2,500  |            |  |   |       | 
|                                                                                                  |  |                                                                       |   | Common Stock Warrants (1,241shares)(C)(F)(L)                              |  |           |        |         |      |   | 3      |            |  |   |       | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       |   |                                                                           |  |           |        |         |      |   | 19,023 |            |  |   | 1,441  | 



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



7



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|--------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | - | ----------------------------------------------------------------------- |  | --------- | ------ | ------- | ------- | - | ------ | ---------- | ------- | - | ------ | 
|Company(A)                                                                        |  | Industry                                                               |   | Investment(B)                                                           |  | Principal |        |         | Cost    |   |        | Fair Value |        
|                                                                                  |  |                                                                        |   |                                                                         | 
|Edge Adhesives Holdings, Inc.(M)                                                  |  | Diversified/Conglomerate                                               |   | Line of Credit, $850 available (10.5% (1.0% Unused Fee), Due 8/2015)(K) |  | $         | 650    |         |         | $ | 650    |            |         | $ | 647    | 
|                                                                                  |  |                                                                        |   | Senior Term Debt (12.5%,Due 2/2019)(K)                                  |  |           | 9,300  |         |         |   | 9,300  |            |         |   | 9,277  | 
|                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (13.5%, Due 2/2019)(K)                    |  |           | 2,400  |         |         |   | 2,400  |            |         |   | 2,397  | 
|                                                                                  |  |                                                                        |   | Convertible Preferred Stock (3,474 shares)(C)(F)(L)                     |  |           |        |         |         |   | 3,474  |            |         |   | 3,920  | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 15,824 |            |         |   | 16,241 | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|Head Country Food Products,                                                       |  | Beverage, Food and Tobacco                                             |   | Senior Term Debt (12.5%,Due 2/2019)(L)                                  |  |           | 9,050  |         |         |   | 9,050  |            |         |   | 9,050  | 
|                                                                                  |  |                                                                        |   | Preferred Stock (4,000 shares)(C)(F)(L)                                 |  |           |        |         |         |   | 4,000  |            |         |   | 2,880  | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 13,050 |            |         |   | 11,930 | 
|Meridian Rack &Pinion, Inc.(M)                                                    |  | Automobile                                                             |   | Senior Term Debt (13.5%, Due12/2018)(K)                                 |  |           | 9,660  |         |         |   | 9,660  |            |         |   | 9,600  | 
|                                                                                  |  |                                                                        |   | Preferred Stock (3,381 shares)(C)(F)                                    |  |           |        |         |         |   | 3,381  |            |         |   | 2,983  | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 13,041 |            |         |   | 12,583 | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|NDLI Inc.                                                                         |  | Cargo Transport                                                        |   | Line of Credit, $0 available (10.5% (0.5% Unused Fee), Due 1/2016)(K)   |  |           | 1,925  |         |         |   | 1,925  |            |         |   | 1,448  | 
|                                                                                  |  |                                                                        |   | Senior Term Debt(11.0%, Due 1/2018)(K)                                  |  |           | 7,227  |         |         |   | 7,227  |            |         |   | 5,438  | 
|                                                                                  |  |                                                                        |   | Senior Term Debt(10.5%, Due 1/2018)(K)                                  |  |           | 3,650  |         |         |   | 3,650  |            |         |   | 2,738  | 
|                                                                                  |  |                                                                        |   | Senior Term Debt(10.5%, Due 1/2018)(E)(K)                               |  |           | 3,650  |         |         |   | 3,650  |            |         |   | 2,756  | 
|                                                                                  |  |                                                                        |   | Preferred Stock (3,600 shares)(C)(F)(L)                                 |  |           |        |         |         |   | 3,600  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Common Stock (545 shares)(C)(F)(L)                                      |  |           |        |         |         |   |       |            |         |   |       | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 20,052 |            |         |   | 12,380 | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|Precision Southeast, Inc.                                                         |  | Diversified/Conglomerate Manufacturing                                 |   | Senior Term Debt(14.0%, Due 12/2015)(L)                                 |  |           | 5,617  |         |         |   | 5,617  |            |         |   | 5,617  | 
|                                                                                  |  |                                                                        |   | Preferred Stock (19,091 shares)(C)(F)(L)                                |  |           |        |         |         |   | 1,909  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Common Stock (90,909 shares)(C)(F)(L)                                   |  |           |        |         |         |   | 91     |            |         |   |       | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 7,617  |            |         |   | 5,617  | 
|Old World Christmas, Inc.                                                         |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |   | Line of Credit, $570 available (10% (1.0% Unused Fee), Due 4/2015)(J)   |  |           | 2,430  |         |         |   | 2,430  |            |         |   | 2,430  | 
|                                                                                  |  |                                                                        |   | Senior Term Debt(13.3%, Due 10/2019)(J)                                 |  |           | 15,770 |         |         |   | 15,770 |            |         |   | 15,770 | 
|                                                                                  |  |                                                                        |   | Preferred Stock (6,180 shares)(C)(F)(J)                                 |  |           |        |         |         |   | 6,180  |            |         |   | 6,180  | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 24,380 |            |         |   | 24,380 | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|SOG Specialty K&T, LLC                                                            |  | Leisure, Amusement, Motion Pictures, Entertainment                     |   | Senior Term Debt(13.3%, Due 10/2017)(L)                                 |  |           | 6,200  |         |         |   | 6,200  |            |         |   | 6,200  | 
|                                                                                  |  |                                                                        |   | Senior Term Debt(14.8%, Due 10/2017)(L)                                 |  |           | 12,200 |         |         |   | 12,200 |            |         |   | 12,200 | 
|                                                                                  |  |                                                                        |   | Preferred Stock (9,749 shares)(C)(F)(L)                                 |  |           |        |         |         |   | 9,749  |            |         |   | 6,540  | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 28,149 |            |         |   | 24,940 | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|Tread Corp.                                                                       |  | Oil and Gas                                                            |   | Line of Credit, $1,786 available (12.5%, Due 2/2015)(G)(I)(L)           |  |           | 1,464  |         |         |   | 1,464  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)(I)(L)              |  |           | 5,000  |         |         |   | 5,000  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)(I)(L)              |  |           | 2,750  |         |         |   | 2,750  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)(I)(L)              |  |           | 1,000  |         |         |   | 1,000  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (12.5%, Due on Demand)(G)(I)(L)           |  |           | 510    |         |         |   | 510    |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Preferred Stock (3,332,765 shares)(C)(F)(L)                             |  |           |        |         |         |   | 3,333  |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Common Stock (7,716,320 shares)(C)(F)(L)                                |  |           |        |         |         |   | 501    |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Common Stock Warrants (2,372,727 shares)(C)(F)(L)                       |  |           |        |         |         |   | 3      |            |         |   |       | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 14,561 |            |         |   |       | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|Total Affiliate Investments (represents 53.1% of total investments at fair value) |  |                                                                        | $ | 260,936                                                                 |  |           | $      | 209,307 |        
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|CONTROL INVESTMENTS(P):                                                           |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |  
|Galaxy Tool Holding Corp.                                                         |  | Aerospace and Defense                                                  |   | Line of Credit, $450 available (10.0%, Due 9/2015)(L)                   |  | $         | 2,050  |         |         | $ | 2,050  |            |         | $ | 2,050  | 
|                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (13.5%, Due 8/2017)(L)                    |  |           | 15,520 |         |         |   | 15,520 |            |         |   | 15,520 | 
|                                                                                  |  |                                                                        |   | Preferred Stock (6,039,387 shares)(C)(F)(L)                             |  |           |        |         |         |   | 11,464 |            |         |   |       | 
|                                                                                  |  |                                                                        |   | Common Stock (88,843 shares)(C)(F)(L)                                   |  |           |        |         |         |   | 48     |            |         |   |       | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   | 29,082 |            |         |   | 17,570 | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|Roanoke Industries Corp.                                                          |  | Buildings and Real Estate                                              |   | Senior Term Debt (14.0%,Due 8/2016)(L)                                  |  |           | 1,650  |         |         |   | 1,650  |            |         |   | 1,650  | 
|                                                                                  |  |                                                                        |   |                                                                         | 
|                                                                                  |  |                                                                        |   | Common Stock (1,000 shares)(C)(F)(L)                                    |  |           |        |         |         |   | 100    |            |         |   | 100    | 
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|                                                                                  |  |                                                                        |   | 1,750                                                                   |  |           |        | 1,750   |        
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|Total Control Investments (represents 4.9% of total investments at fair value)    |  |                                                                        | $ | 30,832                                                                  |  |           | $      | 19,320  |        
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 
|TOTAL INVESTMENTS                                                                 |  |                                                                        |   |                                                                         |  |           |        | $       | 457,365 |   |        | $          | 394,145 |  
|                                                                                  |  |                                                                        |   |                                                                         |  |           |        |         |         |   |        |            |         |   |        | 

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



8



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2014

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|(A) | Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $371.0 million at fair value, are pledged as collateral to our Credit
Facility as described further in Note 5Borrowings. Additionally, all of our investments are considered non-qualifying assets under Section 55 of the Investment Company Act of 1940, as amended, (the 1940 Act) as of December 31,
2014.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Percentages represent the weighted average cash interest rates in effect at December 31, 2014, and due date represents the contractual maturity date. Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR). If applicable, paid-in-kind (PIK) interest rates are noted separately from the cash interest rates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | Security is non-income producing.
|--- | ---------------------------------

|(D) | Refer to Note 10Commitments and Contingencies for additional information regarding these guaranties.
|--- | -----------------------------------------------------------------------------------------------------

|(E) | Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior debt but before the senior subordinated debt.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(H) | $5.1 million of the debt security participated to a third party but accounted for as collateral for a secured borrowing for accounting principles generally accepted in the U.S. (GAAP) purposes as of December
31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(I) | Debt security has a fixed interest rate.
|--- | ----------------------------------------

|(J) | New portfolio investment valued at cost, as it was determined that the price paid during the three months ended December 31, 2014 best represents fair value as of December 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(K) | Fair value was based on internal yield analysis or on estimates of value submitted by Standard & Poors Securities Evaluations, Inc. (SPSE).
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------

|(L) | Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio companys securities in order of their relative priority in the capital structure.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(O) | Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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



9



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2014

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|----------------------------------------- |  | ---------------------------------------------------------------------- |  | ----------------------------------------------------------------- |  | --------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                |  | Industry                                                               |  | Investment(B)                                                     |  | Principal |        |  | Cost |   |        | Fair Value | 
|NON-CONTROL/NON-AFFILIATE INVESTMENTS(L): | 
|Acme Cryogenics, Inc.                     |  | Chemicals, Plastics, and Rubber                                        |  | Senior Subordinated Term Debt (11.5%, Due 3/2015)(I)(L)           |  | $         | 14,500 |  |      | $ | 14,500 |            |  | $ | 14,500 | 
|                                          |  |                                                                        |  | Preferred Stock (898,814shares)(C)(F)(L)                          |  |           |        |  |      |   | 6,984  |            |  |   | 11,276 | 
|                                          |  |                                                                        |  | Common Stock (418,072shares)(C)(F)(L)                             |  |           |        |  |      |   | 1,045  |            |  |   |       | 
|                                          |  |                                                                        |  | Common Stock Warrants (465,639shares)(C)(F)(L)                    |  |           |        |  |      |   | 25     |            |  |   |       | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 22,554 |            |  |   | 25,776 | 
|                                          |  |                                                                        |  |                                                                   | 
|Alloy Die CastingCorp.(M)                 |  | Diversified/Conglomerate Manufacturing                                 |  | Senior Term Debt (13.5%, Due 10/2018)(K)                          |  |           | 12,215 |  |      |   | 12,215 |            |  |   | 12,261 | 
|                                          |  |                                                                        |  | Preferred Stock (4,064 shares)(C)(F)(L)                           |  |           |        |  |      |   | 4,064  |            |  |   | 1,948  | 
|                                          |  |                                                                        |  | Common Stock (630 shares)(C)(F)(L)                                |  |           |        |  |      |   | 41     |            |  |   |       | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 16,320 |            |  |   | 14,209 | 
|                                          |  |                                                                        |  |                                                                   | 
|Auto Safety House, LLC                    |  | Automobile                                                             |  | Line of Credit, $1,000 available (7.0%, Due 10/2018)(I)(K)        |  |           | 5,000  |  |      |   | 5,000  |            |  |   | 4,925  | 
|                                          |  |                                                                        |  | Guaranty ($500)(D)                                                |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  | Guaranty ($250)(D)                                                |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 5,000  |            |  |   | 4,925  | 
|                                          |  |                                                                        |  |                                                                   | 
|B-Dry, LLC                                |  | Personal, Food and Miscellaneous Services                              |  | Line of Credit, $0 available (6.5%, Due 5/2014)(K)                |  |           | 750    |  |      |   | 750    |            |  |   | 566    | 
|                                          |  |                                                                        |  | Senior Term Debt (13.5%, Due 5/2014)(K)                           |  |           | 6,433  |  |      |   | 6,443  |            |  |   | 4,865  | 
|                                          |  |                                                                        |  | Senior Term Debt (13.5%, Due 5/2014)(K)                           |  |           | 2,840  |  |      |   | 2,840  |            |  |   | 2,144  | 
|                                          |  |                                                                        |  | Common Stock Warrants (85 shares)(C)(F)(L)                        |  |           |        |  |      |   | 300    |            |  |   |       | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 10,333 |            |  |   | 7,575  | 
|                                          |  |                                                                        |  |                                                                   | 
|Cavert II Holding Corp.                   |  | Containers, Packaging, and Glass                                       |  | Preferred Stock (18,446 shares)(C)(F)(L)                          |  |           |        |  |      |   | 1,845  |            |  |   | 3,023  | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 1,845  |            |  |   | 3,023  | 
|                                          |  |                                                                        |  |                                                                   | 
|Country Club Enterprises, LLC             |  | Automobile                                                             |  | Senior Subordinated Term Debt (18.6%, Due 11/2014)(L)             |  |           | 4,000  |  |      |   | 4,000  |            |  |   | 4,000  | 
|                                          |  |                                                                        |  | Preferred Stock (7,079,792 shares)(C)(F)(L)                       |  |           |        |  |      |   | 7,725  |            |  |   | 3,670  | 
|                                          |  |                                                                        |  | Guaranty ($2,000)(D)                                              |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  | Guaranty ($878)(D)                                                |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 11,725 |            |  |   | 7,670  | 
|                                          |  |                                                                        |  |                                                                   | 
|Drew FoamCompany, Inc.                    |  | Chemicals, Plastics, and Rubber                                        |  | Senior Term Debt (13.5%, Due 8/2017)(L)                           |  |           | 10,913 |  |      |   | 10,913 |            |  |   | 10,913 | 
|                                          |  |                                                                        |  | Preferred Stock (34,045 shares)(C)(F)                             |  |           |        |  |      |   | 3,375  |            |  |   | 1,351  | 
|                                          |  |                                                                        |  | Common Stock (5,372 shares)(C)(F)                                 |  |           |        |  |      |   | 63     |            |  |   |       | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 14,351 |            |  |   | 12,264 | 
|                                          |  |                                                                        |  |                                                                   | 
|Frontier Packaging, Inc.                  |  | Containers, Packaging, and Glass                                       |  | Senior Term Debt (12.0%, Due 12/2017)(L)                          |  |           | 12,500 |  |      |   | 12,500 |            |  |   | 12,500 | 
|                                          |  |                                                                        |  | Preferred Stock (1,373 shares)(C)(F)(L)                           |  |           |        |  |      |   | 1,373  |            |  |   | 1,522  | 
|                                          |  |                                                                        |  | Common Stock (152 shares)(C)(F)(L)                                |  |           |        |  |      |   | 152    |            |  |   | 843    | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 14,025 |            |  |   | 14,865 | 
|                                          |  |                                                                        |  |                                                                   | 
|Funko, LLC(M)                             |  | Personal and Non-Durable Consumer Products (Manufacturing Only)        |  | Senior Subordinated Term Debt (12.0% and 1.5% PIK, Due 5/2019)(K) |  |           | 7,587  |  |      |   | 7,587  |            |  |   | 7,729  | 
|                                          |  |                                                                        |  | Preferred Stock (1,305 shares)(C)(F)(L)                           |  |           |        |  |      |   | 1,305  |            |  |   | 2,276  | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 8,892  |            |  |   | 10,005 | 
|                                          |  |                                                                        |  |                                                                   | 
|Ginsey Home Solutions, Inc.               |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |  | Senior Subordinate Term Debt (13.5%, Due 1/2018)(H)(L)            |  |           | 13,050 |  |      |   | 13,050 |            |  |   | 13,050 | 
|                                          |  |                                                                        |  | Preferred Stock (18,898 shares)(C)(F)(L)                          |  |           |        |  |      |   | 9,393  |            |  |   | 3,082  | 
|                                          |  |                                                                        |  | Common Stock (63,747 shares)(C)(F)(L)                             |  |           |        |  |      |   | 8      |            |  |   |       | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 22,451 |            |  |   | 16,132 | 
|                                          |  |                                                                        |  |                                                                   | 
|Jackrabbit, Inc.                          |  | Farming and Agriculture                                                |  | Line of Credit, $3,000 available (13.5%, Due 4/2014)(L)           |  |           |       |  |      |   |       |            |  |   |       | 
|                                          |  |                                                                        |  | Senior Term Debt (13.5%, Due 4/2018)(L)                           |  |           | 11,000 |  |      |   | 11,000 |            |  |   | 11,000 | 
|                                          |  |                                                                        |  | Preferred Stock (3,556 shares)(C)(F)(L)                           |  |           |        |  |      |   | 3,556  |            |  |   | 1,963  | 
|                                          |  |                                                                        |  | Common Stock (548 shares)(C)(F)(L)                                |  |           |        |  |      |   | 94     |            |  |   |       | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 14,650 |            |  |   | 12,963 | 
|                                          |  |                                                                        |  |                                                                   | 
|Mathey Investments, Inc.                  |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |  | Senior Term Debt (10.0%, Due 3/2016)(L)                           |  |           | 1,375  |  |      |   | 1,375  |            |  |   | 1,375  | 
|                                          |  |                                                                        |  | Senior Term Debt (12.0%, Due 3/2016)(L)                           |  |           | 3,727  |  |      |   | 3,727  |            |  |   | 3,727  | 
|                                          |  |                                                                        |  | Senior Term Debt (12.5%,Due 3/2016)(E)(I)(L)                      |  |           | 3,500  |  |      |   | 3,500  |            |  |   | 3,500  | 
|                                          |  |                                                                        |  | Common Stock (29,102 shares)(C)(F)(L)                             |  |           |        |  |      |   | 777    |            |  |   | 4,895  | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   |        |            |  |   |        | 
|                                          |  |                                                                        |  |                                                                   |  |           |        |  |      |   | 9,379  |            |  |   | 13,497 | 

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



10



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2014

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | - | ----------------------------------------------------- |  | --------- | ------ | ------- | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                                        |  | Industry                                                               |   | Investment(B)                                         |  | Principal |        |         | Cost |   |        | Fair Value | 
|Mitchell Rubber Products, Inc.                                                                    |  | Chemicals, Plastics, and Rubber                                        |   | Subordinated Term Debt (13.0%, Due 10/2016)(I)(K)     |  | $         | 13,560 |         |      | $ | 13,560 |            |  | $ | 13,628 | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (27,900 shares)(C)(F)(L)              |  |           |        |         |      |   | 2,790  |            |  |   | 1,086  | 
|                                                                                                  |  |                                                                        |   | Common Stock (27,900 shares)(C)(F)(L)                 |  |           |        |         |      |   | 28     |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 16,378 |            |  |   | 14,714 | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Noble Logistics, Inc.                                                                             |  | Cargo Transport                                                        |   | Line of Credit, $0 available (10.5%, Due 1/2015)(K)   |  |           | 800    |         |      |   | 800    |            |  |   | 204    | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (11.0%, Due1/2015)(K)                |  |           | 7,227  |         |      |   | 7,227  |            |  |   | 1,842  | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (10.5%, Due1/2015)(K)                |  |           | 3,650  |         |      |   | 3,650  |            |  |   | 931    | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (10.5%, Due1/2015)(E)(K)             |  |           | 3,650  |         |      |   | 3,650  |            |  |   | 931    | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 15,327 |            |  |   | 3,908  | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Precision Southeast, Inc.                                                                         |  | Diversified/ConglomerateManufacturing                                  |   | Senior Term Debt (14.0%, Due12/2015)(L)               |  |           | 5,617  |         |      |   | 5,617  |            |  |   | 5,617  | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (19,091 shares)(C)(F)(L)              |  |           |        |         |      |   | 1,909  |            |  |   |       | 
|                                                                                                  |  |                                                                        |   | Common Stock (90,909 shares)(C)(F)(L)                 |  |           |        |         |      |   | 91     |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 7,617  |            |  |   | 5,617  | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Quench Holdings Corp.                                                                             |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |   | Common Stock (4,770,391shares)(C)(F)(L)               |  |           |        |         |      |   | 3,397  |            |  |   | 5,056  | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 3,397  |            |  |   | 5,056  | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|SBS, Industries, LLC                                                                              |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |   | Senior Term Debt (14.0%, Due8/2016)(L)                |  |           | 11,355 |         |      |   | 11,355 |            |  |   | 11,355 | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (19,935 shares)(C)(F)(L)              |  |           |        |         |      |   | 1,994  |            |  |   | 1,064  | 
|                                                                                                  |  |                                                                        |   | Common Stock (221,500 shares)(C)(F)(L)                |  |           |        |         |      |   | 221    |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 13,570 |            |  |   | 12,419 | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Schylling Investments, LLC                                                                        |  | Leisure, Amusement, Motion Pictures, Entertainment                     |   | Senior Term Debt (13.0%, Due8/2017)(K)                |  |           | 13,081 |         |      |   | 13,081 |            |  |   | 13,228 | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (4,000 shares)(C)(F)(L)               |  |           |        |         |      |   | 4,000  |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 17,081 |            |  |   | 13,228 | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Star Seed, Inc.                                                                                   |  | Farming and Agriculture                                                |   | Senior Term Debt (12.5%, Due4/2018)(K)                |  |           | 7,500  |         |      |   | 7,500  |            |  |   | 7,594  | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (1,499shares)(C)(F)(L)                |  |           |        |         |      |   | 1,499  |            |  |   |       | 
|                                                                                                  |  |                                                                        |   | Common Stock (600 shares)(C)(F)(L)                    |  |           |        |         |      |   | 1      |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 9,000  |            |  |   | 7,594  | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|Total Non-Control/Non-Affiliate Investments (represents 65.4% of total investments at fair value) |  |                                                                        | $ | 233,895                                               |  |           | $      | 205,440 |     
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|AFFILIATE INVESTMENTS(O):                                                                         |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |  
|Behrens Manufacturing, LLC(M)                                                                     |  | Diversified/ConglomerateManufacturing                                  |   | Senior Term Debt (13.0%, Due12/2018)(L)               |  | $         | 9,975  |         |      | $ | 9,975  |            |  | $ | 9,975  | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (2,923 shares)(C)(F)(L)               |  |           |        |         |      |   | 2,922  |            |  |   | 2,754  | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 12,897 |            |  |   | 12,729 | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Channel Technologies Group, LLC                                                                   |  | Diversified/ConglomerateManufacturing                                  |   | Preferred Stock (2,279 shares)(C)(F)(L)               |  |           |        |         |      |   | 2,864  |            |  |   | 3,122  | 
|                                                                                                  |  |                                                                        |   | Common Stock (2,279,020 shares)(C)(F)(L)              |  |           |        |         |      |   |       |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 2,864  |            |  |   | 3,122  | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Danco Acquisition Corp.                                                                           |  | Diversified/ConglomerateManufacturing                                  |   | Line of Credit, $700 available (4.0%, Due 8/2015)(K)  |  |           | 3,450  |         |      |   | 3,450  |            |  |   | 690    | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (4.0%, Due 8/2015)(K)                |  |           | 2,575  |         |      |   | 2,575  |            |  |   | 515    | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (4.0%, Due 8/2015)(K)                |  |           | 8,795  |         |      |   | 8,795  |            |  |   | 1,759  | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (5.0%, Due8/2015)(E)(K)              |  |           | 1,150  |         |      |   | 1,150  |            |  |   | 236    | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (25 shares)(C)(F)(L)                  |  |           |        |         |      |   | 2,500  |            |  |   |       | 
|                                                                                                  |  |                                                                        |   | Common Stock (1,241 shares)(C)(F)(L)                  |  |           |        |         |      |   | 3      |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 18,473 |            |  |   | 3,200  | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Edge Adhesives Holdings, Inc.(M)                                                                  |  | Diversified/ConglomerateManufacturing                                  |   | Line of Credit, $705 available (10.5%, Due 8/2014)(J) |  |           | 795    |         |      |   | 795    |            |  |   | 795    | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (12.5%, Due2/2019)(J)                |  |           | 9,300  |         |      |   | 9,300  |            |  |   | 9,300  | 
|                                                                                                  |  |                                                                        |   | Senior Subordinated Term Debt (13.5%, Due 2/2019)(J)  |  |           | 2,400  |         |      |   | 2,400  |            |  |   | 2,400  | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (3,474 shares)(C)(F)(J)               |  |           |        |         |      |   | 3,474  |            |  |   | 3,474  | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 15,969 |            |  |   | 15,969 | 
|                                                                                                  |  |                                                                        |   |                                                       | 
|Head Country Food Products, Inc.                                                                  |  | Beverage, Food and Tobacco                                             |   | Line of Credit, $500 available (10.0%, Due 8/2014)(J) |  |           |       |         |      |   |       |            |  |   |       | 
|                                                                                                  |  |                                                                        |   | Senior Term Debt (12.5%, Due2/2019)(J)                |  |           | 9,050  |         |      |   | 9,050  |            |  |   | 9,050  | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (4,000 shares)(C)(F)(J)               |  |           |        |         |      |   | 4,000  |            |  |   | 4,000  | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                                       |  |           |        |         |      |   | 13,050 |            |  |   | 13,050 | 

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



11



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS(Continued)

MARCH 31, 2014



|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|--------------------------------------------------------------------------------- |  | -------------------------------------------------- | - | ------------------------------------------------------------- |  | --------- | ------ | ------- | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                        |  | Industry                                           |   | Investment(B)                                                 |  | Principal |        |         | Cost |   |        | Fair Value | 
|Meridian Rack & Pinion, Inc.(M)                                                   |  | Automobile                                         |   | Senior Term Debt (13.5%, Due 12/2018)(K)                      |  | $         | 9,660  |         |      | $ | 9,660  |            |  | $ | 9,672  | 
|                                                                                  |  |                                                    |   | Preferred Stock (3,381 shares)(C)(F)(L)                       |  |           |        |         |      |   | 3,381  |            |  |   | 3,468  | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   | 13,041 |            |  |   | 13,140 | 
|                                                                                  |  |                                                    |   |                                                               | 
|SOG Specialty K&T, LLC                                                            |  | Leisure, Amusement, Motion Pictures, Entertainment |   | Senior Term Debt (13.3%, Due 8/2016)(L)                       |  |           | 6,200  |         |      |   | 6,200  |            |  |   | 6,200  | 
|                                                                                  |  |                                                    |   | Senior Term Debt (14.8%, Due 8/2016)(L)                       |  |           | 12,199 |         |      |   | 12,199 |            |  |   | 12,199 | 
|                                                                                  |  |                                                    |   | Preferred Stock (9,749 shares)(C)(F)(L)                       |  |           |        |         |      |   | 9,749  |            |  |   | 8,240  | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   | 28,148 |            |  |   | 26,639 | 
|                                                                                  |  |                                                    |   |                                                               | 
|Tread Corp.                                                                       |  | Oil and Gas                                        |   | Line of Credit, $779 available (12.5%, Due 6/2014)(G)(I)(L)   |  |           | 2,471  |         |      |   | 2,471  |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)(I)(L)    |  |           | 5,000  |         |      |   | 5,000  |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)(I)(L)    |  |           | 2,750  |         |      |   | 2,750  |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)(I)(L)    |  |           | 1,000  |         |      |   | 1,000  |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Senior Subordinated Term Debt (12.5%, Due on Demand)(G)(I)(L) |  |           | 510    |         |      |   | 510    |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Preferred Stock (3,332,765 shares)(C)(F)(L)                   |  |           |        |         |      |   | 3,333  |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Common Stock (7,716,320 shares)(C)(F)(L)                      |  |           |        |         |      |   | 501    |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               | 
|                                                                                  |  |                                                    |   | Common Stock Warrants (2,372,727 shares)(C)(F)(L)             |  |           |        |         |      |   | 3      |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   | 15,568 |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|Total Affiliate Investments (represents 27.9% of total investments at fair value) |  |                                                    | $ | 120,010                                                       |  |           | $      | 87,849  |     
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|CONTROL INVESTMENTS(P):                                                           |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |  
|Galaxy Tool Holding Corp.                                                         |  | Aerospace and Defense                              |   | Senior Subordinated Term Debt (13.5%, Due 8/2017)(L)          |  | $         | 15,520 |         |      | $ | 15,520 |            |  | $ | 15,520 | 
|                                                                                  |  |                                                    |   | Preferred Stock (6,039,387 shares)(C)(F)(L)                   |  |           |        |         |      |   | 11,464 |            |  |   | 2,992  | 
|                                                                                  |  |                                                    |   | Common Stock (88,843 shares)(C)(F)(L)                         |  |           |        |         |      |   | 48     |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   | 27,032 |            |  |   | 18,512 | 
|NDLI Acquisition Inc.                                                             |  | Cargo Transport                                    |   | Preferred Stock (2,600 shares)(C)(F)(L)                       |  |           |        |         |      |   | 2,600  |            |  |   | 2,592  | 
|                                                                                  |  |                                                    |   | Common Stock (545 shares)(C)(F)(L)                            |  |           |        |         |      |   |       |            |  |   |       | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   | 2,600  |            |  |   | 2,592  | 
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|Total Control Investments (represents 6.7% of total investments at fair value)    |  |                                                    | $ | 29,632                                                        |  |           | $      | 21,104  |     
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 
|TOTAL INVESTMENTS(Q)                                                              |  |                                                    | $ | 383,537                                                       |  |           | $      | 314,393 |     
|                                                                                  |  |                                                    |   |                                                               |  |           |        |         |      |   |        |            |  |   |        | 



|(A) | Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $388.6 million at fair value, are pledged as collateral to our Credit
Facility as described further in Note 5Borrowings. Additionally, all of our investments are considered non-qualifying assets under Section 55 of the 1940 Act as of March 31, 2014.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Percentages represent the weighted average cash interest rates in effect at March 31, 2014, and due date represents the contractual maturity date. Unless indicated otherwise, all cash interest rates are indexed to
30-day LIBOR. If applicable, PIK interest rates are noted separately from the cash interest rates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | Security is non-income producing.
|--- | ---------------------------------

|(D) | Refer to Note 10Commitments and Contingencies for additional information regarding these guaranties.
|--- | -----------------------------------------------------------------------------------------------------

|(E) | Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior debt but before the senior subordinated debt.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(H) | $5.0 million of the debt security participated to a third party but accounted for as collateral for a secured borrowing for GAAP purposes as of March 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------

|(I) | Debt security has a fixed interest rate.
|--- | ----------------------------------------

|(J) | New portfolio investment valued at cost, as it was determined that the price paid during the three months ended March 31, 2014 best represents fair value as of March 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(K) | Fair value was based on internal yield analysis or on estimates of value submitted by Standard & Poors Securities Evaluations, Inc. (SPSE)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

|(L) | Fair value was based on the total enterprise value of the portfolio company, which was then allocated to the portfolio companys securities in order of their relative priority in the capital structure.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(O) | Affiliate investments, as defined by the 1940 Act, are those in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(Q) | Cumulative gross unrealized depreciation for federal income tax purposes is $83,197; cumulative gross unrealized appreciation for federal income tax purposes is $13,913. Cumulative net unrealized depreciation is
$69,284, based on a tax cost of $383,677.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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GLADSTONE INVESTMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2014

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

NOTE 1. ORGANIZATION

Gladstone Investment
Corporation (Gladstone Investment) was incorporated under the General Corporation Law of the State of Delaware on February 18, 2005, and completed an initial public offering on June 22, 2005. The terms the Company,
we, our and us all refer to Gladstone Investment and its consolidated subsidiaries. We are an externally advised, closed-end, non-diversified management investment company that has elected to be treated as a
business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In addition, we have elected to be treated for tax purposes as a regulated investment company (RIC) under the
Internal Revenue Code of 1986, as amended (the Code). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (U.S.). Debt investments primarily
come in the form of three types of loans: senior term loans, senior subordinated loans and junior subordinated debt. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in
connection with buyouts and other recapitalizations. Our investment objectives are: (a) to achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to
pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that we anticipate will grow over time, and (b) to provide our stockholders with long-term capital appreciation in the
value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. We aim to maintain a portfolio allocation of approximately 80.0% debt
investments and 20.0% equity investments, at cost.

Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of
ours, was established on August 11, 2006 for the sole purpose of owning our portfolio of investments in connection with our revolving line of credit. The financial statements of Business Investment are consolidated with ours. We also have
significant subsidiaries whose financial statements are not consolidated with ours. Refer to Note 12Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.

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

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of SEC Regulation S-X. Accordingly, we have omitted certain disclosures accompanying annual financial statements prepared in accordance with
GAAP. The accompanying Condensed Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been eliminated. Under Article 6 of Regulation S-X,
and the authoritative accounting guidance provided by the American Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are not permitted to consolidate any portfolio company investments, including those
in which we have a controlling interest. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations
for the three and nine months ended December 31, 2014, are not necessarily indicative of results that ultimately may be achieved for the year. The interim financial statements and notes thereto should be read in conjunction with the financial
statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended March 31, 2014, as filed with the SEC on May 13, 2014.

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

Revisions

Certain amounts in the prior years consolidated financial statements have been revised to correct the presentation for the three and nine months ended
December 31, 2013 with no effect on our financial condition or results of operations. Certain amounts that were revised relate to our change in the classification of certain of our investments among control, affiliate and
non-control/non-affiliate investments. The general change in the definitions from prior reported periods to the three and nine months ended December 31, 2013, relate to the use of voting equity securities as the primary determinate of
classification compared to the use of both voting and non-voting equity securities in prior periods.



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Other revisions relate to the net presentation of certain fees in our results of operations. The Adviser
services, administers and collects on the loans held by Business Investment, in return for which the Adviser receives a 2.0% annual fee from Business Investment. All loan servicing fees are voluntarily and irrevocably credited back to us by the
Adviser. Previously, we incorrectly presented the loan servicing fee on a net basis, which is zero because it is 100.0% credited back to us. We have revised our fee presentation related to these loan servicing fees to reflect the gross fee and
related gross unconditional, non-contractual and irrevocable credit amounts. Management evaluated these errors in presentation and concluded they were not material to the previously issued financial statements for the three and nine months ended
December 31, 2013. The impact of the revisions are shown in the table below:



|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|-------------------------------------------------- |  | ----------------------------------- | ------- | - | ---------------------------------- | - | ------- | --------------------- |  | - | ---------- | - |  | - | ------- | -
|                                                   |  | Three Months Ended December 31,2013 |         |   | Nine Months Ended December 31,2013 |  
|                                                   |  | As PreviouslyReported               |         |   | As Revised                         |   |         | As PreviouslyReported |  |   | As Revised |  
|Interest income                                    |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Non-Control/Non-Affiliate investments              |  | $                                   | 1,625   |   |                                    | $ | 5,826   |                       |  | $ | 2,978      |   |  | $ | 15,719  |  
|Affiliate investments                              |  |                                     | 708     |   |                                    |   | 160     |                       |  |   | 2,923      |   |  |   | 1,091   |  
|Control investments                                |  |                                     | 5,259   |   |                                    |   | 1,606   |                       |  |   | 16,578     |   |  |   | 5,669   |  
|Cash and cash equivalents                          |  |                                     | 1       |   |                                    |   | 1       |                       |  |   | 2          |   |  |   | 2       |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Total interest income                              |  |                                     | 7,593   |   |                                    |   | 7,593   |                       |  |   | 22,481     |   |  |   | 22,481  |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Other income                                       |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Non-Control/Non-Affiliate investments              |  |                                     | 5       |   |                                    |   | 304     |                       |  |   | 5          |   |  |   | 878     |  
|Affiliate investments                              |  |                                     | 1,000   |   |                                    |   | 799     |                       |  |   | 1,333      |   |  |   | 799     |  
|Control investments                                |  |                                     | 98      |   |                                    |   |        |                       |  |   | 3,634      |   |  |   | 3,295   |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Total other income                                 |  |                                     | 1,103   |   |                                    |   | 1,103   |                       |  |   | 4,972      |   |  |   | 4,972   |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Expenses                                           |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Aggregate expenses                                 |  |                                     | 5,076   |   |                                    |   | 5,076   |                       |  |   | 14,417     |   |  |   | 14,417  |  
|Loan servicing fee                                 |  |                                     |        |   |                                    |   | 1,089   |                       |  |   |           |   |  |   | 3,230   |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Expenses, before credits from Adviser              |  |                                     | 5,076   |   |                                    |   | 6,165   |                       |  |   | 14,417     |   |  |   | 17,647  |  
|Credit to base management fee - loan servicing fee |  |                                     |        |   |                                    |   | (1,089  | )                     |  |   |           |   |  |   | (3,230  | )
|Credit to fees from Adviser - other                |  |                                     | (782    | ) |                                    |   | (782    | )                     |  |   | (1,627     | ) |  |   | (1,627  | )
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Total expenses, net of credits to fees             |  |                                     | 4,294   |   |                                    |   | 4,294   |                       |  |   | 12,790     |   |  |   | 12,790  |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Net realized (loss) gain                           |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Non-Control/Non-Affiliate investments              |  |                                     |        |   |                                    |   | (11,361 | )                     |  |   |           |   |  |   | (11,361 | )
|Affiliate investments                              |  |                                     | (1,754  | ) |                                    |   | (1,754  | )                     |  |   | (1,754     | ) |  |   | (1,754  | )
|Control investments                                |  |                                     | (11,361 | ) |                                    |   |        |                       |  |   | 13,443     |   |  |   | 24,804  |  
|Other                                              |  |                                     | (29     | ) |                                    |   | (29     | )                     |  |   | (29        | ) |  |   | (29     | )
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Total net unrealized (loss) gain                   |  |                                     | (13,144 | ) |                                    |   | (13,144 | )                     |  |   | 11,660     |   |  |   | 11,660  |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Net unrealized (depreciation) appreciation         |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Non-Control/Non-Affiliate investments              |  |                                     | (3,694  | ) |                                    |   | (2,548  | )                     |  |   | (6,810     | ) |  |   | (10,926 | )
|Affiliate investments                              |  |                                     | 983     |   |                                    |   | 4,651   |                       |  |   | 3,432      |   |  |   | 1,629   |  
|Control investments                                |  |                                     | 401     |   |                                    |   | (4,413  | )                     |  |   | (26,022    | ) |  |   | (20,103 | )
|Other                                              |  |                                     | 366     |   |                                    |   | 366     |                       |  |   | 811        |   |  |   | 811     |  
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  
|Total net unrealized depreciation                  |  | $                                   | (1,944  | ) |                                    | $ | (1,944  | )                     |  | $ | (28,589    | ) |  | $ | (28,589 | )
|                                                   |  |                                     |         |   |                                    |   |         |                       |  |   |            |   |  |   |         |  

Investment Valuation Policy

Accounting Recognition

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

Board Responsibility

In accordance with the 1940 Act, our board of directors (our Board of Directors) has the ultimate responsibility for reviewing and approving, in
good faith, the fair value of our investments based on our established investment valuation policy (the Policy). Our



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Board of Directors reviews valuation recommendations that are provided by professionals of the Adviser and Administrator with oversight and direction from the valuation officer (the
Valuation Team). There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair
value of our investments, the Valuation Team, led by the valuation officer, uses the Policy and each quarter our Board of Directors reviews the Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team has
applied the Policy consistently.

Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of the fair value of certain of our investments. Currently, the sole
third-party service provider Standard & Poors Securities Evaluation, Inc. (SPSE) provides estimates of fair value on the majority of our debt investments.

The Valuation Team generally assigns SPSEs estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the
applicable portfolio company. The Valuation Team corroborates SPSEs estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Teams estimates of value on a specific debt investment may
significantly differ from SPSEs. When this occurs, our Board of Directors reviews whether the Valuation Team has followed the Policy and whether the Valuation Teams recommended value is reasonable in light of the Policy and other
relevant facts and circumstances and then votes to accept or reject the Valuation Teams recommended valuation.

Valuation Techniques

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



| |  |  | Total Enterprise Value  In determining the fair value using a total enterprise value (TEV), the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of
the following factors: the portfolio companys ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes,
depreciation and amortization (EBITDA)); EBITDA or revenue multiples obtained from our indexing methodology whereby the original transaction EBITDA or revenue multiple at the time of our closing is indexed to a general subset of
comparable disclosed transactions and EBITDA or revenue multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries; and other pertinent factors. The
Valuation Team generally references industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team then allocates the TEV to the portfolio companys
securities in order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt
investments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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

In addition to the above valuation techniques, the Valuation Team may also consider other factors when determining fair values of our investments, including,
but not limited to: the nature and realizable value of the collateral, including external parties guaranties; any relevant offers or letters of intent to acquire the portfolio company; and the markets in which the portfolio company operates.
If applicable, new and follow-on debt and equity investments made during the most recently completed quarter are generally valued at original cost basis. Fair value measurements of our investments may involve subjective judgments and estimates and
due to the inherent uncertainty of determining these fair values, the fair value of our investments may fluctuate from period to period. Additionally, changes in the market environment and other events that may occur over the life of the investment
may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are



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generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or
liquidation sale, we could realize significantly less than the value at which it is recorded.

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

Interest Income Recognition

Interest income, adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the accrual basis
to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the
loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments
received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid, and, in
managements judgment, are likely to remain current, or due to a restructuring, the interest income is deemed to be collectible. As of December 31, 2014, our loans to Tread Corp. (Tread) were on non-accrual status, with an
aggregate debt cost basis of $10.7 million, or 3.2% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $0. As of March 31, 2014, our loans to Tread were on non-accrual status, with an aggregate debt cost
basis of $11.7 million, or 4.2% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $0.

PIK interest, computed at
the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income over the life of the obligation. As of December 31, 2014, we did not have any loans with a PIK interest
component and as of March 31, 2014, we had one loan with a PIK interest component. During the three and nine months ended December 31, 2014, we recorded PIK income of $20 and $78, respectively. During the three and nine months ended
December 31, 2013, we recorded PIK income of $29 and $68, respectively. We collected $0.2 million PIK interest in cash during the three and nine months ended December 31, 2014 and $0 PIK interest in cash during the three and nine months
ended December 31, 2013.

Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company. We received an
aggregate of $0.5 million and $1.0 million of success fees for the three and nine months ended December 31, 2014, respectively, which resulted from prepaid success fees of $0.5 million from SOG Specialty K&T, LLC (SOG) in
December 2014, $0.2 million from Auto Safety House, LLC in September 2014, $0.2 million from Frontier Packaging, Inc. in September 2014, and $0.1 million from Mathey Investments, Inc. (Mathey) in September 2014. We received an aggregate
of $1.1 million and $3.4 million of success fees during the three and nine months ended December 31, 2013, respectively, which resulted from $0.8 million related to the Channel Technologies Group, LLC debt repayment in October 2013 and
$0.2 million related to the Cavert II Holding Corp. debt repayment in December 2013.

We accrue dividend income on preferred and common equity securities
to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration. During the three and nine months ended December 31, 2014, we recorded $1.4 million and $2.7 million
of dividend income from Mathey, respectively. During the three and nine months ended December 31, 2013, we recorded $1.4 million in dividend income related to the exit of Venyu Solutions, Inc. (Venyu).

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

Recent Accounting Pronouncements

In June 2013, the FASB
issued ASU 2013-08, Financial ServicesInvestment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, which amends the criteria that define an investment company and clarifies the
measurement guidance and requires new disclosures for investment companies. Under ASU 2013-08, an entity already regulated under the 1940 Act is automatically an investment company under the new GAAP definition, so there was no impact from adopting
this standard on our financial position or results of operations. We adopted ASU 2013-08 beginning with our quarter ended June 30, 2014, and have increased our disclosure requirements as necessary.

In August 2014, the FASB issued Accounting Standards Update 2014-15 (ASU 2014-15), Presentation of Financial StatementsGoing Concern
(Subtopic 205-40): Disclosure of Uncertainties About an Entitys Ability to Continue as a Going Concern. ASU 2014-15 requires management to evaluate whether there are conditions or events that raise substantial doubt about the
entitys ability to continue as a going concern, and to provide certain disclosures when it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are
issued. Since this guidance is primarily around certain disclosures to the financial statements, we anticipate no impact on our financial position, results of operations or cash



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flows from adopting this standard. We are currently assessing the additional disclosure requirements, if any, of ASU 2014-15. ASU 2014-15 is effective for the annual period ending after
December 31, 2016 and for annual periods and interim periods thereafter, with early adoption permitted.

In May 2014, the FASB issued ASU 2014-09,
Revenue from Contracts with Customers, which supersedes or replaces nearly all GAAP revenue recognition guidance. The new guidance establishes a new control-based revenue recognition model, changes the basis for deciding when
revenue is recognized over time or at a point in time and will expand disclosures about revenue. We are currently assessing the impact of ASU 2014-09 and anticipate no impact on our financial position, results of operations or cash flows from
adopting this standard. ASU 2014-09 is effective for annual reporting periods beginning after December 15, 2016 and interim periods within those years. Early adoption is not permitted.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, our investments fair value is determined to be the price that would be received for an investment in a current sale, which
assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use
of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.



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



| |  | Level 2inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets and inputs that are observable for the financial instrument, either
directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices
vary substantially over time or among brokered market makers; and
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 3inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would
use when pricing the financial instrument and can include the Valuation Teams own assumptions based upon the best available information.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the
unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or, components that are actively quoted and can be
validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. As of December 31 and
March 31, 2014, all of our investments were valued using Level 3 inputs and during the three and nine months ended December 31, 2014 and 2013, there were no investments transferred in to or out of Level 1, 2 or 3.



17



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##### Table of Contents

The following table presents our portfolio investments carried at fair value as of December 31 and
March 31, 2014, by caption on our accompanying Condensed Consolidated Statements of Assets and Liabilities and by security type and all valued at Level 3 on the ASC 820 fair value hierarchy:



|                                                    |  |                                                                                                             |         |  |                |   |         | 
|--------------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------- | ------- |  | -------------- | - | ------- | 
|                                                    |  | Total Recurring Fair Value MeasurementReported inCondensed Consolidated Statementsof Assets and
Liabilities |        
|                                                    |  | December 31, 2014                                                                                           |         |  | March 31, 2014 |  
|Non-Control/Non-Affiliate Investments               |  |                                                                                                             |         |  |                |   |         | 
|Senior debt                                         |  | $                                                                                                           | 79,814  |  |                | $ | 109,479 | 
|Senior subordinated debt                            |  |                                                                                                             | 38,848  |  |                |   | 52,907  | 
|Preferred equity                                    |  |                                                                                                             | 29,424  |  |                |   | 32,259  | 
|Common equity/equivalents                           |  |                                                                                                             | 17,432  |  |                |   | 10,795  | 
|                                                    |  |                                                                                                             |         |  |                |   |         | 
|Total Non-Control/Non-Affiliate Investments         |  |                                                                                                             | 165,518 |  |                |   | 205,440 | 
|Affiliate Investments                               |  |                                                                                                             |         |  |                |   |         | 
|Senior debt                                         |  |                                                                                                             | 141,926 |  |                |   | 60,391  | 
|Senior subordinated debt                            |  |                                                                                                             | 16,897  |  |                |   | 2,400   | 
|Preferred equity                                    |  |                                                                                                             | 50,484  |  |                |   | 25,058  | 
|                                                    |  |                                                                                                             |         |  |                |   |         | 
|Total Affiliate Investments                         |  |                                                                                                             | 209,307 |  |                |   | 87,849  | 
|Control Investments                                 |  |                                                                                                             |         |  |                |   |         | 
|Senior debt                                         |  |                                                                                                             | 3,700   |  |                |   |        | 
|Senior subordinated debt                            |  |                                                                                                             | 15,520  |  |                |   | 15,520  | 
|Preferred equity                                    |  |                                                                                                             |        |  |                |   | 5,584   | 
|Common equity/equivalents                           |  |                                                                                                             | 100     |  |                |   |        | 
|                                                    |  |                                                                                                             |         |  |                |   |         | 
|Total Control Investments                           |  |                                                                                                             | 19,320  |  |                |   | 21,104  | 
|                                                    |  |                                                                                                             |         |  |                |   |         | 
|Total Investments at fair value usingLevel 3 inputs |  | $                                                                                                           | 394,145 |  |                | $ | 314,393 | 
|                                                    |  |                                                                                                             |         |  |                |   |         | 

In accordance with the FASBs ASU No. 2011-04, Fair Value Measurement (Topic820): Amendments to Achieve
Common Fair Value Measurement and Disclosure Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS), (ASU 2011-04), the following table provides quantitative information about our Level 3 fair
value measurements of our investments as of December 31 and March 31, 2014. The below table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value
measurements. The weighted average calculations in the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations for the particular input.



|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  |                                                |  |                                             |  |                         
|------------------------- |  | -------------------------------------------------------------- | ------- |  | ----------------------------- | - | ------- | ------------------------------ |  | ----------------- |  | ---------------------------------------------- |  | ------------------------------------------- |  | ------------------------
|                          |  | Quantitative Information about Level 3 Fair Value Measurements
|                          |  | Fair Value asof December 31,2014                               |         |  | Fair Value asof March 31,2014 |   |         | ValuationTechnique/Methodology |  | UnobservableInput |  | Range / WeightedAverage as
ofDecember 31, 2014 |  | Range / WeightedAverage as ofMarch 31, 2014
|Senior debt               |  | $                                                              | 176,581 |  |                               | $ | 115,081 |                                |  | TEV               |  | EBITDAmultiples                                |  | 3.6x  7.3x / 5.4x                          |  | 4.6x  7.3x / 5.6x      
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA                                         |  | $327  $5,911 / $3,270                      |  | $1,558  $6,230 / $3,609
|                          |  |                                                                | 48,859  |  |                               |   | 54,789  |                                |  | Yield Analysis    |  | Discount Rate                                  |  | 7.9%  22.2% / 15.5%                        |  | 7.6%  30.0% / 19.2%    
|Senior subordinated debt  |  |                                                                | 47,320  |  |                               |   | 49,470  |                                |  | TEV               |  | EBITDAmultiples                                |  | 4.2x  7.1x / 5.8x                          |  | 4.1x  7.3x / 5.0x      
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA                                         |  | $1,280  $5,424 / $3,221                    |  | $36  $6,156 / $4,159   
|                          |  |                                                                | 23,945  |  |                               |   | 21,357  |                                |  | Yield Analysis    |  | Discount Rate                                  |  | 9.3%  27.2% / 19.7%                        |  | 12.8%  12.8% / 12.8%   
|Preferred equity          |  |                                                                | 79,908  |  |                               |   | 62,901  |                                |  | TEV               |  | EBITDAmultiples                                |  | 3.6x  8.8x / 5.9x                          |  | 3.5x  8.5x / 5.1x      
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA                                         |  | $327  $19,240 / $3,641                     |  | $36  $10,621 / $4,266  
|Common equity/equivalents |  |                                                                | 17,532  |  |                               |   | 10,795  |                                |  | TEV               |  | EBITDAmultiples                                |  | 3.6x  18.0x / 11.5x                        |  | 3.4x  16.0x / 10.5x    
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA                                         |  | $327  $9,291 / $6,040                      |  | $36  $10,621 / $6,008  
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  |                                                |  |                                             |  |                         
|Total                     |  | $                                                              | 394,145 |  |                               | $ | 314,393 |                                |  |                  
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  |                                                |  |                                             |  |                         

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



18



---

##### Table of Contents

The following tables provide the changes in fair value, broken out by security type, during the three and nine
months ended December 31, 2014 and 2013 for all of our investments.

Fair Value Measurements Using Significant Unobservable Inputs
(Level 3)



|                                                |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|----------------------------------------------- |  | ---------- | ------- | - | ---------------------- | - | ------ | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                |  | SeniorDebt |         |   | SeniorSubordinatedDebt |   |        | PreferredEquity |  |   | CommonEquity/Equivalents |   |  | Total |       
|FISCAL YEAR TO DATE 2015:                       |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Three months ended December 31, 2014:           |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of September 30, 2014             |  | $          | 192,698 |   |                        | $ | 71,474 |                 |  | $ | 63,199                   |   |  | $     | 19,530 |   |  | $ | 346,901 |  
|Total (losses) gains:                           |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized loss(A)(D)                         |  |            |        |   |                        |   |       |                 |  |   | (208                     | ) |  |       | (1     | ) |  |   | (209    | )
|Net unrealized (depreciation) appreciation(B)   |  |            | (1,002  | ) |                        |   | (773   | )               |  |   | 4,082                    |   |  |       | (348   | ) |  |   | 1,959   |  
|New investments, repayments and settlements(C): |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                        |  |            | 36,541  |   |                        |   | 2,894  |                 |  |   | 10,627                   |   |  |       |       |   |  |   | 50,062  |  
|Settlements / Repayments                        |  |            | (2,447  | ) |                        |   | (2,330 | )               |  |   |                         |   |  |       |       |   |  |   | (4,777  | )
|Sales(D)                                        |  |            |        |   |                        |   |       |                 |  |   | 208                      |   |  |       | 1      |   |  |   | 209     |  
|Transfers(E)                                    |  |            | (350    | ) |                        |   |       |                 |  |   | 2,000                    |   |  |       | (1,650 | ) |  |   |        |  
|                                                |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2014              |  | $          | 225,440 |   |                        | $ | 71,265 |                 |  | $ | 79,908                   |   |  | $     | 17,532 |   |  | $ | 394,145 |  
|                                                |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Nine months ended December 31, 2014:            |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2014                 |  | $          | 169,870 |   |                        | $ | 70,827 |                 |  | $ | 62,901                   |   |  | $     | 10,795 |   |  | $ | 314,393 |  
|Total (losses) gains:                           |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized loss(A)(D)                         |  |            |        |   |                        |   |       |                 |  |   | (220                     | ) |  |       | (1     | ) |  |   | (221    | )
|Net unrealized appreciation (depreciation)(B)   |  |            | 3,939   |   |                        |   | (2,219 | )               |  |   | (2,281                   | ) |  |       | 6,485  |   |  |   | 5,924   |  
|New investments, repayments and settlements(C): |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                        |  |            | 54,428  |   |                        |   | 5,728  |                 |  |   | 17,349                   |   |  |       | 1,902  |   |  |   | 79,407  |  
|Settlements / Repayments                        |  |            | (2,447  | ) |                        |   | (3,071 | )               |  |   | (61                      | ) |  |       |       |   |  |   | (5,579  | )
|Sales(D)                                        |  |            |        |   |                        |   |       |                 |  |   | 220                      |   |  |       | 1      |   |  |   | 221     |  
|Transfers(E)                                    |  |            | (350    | ) |                        |   |       |                 |  |   | 2,000                    |   |  |       | (1,650 | ) |  |   |        |  
|                                                |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2014              |  | $          | 225,440 |   |                        | $ | 71,265 |                 |  | $ | 79,908                   |   |  | $     | 17,532 |   |  | $ | 394,145 |  
|                                                |  |            |         |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  



19



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##### Table of Contents

|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ---------- | ------- | - | ---------------------- | - | ------- | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|FISCAL YEAR TO DATE 2014:                                                       |  | SeniorDebt |         |   | SeniorSubordinatedDebt |   |         | PreferredEquity |  |   | CommonEquity/Equivalents |   |  | Total |       
|Three months ended December 31, 2013:                                           |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of September 30, 2013                                             |  | $          | 134,868 |   |                        | $ | 74,740  |                 |  | $ | 62,509                   |   |  | $     | 15,095 |   |  | $ | 287,212 |  
|Total (losses) gains:                                                           |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized (loss) gain(A)(D)                                                  |  |            | (2,856  | ) |                        |   | (6,050  | )               |  |   | (4,233                   | ) |  |       | 24     |   |  |   | (13,115 | )
|Net unrealized appreciation (depreciation)(B)                                   |  |            | 973     |   |                        |   | 122     |                 |  |   | (10,060                  | ) |  |       | (6,495 | ) |  |   | (15,460 | )
|Reversal of previously-recorded depreciation upon realization(B)                |  |            | 2,272   |   |                        |   | 5,875   |                 |  |   | 4,979                    |   |  |       | 24     |   |  |   | 13,150  |  
|New investments, repayments and settlements(C):                                 |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                                                        |  |            | 32,131  |   |                        |   | 309     |                 |  |   | 11,689                   |   |  |       | 44     |   |  |   | 44,173  |  
|Settlements / Repayments                                                        |  |            | (17,893 | ) |                        |   | (6,541  | )               |  |   |                         |   |  |       |       |   |  |   | (24,434 | )
|Sales(D)                                                                        |  |            |        |   |                        |   |        |                 |  |   | (747                     | ) |  |       | (52    | ) |  |   | (799    | )
|Transfers(F)                                                                    |  |            |        |   |                        |   |        |                 |  |   | (2,950                   | ) |  |       | 2,950  |   |  |   |        |  
|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2013                                              |  | $          | 149,495 |   |                        | $ | 68,455  |                 |  | $ | 61,187                   |   |  | $     | 11,590 |   |  | $ | 290,727 |  
|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Nine months ended December 31, 2013:                                            |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2013                                                 |  | $          | 103,882 |   |                        | $ | 86,811  |                 |  | $ | 82,157                   |   |  | $     | 13,632 |   |  | $ | 286,482 |  
|Total (losses) gains:                                                           |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized (loss) gain(A)(D)                                                  |  |            | (2,856  | ) |                        |   | (6,050  | )               |  |   | 20,571                   |   |  |       | 24     |   |  |   | 11,689  |  
|Net unrealized depreciation(B)                                                  |  |            | (2,433  | ) |                        |   | (979    | )               |  |   | (16,640                  | ) |  |       | (5,126 | ) |  |   | (25,178 | )
|Reversal of previously-recorded depreciation (appreciation) upon
realization(B) |  |            | 2,274   |   |                        |   | 5,875   |                 |  |   | (12,395                  | ) |  |       | 24     |   |  |   | (4,222  | )
|New investments, repayments and settlements(C):                                 |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                                                        |  |            | 68,821  |   |                        |   | 9,239   |                 |  |   | 21,994                   |   |  |       | 138    |   |  |   | 100,192 |  
|Settlements / Repayments                                                        |  |            | (20,193 | ) |                        |   | (26,441 | )               |  |   |                         |   |  |       |       |   |  |   | (46,634 | )
|Sales(D)                                                                        |  |            |        |   |                        |   |        |                 |  |   | (31,550                  | ) |  |       | (52    | ) |  |   | (31,602 | )
|Transfers(F)                                                                    |  |            |        |   |                        |   |        |                 |  |   | (2,950                   | ) |  |       | 2,950  |   |  |   |        |  
|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2013                                              |  | $          | 149,495 |   |                        | $ | 68,455  |                 |  | $ | 61,187                   |   |  | $     | 11,590 |   |  | $ | 290,727 |  
|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  



|(A) | Included in net realized gain (loss) on investments on our accompanying Condensed Consolidated Statements of Operations for the respective periods ended December 31, 2014 and 2013.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Included in net unrealized appreciation (depreciation) of investments on our accompanying Condensed Consolidated Statements of Operations for the periods ended December 31, 2014 and 2013.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(D) | Included in Net realized gains (losses) and Sales are post-closing adjustments recorded in the current period related to exits from prior periods.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------

|(E) | Transfers represent $2.0 million of senior term debt of B-Dry, LLC (B-Dry) and $1.7 million of common equity of Roanoke Industries Corp. (Roanoke), at cost, as of December 31, 2014,
which was converted into preferred equity and senior term debt during the quarter ended December 31, 2014, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(F) | Transfers represent $3.0 million of preferred equity of Quench Holding Corp. (Quench), at cost, as of December 31, 2013, which was converted into common equity during the quarter ended
December 31, 2013.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Activity

During the nine months ended December 31, 2014, the following significant transactions occurred:



| |  |  | In May 2014, NDLI Acquisition Inc. completed the purchase of certain of Noble Logistics, Inc. assets out of bankruptcy. The resulting entity was listed as a portfolio company, NDLI Inc., on our accompanying Condensed
Consolidated Schedules of Investments beginning in the period ended June 30, 2014.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2014, we made a $1.8 million equity investment in Roanoke, formerly known as Tread Real Estate Corp., which purchased the building owned by another one of our portfolio companies, Tread. This building has
subsequently been leased back to Tread.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In September 2014, we invested $20.2 million in Cambridge Sound Management, LLC. (Cambridge) through a combination of debt and equity. Cambridge, based in Waltham, Massachusetts, is the developer of sound
systems and solutions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2014, we invested $24.4 million in Old World Christmas, Inc. (Old World) through a combination of debt and equity. Old World, headquartered in Spokane, Washington, is a designer and distributor of
an extensive collection of blown glass Christmas ornaments, table top figurines, vintage-style light covers and nostalgic greeting cards into the independent gift channel.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



20



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##### Table of Contents

| |  |  | In December 2014, we invested $19.6 million in B+T Group Acquisition Inc. (B+T) through a combination of debt and equity. B+T, headquartered in Tulsa, Oklahoma, is a full-service provider of structural
engineering, construction, and technical services to the wireless tower industry for tower upgrades and modifications. Gladstone Capital Corporation (Gladstone Capital), an affiliated fund, also participated as a co-investor by providing
$8.4 million of debt and equity financing at the same price and terms as our investment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2014, B-Dry, LLC was restructured, resulting in its $2.0 million of senior term debt being converted into preferred equity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------

Investment Concentrations

As of December 31, 2014,
our investment portfolio consisted of investments in 32 portfolio companies located in 14 states across 16 different industries with an aggregate fair value of $394.1 million, of which our investments in SOG, Old World, and Acme Cryogenics, Inc.,
our three largest portfolio investments at fair value, collectively comprised $72.3 million, or 18.3%, of our total investment portfolio at fair value. The following table summarizes our investments by security type as of December 31 and
March 31, 2014:



|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------- |  | ----------------- | ------- |  | -------------- |  | ----- | ---- |  | - | ---------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                          |  | December 31, 2014 |         |  | March 31, 2014 | 
|                          |  | Cost              |         |  | Fair Value     |  |       | Cost |  |   | Fair Value | 
|Senior debt               |  | $                 | 247,924 |  |                |  | 54.2  | %    |  | $ | 225,440    |  |  |  | 57.2  | % |  | $ | 196,293 |  |  |  | 51.2  | % |  | $ | 169,870 |  |  |  | 54.0  | %
|Senior subordinated debt  |  |                   | 85,004  |  |                |  | 18.6  |      |  |   | 71,265     |  |  |  | 18.1  |   |  |   | 82,348  |  |  |  | 21.5  |   |  |   | 70,827  |  |  |  | 22.5  |  
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total debt                |  |                   | 332,928 |  |                |  | 72.8  |      |  |   | 296,705    |  |  |  | 75.3  |   |  |   | 278,641 |  |  |  | 72.7  |   |  |   | 240,697 |  |  |  | 76.5  |  
|                          |  |                   |         |  |                |  |       |     
|Preferred equity          |  |                   | 117,387 |  |                |  | 25.7  |      |  |   | 79,908     |  |  |  | 20.3  |   |  |   | 98,099  |  |  |  | 25.6  |   |  |   | 62,901  |  |  |  | 20.0  |  
|Common equity/equivalents |  |                   | 7,050   |  |                |  | 1.5   |      |  |   | 17,532     |  |  |  | 4.4   |   |  |   | 6,797   |  |  |  | 1.7   |   |  |   | 10,795  |  |  |  | 3.5   |  
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total equity/equivalents  |  |                   | 124,437 |  |                |  | 27.2  |      |  |   | 97,440     |  |  |  | 24.7  |   |  |   | 104,896 |  |  |  | 27.3  |   |  |   | 73,696  |  |  |  | 23.5  |  
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total Investments         |  | $                 | 457,365 |  |                |  | 100.0 | %    |  | $ | 394,145    |  |  |  | 100.0 | % |  | $ | 383,537 |  |  |  | 100.0 | % |  | $ | 314,393 |  |  |  | 100.0 | %
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  

Investments at fair value consisted of the following industry classifications as of December 31 and March 31, 2014:



|                                                                       |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|---------------------------------------------------------------------- |  | ----------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                                                                       |  | December 31, 2014 |         |  | March 31, 2014                 | 
|                                                                       |  | Fair Value        |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|Home and Office Furnishings, Housewares, and Durable Consumer Products |  | $                 | 68,098  |  |                                |  | 17.3  | %          |  | $ | 21,188                         |  |  |  | 6.7   | %
|Diversified/Conglomerate Manufacturing                                 |  |                   | 53,153  |  |                                |  | 13.5  |            |  |   | 54,845                         |  |  |  | 17.4  |  
|Chemicals, Plastics, and Rubber                                        |  |                   | 49,147  |  |                                |  | 12.5  |            |  |   | 52,753                         |  |  |  | 16.8  |  
|Leisure, Amusement, Motion Pictures, Entertainment                     |  |                   | 38,021  |  |                                |  | 9.6   |            |  |   | 39,867                         |  |  |  | 12.7  |  
|Machinery (Non-agriculture, Non-construction, Non-electronic)          |  |                   | 30,560  |  |                                |  | 7.8   |            |  |   | 25,917                         |  |  |  | 8.2   |  
|Farming and Agriculture                                                |  |                   | 26,367  |  |                                |  | 6.7   |            |  |   | 20,557                         |  |  |  | 6.5   |  
|Automobile                                                             |  |                   | 23,550  |  |                                |  | 6.0   |            |  |   | 25,735                         |  |  |  | 8.2   |  
|Personal and Non-Durable Consumer Products (Manufacturing Only)        |  |                   | 19,011  |  |                                |  | 4.8   |            |  |   | 10,005                         |  |  |  | 3.2   |  
|Telecommunications                                                     |  |                   | 18,897  |  |                                |  | 4.8   |            |  |   |                               |  |  |  |      |  
|Containers, Packaging, and Glass                                       |  |                   | 18,165  |  |                                |  | 4.6   |            |  |   | 17,889                         |  |  |  | 5.7   |  
|Aerospace and Defense                                                  |  |                   | 17,570  |  |                                |  | 4.5   |            |  |   | 18,512                         |  |  |  | 5.9   |  
|Cargo Transport                                                        |  |                   | 12,380  |  |                                |  | 3.1   |            |  |   | 6,500                          |  |  |  | 2.1   |  
|Beverage Food and Tobacco                                              |  |                   | 11,930  |  |                                |  | 3.0   |            |  |   | 13,050                         |  |  |  | 4.2   |  
|Personal, Food and Miscellaneous Services                              |  |                   | 5,546   |  |                                |  | 1.4   |            |  |   | 7,575                          |  |  |  | 2.4   |  
|Buildings and Real Estate                                              |  |                   | 1,750   |  |                                |  | 0.4   |            |  |   |                               |  |  |  |      |  
|Oil and Gas                                                            |  |                   |        |  |                                |  |      |            |  |   |                               |  |  |  |      |  
|                                                                       |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments                                                      |  | $                 | 394,145 |  |                                |  | 100.0 | %          |  | $ | 314,393                        |  |  |  | 100.0 | %
|                                                                       |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

Investments at fair value were included in the following geographic regions of the U.S. as of December 31 and
March 31, 2014:



|                  |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|----------------- |  | ----------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                  |  | December 31, 2014 |         |  | March 31, 2014                 | 
|                  |  | Fair Value        |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|West              |  | $                 | 150,165 |  |                                |  | 38.1  | %          |  | $ | 117,781                        |  |  |  | 37.5  | %
|South             |  |                   | 120,281 |  |                                |  | 30.5  |            |  |   | 89,915                         |  |  |  | 28.6  |  
|Northeast         |  |                   | 85,846  |  |                                |  | 21.8  |            |  |   | 67,862                         |  |  |  | 21.6  |  
|Midwest           |  |                   | 37,853  |  |                                |  | 9.6   |            |  |   | 38,835                         |  |  |  | 12.3  |  
|                  |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments |  | $                 | 394,145 |  |                                |  | 100.0 | %          |  | $ | 314,393                        |  |  |  | 100.0 | %
|                  |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  



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

Investment Principal Repayments

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments,
as of December 31, 2014:



|                                                |  |                                                            |  |        |         | 
|----------------------------------------------- |  | ---------------------------------------------------------- |  | ------ | ------- | 
|                                                |  |                                                            |  | Amount |        
|For the remaining three months ending March 31: |  | 2015                                                       |  | $      | 25,224  | 
|For the fiscal year ending March 31:            |  | 2016                                                       |  |        | 48,529  | 
|                                                |  | 2017                                                       |  |        | 24,915  | 
|                                                |  | 2018                                                       |  |        | 89,159  | 
|                                                |  | 2019                                                       |  |        | 84,181  | 
|                                                |  | Thereafter                                                 |  |        | 60,920  | 
|                                                |  |                                                            |  |        |         | 
|                                                |  | Total contractual repayments                               |  | $      | 332,928 | 
|                                                |  | Investments in equity securities                           |  |        | 124,437 | 
|                                                |  |                                                            |  |        |         | 
|                                                |  | Total cost basis of investments held at December 31, 2014: |  | $      | 457,365 | 
|                                                |  |                                                            |  |        |         | 

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies and are included in other assets on our
accompanying Condensed Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is
determined based upon managements judgment that the portfolio company is unable to pay its obligations. As of December 31 and March 31, 2014, we had gross receivables from portfolio companies of $0.7 million and $0.9 million,
respectively. The allowance for uncollectible receivables was $0.2 million as of December 31 and March 31, 2014, which is reflected in other assets on our accompanying Condensed Consolidated Statements of Assets and Liabilities.

NOTE 4. RELATED PARTY TRANSACTIONS

Investment Advisory and Management Agreement

In
accordance with the Advisory Agreement, we pay the Adviser certain fees as compensation for its services, such fees consisting of a base management fee, loan servicing fee and an incentive fee. The Adviser is controlled by our chairman and chief
executive officer. On July 15, 2014, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of such party, approved the annual renewal of the Advisory Agreement through
August 31, 2015.

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



|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                          |  | Three Months EndedDecember 31, |         |   | Nine Months EndedDecember 31, |  
|                                                          |  | 2014                           |         |   | 2013                          |   |         | 2014 |  |   | 2013    |  
|Average total assets subject to base management fee(A)    |  | $                              | 385,400 |   |                               | $ | 303,000 |      |  | $ | 355,800 |   |  | $ | 308,333 |  
|Multiplied by prorated annual base management fee of 2.0% |  |                                | 0.5     | % |                               |   | 0.5     | %    |  |   | 1.5     | % |  |   | 1.5     | %
|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Base management fee(B)                                    |  |                                | 1,927   |   |                               |   | 1,515   |      |  |   | 5,337   |   |  |   | 4,625   |  
|Other credits to Adviser fees(B)                          |  |                                | (867    | ) |                               |   | (782    | )    |  |   | (1,855  | ) |  |   | (1,627  | )
|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net base management fee                                   |  | $                              | 1,060   |   |                               | $ | 733     |      |  | $ | 3,482   |   |  | $ | 2,998   |  
|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Loan servicing fee(B)                                     |  |                                | 1,295   |   |                               |   | 1,089   |      |  |   | 3,588   |   |  |   | 3,230   |  
|Credit of loan servicing fee(B)                           |  |                                | (1,295  | ) |                               |   | (1,089  | )    |  |   | (3,588  | ) |  |   | (3,230  | )
|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net loan servicing fee                                    |  | $                              |        |   |                               | $ |        |      |  | $ |        |   |  | $ |        |  
|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Incentive fee(B)                                          |  | $                              | 1,460   |   |                               | $ | 1,100   |      |  | $ | 3,726   |   |  | $ | 2,822   |  
|                                                          |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



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

|(B) | Reflected, on a gross basis, as a line item on our accompanying Condensed Consolidated Statement of Operations.
|--- | ---------------------------------------------------------------------------------------------------------------

Base Management Fee

The
base management fee is computed and payable quarterly and is assessed at an annual rate of 2.0%. It is computed on the basis of the value of our average gross assets at the end of the two most recently completed quarters, which are total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings. As a BDC, we make available significant managerial assistance to our portfolio companies through the personnel of



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the Adviser. The Adviser may also provide other services to our portfolio companies under other agreements and may receive fees for services other than managerial assistance. 50.0% of certain of
these fees and 100.0% of others historically have been voluntarily credited against the base management fee that we would otherwise be required to pay to the Adviser. Effective October 1, 2013, 100.0% of all these fees are voluntarily and
irrevocably credited against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, primarily for valuation of
portfolio companies, is retained by the Adviser in the form of reimbursement at cost for certain tasks completed by personnel of the Adviser.

Loan Servicing Fee

In
addition, the Adviser services, administers and collects on the loans held by Business Investment, in return for which our

Adviser
receives a 2.0% annual loan servicing fee payable monthly by Business Investment based on the monthly aggregate balance of loans held by Business Investment in accordance with our revolving line of credit. All loan servicing fees are voluntarily and
irrevocably credited back to us by the Adviser. Overall, the base management fee due to the Adviser (including any loan servicing fees) cannot exceed 2.0% of total assets (as reduced by cash and cash equivalents pledged to creditors) during any
given fiscal year.

Incentive Fee

The incentive fee consists of two parts: an income-based incentive fee and a capital gains-based incentive fee. The income-based incentive fee
rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75% of our net assets (the hurdle rate). We will pay the Adviser an income-based incentive fee with respect to our
pre-incentive fee net investment income in each calendar quarter as follows:



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



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



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

The second part of the incentive fee is a capital gains-based incentive fee that will be determined and payable in arrears as of the end of
each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20.0% of our realized capital gains as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the
Adviser, we will calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate net unrealized capital depreciation as of the date of the calculation, as applicable,
with respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of
such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since our inception.
Aggregate net unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year,
the amount of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate net unrealized
capital depreciation, with respect to our portfolio of investments. If this number is positive at the end of such year, then the capital gains-based incentive fee for such year equals 20.0% of such amount, less the aggregate amount of any capital
gains-based incentive fees paid in respect of our portfolio in all prior years. No capital gains-based incentive fee has been recorded since our inception through December 31, 2014, as cumulative net unrealized capital depreciation has exceeded
cumulative realized capital gains net of cumulative realized capital losses.

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



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future. No GAAP accrual for a capital gains-based incentive fee has been recorded since our
inception through December 31, 2014.

Administration Agreement

The Administration Agreement provides for payments equal to our portion of the Administrators expenses incurred while performing services to us, which
are primarily rent and the salaries, benefits and expenses of the Administrators employees, including, but not limited to, the chief financial officer and treasurer, chief compliance officer, and general counsel and secretary (who also serves
as the Administrators president). Prior to July 1, 2014, our portion of the expenses were generally derived by multiplying that portion of the Administrators expenses allocable to all funds managed by the Adviser by the percentage
of our total assets at the beginning of each quarter in comparison to the total assets at the beginning of each quarter of all funds managed by the Adviser.

Effective July 1, 2014, our portion of the Administrators expenses are generally derived by multiplying the Administrators total expenses by
the approximate percentage of time during the current quarter the Administrators employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator under contractual
agreements. These administrative fees are accrued at the end of the quarter when the services are performed and recorded on our accompanying Consolidated Statements of Operations and generally paid the following quarter to the Administrator.
On July 15, 2014, our Board of Directors approved the annual renewal of the Administration Agreement through August 31, 2015.

Related Party
Fees Due

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



|                                          |  |                    |       |  |                |   |       | 
|----------------------------------------- |  | ------------------ | ----- |  | -------------- | - | ----- | 
|                                          |  | As of December 31, |       |  | As of March 31 |  
|                                          |  | 2014               |       |  | 2014           |  
|Net base management fee due to Adviser    |  | $                  | 102   |  |                | $ | 63    | 
|Net incentive fee due to Adviser          |  |                    | 1,460 |  |                |   | 1,161 | 
|Other due to Adviser                      |  |                    | 26    |  |                |   | 1     | 
|                                          |  |                    |       |  |                |   |       | 
|Total fees due to Adviser, net of credits |  | $                  | 1,588 |  |                | $ | 1,225 | 
|Fee due to Administrator                  |  | $                  | 226   |  |                | $ | 224   | 
|                                          |  |                    |       |  |                |   |       | 
|Total related party fees due              |  | $                  | 1,814 |  |                | $ | 1,449 | 
|                                          |  |                    |       |  |                |   |       | 

In addition, other net co-investment expenses payable to Gladstone Capital (for reimbursement purposes) totaled $0 and
$41 as of December 31 and March 31, 2014, respectively. These expenses were paid in full in the quarter subsequent to being incurred and have been included in other liabilities on the accompanying Condensed Consolidated Statements of
Assets and Liabilitiesas of December 31 and March 31, 2014, respectively.

NOTE 5. BORROWINGS

Revolving Line of Credit

On June 26, 2014, we,
through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 1 to the Fifth Amended and Restated Credit Agreement originally entered into on April 30, 2013, with Key Equipment Finance, a division of KeyBank National
Association (Key Equipment), as administrative agent, lead arranger and a lender, Branch Banking and Trust Company (BB&T) as a lender and managing agent, and the Adviser, as servicer, to extend the revolving period and
reduce the interest rate of our revolving line of credit (our Credit Facility). The revolving period was extended 14 months to June 26, 2017, and if not renewed or extended by June 26, 2017, all principal and interest will be
due and payable on or before June 26, 2019 (two years after the revolving period end date). In addition, we have retained the two one-year extension options, to be agreed upon by all parties, which may be exercised on or before June 26,
2015 and 2016, respectively, and upon exercise, the options would extend the revolving period to June 26, 2018 and 2019 and the maturity date to June 26, 2020 and 2021, respectively. Subject to certain terms and conditions, our Credit
Facility can be expanded by up to $145.0 million, to a total facility amount of $250.0 million, through additional commitments of existing or new committed lenders. Advances under our Credit Facility generally bear interest at 30-day LIBOR, plus
3.25% per annum, down from 3.75% prior to the amendment, and our Credit Facility includes a fee of 0.50% on undrawn amounts. Once the revolving period ends, the interest rate margin increases to 3.75% for the period from June 26, 2017 to
June 26, 2018, and further increases to 4.25% through maturity. We incurred fees of $0.4 million in connection with this amendment, which are being amortized through our Credit Facilitys revolver period end date of June 26, 2017.

On September 19, 2014, we further increased our borrowing capacity under our Credit Facility from $105.0 million to $185.0 million by entering into
Joinder Agreements pursuant to our Credit Facility, by and among Business Investment, Key Equipment, the Adviser and each of East West Bank, Manufacturers and Traders Trust, Customers Bank and Talmer Bank and Trust. We incurred fees of $1.3 million



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in connection with this expansion, which are being amortized through our Credit Facilitys revolver period end date of June 26, 2017.

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



|                               |  |                    |         |  |                 |   |         | 
|------------------------------ |  | ------------------ | ------- |  | --------------- | - | ------- | 
|                               |  | As of December 31, |         |  | As of March 31, |  
|                               |  | 2014               |         |  | 2014            |  
|Commitment amount              |  | $                  | 185,000 |  |                 | $ | 105,000 | 
|Borrowings outstanding at cost |  |                    | 95,800  |  |                 |   | 61,250  | 
|Availability                   |  |                    | 32,926  |  |                 |   | 39,545  | 



|                                        |  |                                        |        |   |                                       |   |        |      |  |   |        |   |  |   |        |  
|--------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ------ | ---- |  | - | ------ | - |  | - | ------ | -
|                                        |  | For the Three Months EndedDecember 31, |        |   | For the Nine Months EndedDecember 31, |  
|                                        |  | 2014                                   |        |   | 2013                                  |   |        | 2014 |  |   | 2013   |  
|Weighted average borrowings outstanding |  | $                                      | 97,614 |   |                                       | $ | 19,460 |      |  | $ | 74,374 |   |  | $ | 31,174 |  
|Effective interest rate(A)              |  |                                        | 3.9    | % |                                       |   | 6.3    | %    |  |   | 4.0    | % |  |   | 5.1    | %
|Commitment (unused) fees incurred       |  | $                                      | 113    |   |                                       | $ | 109    |      |  | $ | 234    |   |  | $ | 243    |  



|(A) | Excludes the impact of deferred financing fees.
|--- | -----------------------------------------------

Interest is payable monthly during the term of our
Credit Facility. Available borrowings are subject to various constraints imposed under our Credit Facility, based on the aggregate loan balance pledged by Business Investment, which varies as loans are added and repaid, regardless of whether such
repayments are prepayments or made as contractually required.

Our Credit Facility also requires that any interest or principal payments on pledged loans
be remitted directly by the borrower into a lockbox account with Key Equipment and with The Bank of New York Mellon Trust Company, N.A as custodian. Key Equipment is also the trustee of the account and generally remits the collected funds to us once
a month.

Among other things, our Credit Facility contains covenants that require Business Investment to maintain its status as a separate legal entity,
prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and collection policies without the lenders consent. Our Credit Facility
generally also limits payments on distributions to the aggregate net investment income for each of the twelve month periods ending March 31, 2015, 2016 and 2017. Business Investment is also subject to certain limitations on the type of loan
investments it can apply toward available credit in the borrowing base, including restrictions on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further
requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of
obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our mandatory redeemable
term preferred stock) of $170 million plus 50.0% of all equity and subordinated debt raised after April 30, 2013, which equates to $170 million as of December 31, 2014, (ii) asset coverage with respect to senior
securities representing indebtedness of at least 200.0%, in accordance with Section 18 of the 1940 Act and (iii) its status as a BDC under the 1940 Act and as a RIC under the Code. As of December 31, 2014, and as defined in the
performance guaranty of our Credit Facility, we had a minimum net worth of $307.7 million, an asset coverage of 220.7% and an active status as a BDC and RIC. Our Credit Facility requires a minimum of 12 obligors in the borrowing base and, as of
December 31, 2014, Business Investment had 26 obligors. As of December 31, 2014, we were in compliance with all covenants.

Pursuant to
the terms of our Credit Facility, in July 2013, we entered into an interest rate cap agreement with KeyBank National Association that effectively limits the interest rate on a portion of our borrowings under our Credit Facility. The agreement, which
expires April 2016, provides that the interest rate on $45.0 million of our borrowings is capped at 6.0%, plus 3.25% per annum, when 30-day LIBOR is in excess of 6.0%. We incurred a premium fee of $75 in conjunction with this agreement, which
is recorded in other assets on our accompanying Condensed Consolidated Statements of Assets and Liabilities.As of December 31 and March 31, 2014, the fair value of our interest rate cap agreement was $0.

Secured Borrowing

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



25



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Fair Value

We elected to apply ASC 825, Financial Instruments, specifically for our Credit Facility, which was consistent with the application of ASC
820 to our investments. Generally, the Valuation Team estimates the fair value of our Credit Facility using a yield analysis, which includes a DCF calculation and also takes into account the Valuation Teams own assumptions, including, but not
limited to, the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. As of December 31 and March 31, 2014, the discount rate used to determine
the fair value of our Credit Facility was 3.9% and 4.2%, respectively. Generally, an increase or decrease in the discount rate used in the DCF calculation, may result in a corresponding increase or decrease, respectively, in the fair value of our
Credit Facility. As of December 31 and March 31, 2014, all of our borrowings were valued using Level 3 inputs and any changes in their fair values are recorded in net unrealized appreciation (depreciation) of other on our accompanying
Condensed Consolidated Statements of Operations.

The following tables present the short-term loan, where applicable, and our Credit Facility
carried at fair value as of December 31 and March 31, 2014, by caption on our accompanying Condensed Consolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and the changes in fair value
during the three and nine months ended December 31, 2014 and 2013:



|                |  |                                                                                                             |        |  |                |   |        | 
|--------------- |  | ----------------------------------------------------------------------------------------------------------- | ------ |  | -------------- | - | ------ | 
|                |  | Level 3  Borrowings                                                                                        |       
|                |  | Total Recurring Fair Value MeasurementReported inCondensed ConsolidatedStatements of Assets and
Liabilities |       
|                |  | December 31, 2014                                                                                           |        |  | March 31, 2014 |  
|Credit Facility |  | $                                                                                                           | 95,800 |  |                | $ | 61,701 | 
|                |  |                                                                                                             |        |  |                |   |        | 

Fair Value Measurements of Borrowings Using Significant

Unobservable Inputs (Level 3)



|                                      |  |                |         |  
|------------------------------------- |  | -------------- | ------- | -
|                                      |  | CreditFacility |        
|Three months ended December 31, 2014: |  |                |         |  
|Fair value at September 30, 2014      |  | $              | 87,750  |  
|Borrowings                            |  |                | 53,750  |  
|Repayments                            |  |                | (45,700 | )
|Net unrealized appreciation(A)        |  |                |        |  
|                                      |  |                |         |  
|Fair value at December 31, 2014       |  | $              | 95,800  |  
|                                      |  |                |         |  
|Nine months ended December 31, 2014:  |  |                |         |  
|Fair value at March 31, 2014          |  | $              | 61,701  |  
|Borrowings                            |  |                | 90,550  |  
|Repayments                            |  |                | (56,000 | )
|Net unrealized depreciation(A)        |  |                | (451    | )
|                                      |  |                |         |  
|Fair value at December 31, 2014       |  | $              | 95,800  |  
|                                      |  |                |         |  

Fair Value Measurements of Borrowings Using Significant

Unobservable Inputs (Level 3)



|                                      |  |                |          |   |                |   |          |       |  |   |          |  
|------------------------------------- |  | -------------- | -------- | - | -------------- | - | -------- | ----- |  | - | -------- | -
|                                      |  | Short-TermLoan |          |   | CreditFacility |   |          | Total | 
|Three months ended December 31, 2013: |  |                |          |   |                |   |          |       |  |   |          |  
|Fair value at September 30, 2013      |  | $              | 22,005   |   |                | $ | 34,341   |       |  | $ | 56,346   |  
|Borrowings                            |  |                | 8,501    |   |                |   | 37,000   |       |  |   | 45,501   |  
|Repayments                            |  |                | (22,005  | ) |                |   | (34,800  | )     |  |   | (56,805  | )
|Net unrealized depreciation(A)        |  |                |         |   |                |   | (341     | )     |  |   | (341     | )
|                                      |  |                |          |   |                |   |          |       |  |   |          |  
|Fair value at December 31, 2013       |  | $              | 8,501    |   |                | $ | 36,200   |       |  | $ | 44,701   |  
|                                      |  |                |          |   |                |   |          |       |  |   |          |  
|Nine months ended December 31, 2013:  |  |                |          |   |                |   |          |       |  |   |          |  
|Fair value at March 31, 2013          |  | $              | 58,016   |   |                | $ | 31,854   |       |  | $ | 89,870   |  
|Borrowings                            |  |                | 56,515   |   |                |   | 108,500  |       |  |   | 165,015  |  
|Repayments                            |  |                | (106,030 | ) |                |   | (103,300 | )     |  |   | (209,330 | )
|Net unrealized depreciation(A)        |  |                |         |   |                |   | (854     | )     |  |   | (854     | )
|                                      |  |                |          |   |                |   |          |       |  |   |          |  
|Fair value at December 31, 2013       |  | $              | 8,501    |   |                | $ | 36,200   |       |  | $ | 44,701   |  
|                                      |  |                |          |   |                |   |          |       |  |   |          |  



|(A) | Included in net unrealized (depreciation) appreciation of other on our accompanying Condensed Consolidated Statement of Operations for the periods ended December 31, 2014 and 2013.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The fair value of the collateral under our Credit Facility was $371.0 million and $288.6 million as of
December 31 and March 31, 2014, respectively.

NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK

In November 2014, we completed a public offering of 1,656,000 shares of 6.75% Series B Cumulative Term Preferred Stock (our Series B Term Preferred
Stock) at a public offering price of $25.00 per share. Gross proceeds totaled $41.4 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $39.7 million. We incurred $1.7 million in total
offering costs related to these transactions, which have been recorded as deferred financing costs on our accompanying Condensed Consolidated Statements of Assets and Liabilities and are being amortized over the period ending
December 31, 2021, the mandatory redemption date.

The shares of Series B Term Preferred Stock are traded under the ticker symbol GAINO on the NASDAQ
Global Select Market (NASDAQ). Our Series B Term Preferred Stock is not convertible into our common stock or any other security. Our Series B Term Preferred Stock provides for a fixed dividend equal to 6.75% per year, payable
monthly. We are required to redeem all shares of our outstanding Series B Term Preferred Stock on December 31, 2021, for cash at a redemption price equal to $25.00 per share, plus an amount equal to accumulated but unpaid dividends, if any, to,
but excluding, the date of redemption. In addition, two other potential mandatory redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all
of our outstanding Series B Term Preferred Stock, (2) if we fail to maintain an asset coverage ratio of at least 200%, we are required to redeem a portion of our outstanding Series B Term Preferred Stock or otherwise cure the ratio redemption
trigger. We may also voluntarily redeem all or a portion of our Series B Term Preferred Stock at our sole option at the redemption price in order to have an asset coverage ratio of up to and including 215.0% and at any time on or after
December 31, 2017.

In March 2012, we completed a public offering of 1,600,000 shares of 7.125% Series A Cumulative Term Preferred Stock (our
Series A Term Preferred Stock) at a public offering price of $25.00 per share. Gross proceeds totaled $40.0 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $38.0 million. We
incurred $2.0 million in total offering costs related to these transactions, which have been recorded as deferred financing costs on our accompanying Condensed Consolidated Statements of Assets and Liabilities and are being amortized over the
period ending February 28, 2017, the mandatory redemption period.

The shares of Series A Term Preferred Stock are traded under the ticker symbol
GAINP on the NASDAQ. Our Series A Term Preferred Stock is not convertible into our common stock or any other security. Our Series A Term Preferred Stock provides for a fixed dividend equal to 7.125% per year, payable monthly. We are required to
redeem all of our outstanding Series A Term Preferred Stock on February 28, 2017, for cash at a redemption price equal to $25.00 per share, plus an amount equal to accumulated but unpaid dividends, if any, to, but excluding, the date of
redemption. In addition, three other potential redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of our outstanding Series A Term
Preferred Stock, (2) if we fail to maintain an asset coverage ratio of at least 200.0%, we are required to redeem a portion of our outstanding Series A Term Preferred Stock or otherwise cure the ratio redemption trigger and (3) at our sole
option, at any time on or after February 28, 2016, we may redeem some or all of our Series A Term Preferred Stock.

For the nine months ended
December 31, 2014 and 2013, our Board of Directors declared and we paid a monthly distribution of $0.1484375 per share, or $0.8906250 per share in aggregate, to holders of our Series A Term Preferred Stock. For the nine months ended
December 31, 2014, our Board of Directors declared and we paid distributions for the pro-rated month of November 2014 (based on the number of days between the issuance date and November 30, 2014) and the full month of December 2014, that
totaled $0.2250 per share to holders of our Series B Term Preferred Stock. The tax character of distributions paid by us to preferred stockholders generally constitute ordinary income to the extent of our current and accumulated earnings and
profits.

In accordance with ASC 480, Distinguishing Liabilities from Equity, mandatorily redeemable financial instruments should be
classified as liabilities on the balance sheet and, therefore, the related dividend payments are treated as dividend expense on our accompanyingCondensed Consolidated Statements of Operations at the ex-dividend date. The fair value of our
Series A Term Preferred Stock, which we consider to be a Level 1 liability within the fair value hierarchy, based on the last reported closing sale price as of December 31 and March 31, 2014, was $41.8 million and $42.4 million,
respectively. The fair value of our Series B Term Preferred Stock, which we consider to be a Level 1 liability within the fair value hierarchy, based on the last reported closing sale price as of December 31, 2014, was $42.0 million.

NOTE 7. REGISTRATION STATEMENT

Registration
Statement



27



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##### Table of Contents

We filed a registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012,
and subsequently filed a Pre-Effective Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective on July 26, 2012. On June 7, 2013, we filed Post-Effective Amendment No. 2 to the
registration statement, which the SEC declared effective on July 26, 2013. On June 3, 2014, we filed Post-Effective Amendment No. 3 to the registration statement, and subsequently filed a Post-Effective Amendment No. 4 to the
registration statement on September 2, 2014, which the SEC declared effective on September 4, 2014. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities,
consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common or preferred stock, including through a combined offering of two or more of such securities. We currently have the ability to issue up
to $225.6 million in securities under the registration statement. We issued approximately $33.0 million of common stock under the registration statement in October and November 2012 and approximately $41.4 million of our Series B Term Preferred
Stock under the registration statement in November 2014. No other securities have been issued to date under the registration statement.

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

The following table sets forth the computation of basic and diluted
net increase (decrease) in net assets resulting from operations per weighted average common share for the three and nine months ended December 31, 2014 and 2013:



|                                                                                                                 |  |                                 |            |  |                                |   |            |      |  |   |            |  |  |   |            |  
|---------------------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- |  | ------------------------------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | -
|                                                                                                                 |  | Three Months Ended December 31, |            |  | Nine Months Ended December 31, |  
|                                                                                                                 |  | 2014                            |            |  | 2013                           |   |            | 2014 |  |   | 2013       | 
|Numerator for basic and diluted net increase (decrease) in net assets resulting from operations per common share |  | $                               | 7,589      |  |                                | $ | (10,686    | )    |  | $ | 21,056     |  |  | $ | (2,266     | )
|Denominator for basic and diluted weighted average common shares                                                 |  |                                 | 26,475,958 |  |                                |   | 26,475,958 |      |  |   | 26,475,958 |  |  |   | 26,475,958 |  
|                                                                                                                 |  |                                 |            |  |                                |   |            |      |  |   |            |  |  |   |            |  
|Basic and diluted net increase (decrease) in net assets resulting from operations per average common share       |  | $                               | 0.29       |  |                                | $ | (0.40      | )    |  | $ | 0.80       |  |  | $ | (0.09      | )
|                                                                                                                 |  |                                 |            |  |                                |   |            |      |  |   |            |  |  |   |            |  

NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS

To qualify to be taxed as a RIC under Subchapter M of the Code, we are required to distribute to our stockholders 90.0% of our investment company taxable
income, which is generally our net ordinary income plus the excess of our net short-term capital gains over net long-term capital losses. The amount to be paid out as a distribution is determined by our Board of Directors each quarter and is
based on managements estimate of our estimated taxable income. Based on that estimate, our Board of Directors declares three monthly distributions each quarter.

We paid the following monthly distributions to common stockholders for the nine months ended December 31, 2014 and 2013:



|                                     |  |                  |      |                    |  |                    |  |                              |      |    
|------------------------------------ |  | ---------------- | ---- | ------------------ |  | ------------------ |  | ---------------------------- | ---- | ---
|Fiscal Year                          |  | Declaration Date |      | Record Date        |  | Payment Date       |  | Distribution perCommon Share |     
|2015                                 |  | April 8, 2014    |      | April 21, 2014     |  | April 30, 2014     |  | $                            | 0.06 |    
|                                     |  | April 8, 2014    |      | May 20, 2014       |  | May 30, 2014       |  |                              | 0.06 |    
|                                     |  | April 8, 2014    |      | June 19, 2014      |  | June 30, 2014      |  |                              | 0.06 |    
|                                     |  | July 15, 2014    |      | July 25, 2014      |  | August 5, 2014     |  |                              | 0.06 |    
|                                     |  | July 15, 2014    |      | August 20, 2014    |  | August 29, 2014    |  |                              | 0.06 |    
|                                     |  | July 15, 2014    |      | September 19, 2014 |  | September 30, 2014 |  |                              | 0.06 |    
|                                     |  | October 7, 2014  |      | October 22, 2014   |  | October 31, 2014   |  |                              | 0.06 |    
|                                     |  | October 7, 2014  |      | November 17, 2014  |  | November 26, 2014  |  |                              | 0.06 |    
|                                     |  | October 7, 2014  |      | December 19, 2014  |  | December 31, 2014  |  |                              | 0.06 |    
|                                     |  | October 7, 2014  |      | December 19, 2014  |  | December 31, 2014  |  |                              | 0.05 | (A)
|                                     |  |                  |      |                    |  |                    |  |                              |      |    
|Nine months ended December 31, 2014: |  | $                | 0.59 |                   
|                                     |  |                  |      |                    |  |                    |  |                              |      |    



|                                     |  |                  |      |                    |  |                    |  |                              |      |    
|------------------------------------ |  | ---------------- | ---- | ------------------ |  | ------------------ |  | ---------------------------- | ---- | ---
|Fiscal Year                          |  | Declaration Date |      | Record Date        |  | Payment Date       |  | Distribution perCommon Share |     
|2014                                 |  | April 9, 2013    |      | April 22, 2013     |  | April 30, 2013     |  | $                            | 0.05 |    
|                                     |  | April 9, 2013    |      | May 14, 2013       |  | May 31, 2013       |  |                              | 0.05 |    
|                                     |  | April 9, 2013    |      | June 19, 2013      |  | June 28, 2013      |  |                              | 0.05 |    
|                                     |  | July 9, 2013     |      | July 17, 2013      |  | July 31, 2013      |  |                              | 0.05 |    
|                                     |  | July 9, 2013     |      | August 19, 2013    |  | August 30, 2013    |  |                              | 0.05 |    
|                                     |  | July 9, 2013     |      | September 16, 2013 |  | September 30, 2013 |  |                              | 0.05 |    
|                                     |  | October 8, 2013  |      | October 22, 2013   |  | October 31, 2013   |  |                              | 0.06 |    
|                                     |  | October 8, 2013  |      | November 14, 2013  |  | November 29, 2013  |  |                              | 0.06 |    
|                                     |  | November 6, 2013 |      | November 18, 2013  |  | November 29, 2013  |  |                              | 0.05 | (A)
|                                     |  | October 8, 2013  |      | December 16, 2013  |  | December 31, 2013  |  |                              | 0.06 |    
|                                     |  |                  |      |                    |  |                    |  |                              |      |    
|Nine months ended December 31, 2013: |  | $                | 0.53 |                   
|                                     |  |                  |      |                    |  |                    |  |                              |      |    



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|(A) | A bonus dividend on our common stock of $0.05 per share was declared by our Board of Directors.
|--- | -----------------------------------------------------------------------------------------------

The federal
income tax characterization of all distributions is reported to our stockholders on the Internal Revenue Service Form 1099 at the end of each calendar year. For the twelve months ended December 31, 2014 and 2013, 100% of our common
distributions were deemed to be paid from ordinary income for Form 1099 purposes.

For our federal income tax reporting purposes, we determine the tax
characterization of our common distributions as of the end of our fiscal year based upon our taxable income for the full fiscal year and distributions paid during the full fiscal year. Therefore, a determination of tax attributes made on a quarterly
basis may not be representative of the actual tax attributes of distributions for a full fiscal year. If we determined the tax attributes of our distributions as of December 31, 2014, 100.0% would be from ordinary income. For the nine months
ended December 31, 2014, we recorded a $0.3 million adjustment for estimated book-tax differences which decreased capital in excess of par value and increased net investment income in excess of distributions. For the fiscal year ended
March 31, 2014, taxable income available for common distributions exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $3.9 million of the first common distributions paid in
fiscal year 2015, as having been paid in the prior fiscal year.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to certain legal
proceedings incidental to the normal course of our business, including the enforcement of our rights under contracts with our portfolio companies. We are required to establish reserves for litigation matters where those matters present loss
contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending
investigations, litigation or regulatory matters will have a material adverse effect on our financial condition, results of operation or cash flows. Additionally, based on current knowledge, we do not believe such loss contingencies are probable and
estimable and therefore, as of December 31, 2014, we have not established reserves for such loss contingencies.

Financial Commitments and
Obligations

As of December 31, 2014, we have lines of credit commitments to certain of our portfolio companies that have not been fully drawn.
Since these lines of credit have expiration dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements.

In addition to the lines of credit to certain portfolio companies, we have also extended certain guarantees on behalf of some of our portfolio companies. For
the nine months ended December 31, 2014, we have not been required to make any payments on the guarantees discussed below, and we consider the credit risk to be remote and the fair values of the guarantees to be minimal.



| |  |  | In February 2010, we executed a guarantee of a wholesale financing facility agreement (the Floor Plan Facility) between Agricredit Acceptance, LLC (Agricredit) and Country Club Enterprises, LLC
(CCE). The Floor Plan Facility provides CCE with financing of up to $2.0 million to bridge the time and cash flow gap between the order and delivery of golf carts to customers. The guarantee was renewed in February 2011, 2012, 2013 and
2014 and expires in February 2015, unless it is renewed again by us, CCE and Agricredit. In connection with this guarantee and its subsequent renewals, we recorded aggregate premiums of $0.4 million from inception to date.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In April 2010, we executed a guarantee of vendor recourse for up to $2.0 million in individual customer transactions (the Recourse Facility) between Wells Fargo Financial Leasing, Inc. and CCE. The Recourse
Facility provides CCE with the ability to provide vendor recourse up to a limit of $2.0 million on transactions with long-time customers who lack the financial history to qualify for third-party financing. The terms to maturity of these individual
transactions range from October 2014 to October 2016. In connection with this guarantee, we received aggregate premiums of $0.1 million from CCE from inception to date.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes the dollar balance of unused line of credit commitments and guarantees as of December 31 and March 31, 2014, which
are not reflected as liabilities in the accompanying Condensed Consolidated Statements of Assets and Liabilities:



|                                  |  |                   |       |  |                |   |        | 
|--------------------------------- |  | ----------------- | ----- |  | -------------- | - | ------ | 
|                                  |  | December 31, 2014 |       |  | March 31, 2014 |  
|Unused line of credit commitments |  | $                 | 6,906 |  |                | $ | 6,684  | 
|Guarantees                        |  |                   | 2,670 |  |                |   | 3,628  | 
|                                  |  |                   |       |  |                |   |        | 
|Total                             |  | $                 | 9,576 |  |                | $ | 10,312 | 
|                                  |  |                   |       |  |                |   |        | 



29



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##### Table of Contents

Escrow Holdbacks

From time to time, we will enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be
used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in restricted cash and cash equivalents on our accompanying Condensed Consolidated Statements of Assets and Liabilities. In August 2013,
the sale of Venyu resulted in $4.9 million in escrow amounts, which were recorded in other liabilities on our accompanying Condensed Consolidated Statements of Assets and Liabilitiesas of March 31, 2014. In September 2014, $1.9 million
of the escrow funds were released. As of December 31, 2014, the remaining escrow amounts related to Venyu totaled $3.0 million, of which $0.5 million was held on behalf of the sellers. We establish a contingent liability against escrow amounts
if we determine that it is probable and estimable that a portion of the escrow amounts will not be ultimately received at the end of the escrow period. The aggregate contingent liability recorded against the Venyu escrow amounts were $0.5 million
and $0.7 million as of December 31 and March 31, 2014, respectively.

NOTE 11. FINANCIAL HIGHLIGHTS



|                                                                       |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|---------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ------------------------------ | - | ---------- | ---- |  | - | ---------- | -- |  | - | ---------- | -
|                                                                       |  | Three Months Ended December 31, |            |   | Nine Months Ended December 31, |  
|                                                                       |  | 2014                            |            |   | 2013                           |   |            | 2014 |  |   | 2013       |   
|Per Common Share Data                                                  |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Net asset value at beginning of period(A)                              |  | $                               | 8.49       |   |                                | $ | 9.12       |      |  | $ | 8.34       |    |  | $ | 9.10       |  
|Net investment income(B)                                               |  |                                 | 0.22       |   |                                |   | 0.17       |      |  |   | 0.56       |    |  |   | 0.55       |  
|Realized (loss) gain on sale of investments and other(B)               |  |                                 | (0.01      | ) |                                |   | (0.50      | )    |  |   | (0.01      | )  |  |   | 0.44       |  
|Net unrealized appreciation (depreciation) of investments and other(B) |  |                                 | 0.08       |   |                                |   | (0.07      | )    |  |   | 0.25       |    |  |   | (1.07      | )
|                                                                       |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Total from investment operations(B)                                    |  |                                 | 0.29       |   |                                |   | (0.40      | )    |  |   | 0.80       |    |  |   | (0.08      | )
|Distributions to common stockholders from net investment income(B)(C)  |  |                                 | (0.23      | ) |                                |   | (0.23      | )    |  |   | (0.59      | )  |  |   | (0.53      | )
|                                                                       |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Net asset value at end of period(A)                                    |  | $                               | 8.55       |   |                                | $ | 8.49       |      |  | $ | 8.55       |    |  | $ | 8.49       |  
|                                                                       |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Market value at beginning of period                                    |  | $                               | 7.11       |   |                                | $ | 7.05       |      |  | $ | 8.27       |    |  | $ | 7.31       |  
|Market value at end of period                                          |  |                                 | 7.00       |   |                                |   | 8.06       |      |  |   | 7.00       |    |  |   | 8.06       |  
|Total return(D)                                                        |  |                                 | 1.64       | % |                                |   | 17.84      | %    |  |   | (8.34      | )% |  |   | 18.48      | %
|Common stock outstanding at end of period                              |  |                                 | 26,475,958 |   |                                |   | 26,475,958 |      |  |   | 26,475,958 |    |  |   | 26,475,958 |  
|                                                                       |  |                                 |            |  
|Statement of Assets and Liabilities Data:                              |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Net assets at end of period                                            |  | $                               | 226,272    |   |                                | $ | 224,665    |      |  | $ | 226,272    |    |  | $ | 224,665    |  
|Average net assets(E)                                                  |  |                                 | 226,578    |   |                                |   | 227,838    |      |  |   | 225,534    |    |  |   | 234,285    |  
|                                                                       |  |                                 |            |  
|Senior Securities Data:                                                |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Total borrowings, at cost                                              |  | $                               | 100,896    |   |                                | $ | 49,701     |      |  | $ | 100,896    |    |  | $ | 49,701     |  
|Mandatorily redeemable preferred stock                                 |  |                                 | 81,400     |   |                                |   | 40,000     |      |  |   | 81,400     |    |  |   | 40,000     |  
|Asset coverage ratio(F)                                                |  |                                 | 220.7      | % |                                |   | 336.0      | %    |  |   | 220.7      | %  |  |   | 336.0      | %
|Average coverage per unit(G)                                           |  | $                               | 2,207      |   |                                | $ | 3,360      |      |  | $ | 2,207      |    |  | $ | 3,360      |  
|                                                                       |  |                                 |            |  
|Ratios/Supplemental Data:                                              |  |                                 |            |   |                                |   |            |      |  |   |            |    |  |   |            |  
|Ratio of expenses to average net assets(H)(I)(K)                       |  |                                 | 13.92      | % |                                |   | 10.82      | %    |  |   | 12.42      | %  |  |   | 10.04      | %
|Ratio of net expenses to average net assets(H)(J)                      |  |                                 | 10.10      |   |                                |   | 7.54       |      |  |   | 9.20       |    |  |   | 7.28       |  
|Ratio of net investment income to average net assets(H)                |  |                                 | 10.31      |   |                                |   | 7.73       |      |  |   | 8.81       |    |  |   | 8.34       |  



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

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

|(C) | Distributions to common stockholders are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(E) | Average net assets are computed using the average balance of net assets at the end of each month of the reporting period.
|--- | -------------------------------------------------------------------------------------------------------------------------

|(F) | As a BDC, we are generally required to maintain an asset coverage ratio (as defined in Section 18(h) of the 1940 Act) of at least 200% on our senior securities representing indebtedness and our senior securities
that are stock. Our mandatorily redeemable preferred stock is a senior security that is stock.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(G) | Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(H) | Amounts are annualized.
|--- | -----------------------

|(I) | Ratio of expenses to average net assets is computed using expenses before credits from the Adviser.
|--- | ---------------------------------------------------------------------------------------------------

|(J) | Ratio of net expenses to average net assets is computed using total expenses net of credits received from the Adviser.
|--- | ----------------------------------------------------------------------------------------------------------------------

|(K) | The ratio of expenses to average net assets for the three and nine months ended December 31, 2013 were revised from the previously reported ratios, which were 8.91% and 8.20%, respectively, to correct an error as
discussed in Note 2Summary of Significant Accounting Policies.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES

In accordance with the SECs Regulation S-X, we have one unconsolidated subsidiary, Galaxy Tool Holdings, Inc., that met at least one of the significance
conditions of the SECs Regulation S-X as of December 31, 2014 and 2013 and for the nine months ended December 31, 2014 and 2013. Additionally, we have one unconsolidated subsidiary, SOG, and one former unconsolidated subsidiary,
Venyu, which met at least one of the significance conditions of the SECs Regulation S-X for the nine months ended December 31, 2013. Accordingly, summarized, comparative financial information, in aggregate, is presented below for our
significant unconsolidated subsidiaries.



|                 |  |                                        |        |   |         |   |        | 
|---------------- |  | -------------------------------------- | ------ | - | ------- | - | ------ | 
|                 |  | For the Nine Months Ended December 31, |       
|Income Statement |  | 2014                                   |        |   | 2013(A) |  
|Net sales        |  | $                                      | 50,608 |   |         | $ | 65,197 | 
|Gross profit     |  |                                        | 13,404 |   |         |   | 23,844 | 
|Net (loss) gain  |  |                                        | (2,839 | ) |         |   | 1,206  | 



|(A) | Reflects only four months of summarized income statement information of Venyu in 2013, as it was exited in August 2013.
|--- | -----------------------------------------------------------------------------------------------------------------------

NOTE 13. SUBSEQUENT EVENTS

Distributions

Our Board of Directors declared the following monthly cash distributions to common and preferred stockholders:



|                       |  |                   |      |                   |  |                              |           |  |                                               |   |           |                                               |  |   |          | 
|---------------------- |  | ----------------- | ---- | ----------------- |  | ---------------------------- | --------- |  | --------------------------------------------- | - | --------- | --------------------------------------------- |  | - | -------- | 
|Declaration Date       |  | Record Date       |      | Payment Date      |  | Distribution perCommon Share |           |  | Distribution per Series ATerm Preferred Share |   |           | Distribution per Series BTerm Preferred Share | 
|January 13, 2015       |  | January 23, 2015  |      | February 3, 2015  |  | $                            | 0.06      |  |                                               | $ | 0.1484375 |                                               |  | $ | 0.140625 | 
|January 13, 2015       |  | February 18, 2015 |      | February 27, 2015 |  |                              | 0.06      |  |                                               |   | 0.1484375 |                                               |  |   | 0.140625 | 
|January 13, 2015       |  | March 20, 2015    |      | March 31, 2015    |  |                              | 0.06      |  |                                               |   | 0.1484375 |                                               |  |   | 0.140625 | 
|                       |  |                   |      |                   |  |                              |           |  |                                               |   |           |                                               |  |   |          | 
|Total for the Quarter: |  | $                 | 0.18 |                   |  | $                            | 0.4453125 |  |                                               | $ | 0.421875  |                                              
|                       |  |                   |      |                   |  |                              |           |  |                                               |   |           |                                               |  |   |          | 



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ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS

All statements contained herein, other than historical facts, may constitute forward-looking statements. These
statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation and its affiliates, the
use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as
estimate, may, might, believe, will, provided, anticipate, future, could, growth, plan, intend,
expect, should, would, if, seek, possible, potential, likely or the negative of such terms or comparable terminology. These forward-looking statements
involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements
expressed or implied by such forward-looking statements. Such factors include, among others: (1) further adverse changes in the economy and the capital markets; (2) risks associated with negotiation and consummation of pending and future
transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or David A.R. Dullum; (4) changes in our investment objectives and strategy; (5) availability, terms and deployment
of capital; (6) changes in our industry, interest rates, exchange rates or the general economy; (7) the degree and nature of our competition; (8) our ability to maintain our qualification as a RIC and as business development company;
and (9) those factors described herein and in Item 1A. Risk Factors herein and in the Risk Factors section of our Annual Report on Form 10-K filed with the Securities and Exchange Commission (SEC) on
May 13, 2014. We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from
historical performance. We have based forward-looking statements on information available to us on the date of this report. Except as required by the federal securities laws, we undertake no obligation to revise or update any forward-looking
statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report on Form 10-Q. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new
information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including annual reports on Form 10-K,
quarterly reports on Form 10-Q and current reports on Form 8-K.

The following analysis of our financial condition and results of operations should
be read in conjunction with our accompanyingCondensed Consolidated Financial Statementsand the notes thereto contained elsewhere in this Quarterly Report on Form 10-Q and in our Annual Report on Form 10-K for the fiscal year
ended March 31, 2014, filed with the SEC on May 13, 2014. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial
condition or results of operations for any future periods.

OVERVIEW

General

We are an externally-managed, closed-end,
non-diversified management investment company that has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In addition, for United States
(U.S.) federal income tax purposes, we have elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). As a BDC and a RIC, we are
also subject to certain constraints, including limitations imposed by the 1940 Act and the Code.

We were incorporated under the General Corporation Law
of the State of Delaware on February 18, 2005. We were established for the purpose of investing in debt and equity securities of established private businesses in the U.S. Debt investments primarily come in the form of three types of loans:
senior term loans, senior subordinated loans and junior subordinated debt. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other
recapitalizations. To a much lesser extent, we also invest in senior and subordinated syndicated loans. Our investment objectives are (a) to achieve and grow current income by investing in debt securities of established businesses that we
believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that we anticipate will grow over time and (b) to provide our
stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we hope will appreciate over time so that we can sell them for capital gains. We expect that our investment
allocation over time will consist of approximately 80.0% in debt securities and 20.0% in equity securities. As of December 31, 2014, our investment allocation was 73.0% in debt securities and 27.0% in equity securities, at cost.



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We focus on investing in small and medium-sized private U.S. businesses that meet certain of the following
criteria which we believe will give us the best potential to sell our equity positions at a later date for capital gains: the potential for growth in cash flow, adequate assets for loan collateral, experienced management teams with a significant
ownership interest in the borrower, profitable operations based on the borrowers cash flow and reasonable capitalization of the borrower (usually by leveraged buyout funds or venture capital funds). We anticipate that liquidity in our equity
position will be achieved through a merger or acquisition of the borrower, a public offering of the borrowers stock or by exercising our right to require the borrower to repurchase our warrants, though there can be no assurance that we will
always have these rights. We lend to borrowers that need funds to finance growth, restructure their balance sheets or effect a change of control. We invest by ourselves or jointly with other funds and/or management of the portfolio company,
depending on the opportunity. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

In July 2012, the SEC granted us an exemptive order that expanded our ability, under certain circumstances, to co-invest with Gladstone Capital Corporation
(Gladstone Capital) and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by Gladstone Management Corporation, our external investment adviser (the Adviser) or
any combination of the foregoing subject to the conditions in the SECs order. We believe this ability to co-invest has enhanced and will continue to enhance our ability to further our investment objectives and strategies. Pursuant to this
exemptive order, we co-invested with Gladstone Capital in one new proprietary investment during the three months ended December 31, 2014, as discussed under Investment Highlights.

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

Our common stock, 7.125% Series
A Cumulative Term Preferred Stock (our Series A Term Preferred Stock), and 6.75% Series B Cumulative Term Preferred Stock (our Series B Term Preferred Stock) are traded on the NASDAQ Global Select Market (NASDAQ)
under the symbols GAIN, GAINP, and GAINO, respectively.

Business Environment

The strength of the global economy and the U.S. economy in particular, continues to be uncertain, although economic conditions generally appear to be
improving, albeit slowly. The impacts from the 2008 recession in general, and the resulting disruptions in the capital markets in particular, have had lingering effects on our liquidity options and have increased our cost of debt and equity capital.
Many of our portfolio companies, as well as those small and medium-sized companies that we evaluate for prospective investment, may remain vulnerable to the impacts of the uncertain economy. Concerns linger over the ability of the U.S. Congress to
pass additional debt ceiling legislation prior to March 2015, given the budget impasse that resulted in the partial shutdown of the U.S. government in October 2013. Uncertain political, regulatory and economic conditions, including the current
volatility of oil and gas demand and prices, could disproportionately impact some of the industries in which we have invested, causing us to be more vulnerable to losses in our portfolio, resulting in an increase in the number of our non-performing
assets and a decrease in the fair market value of our portfolio.

We do not know if general economic conditions will continue to improve or if adverse
conditions will recur and we do not know the full extent to which the inability of the U.S. government to address its fiscal condition in the near and long term will affect us. If market instability persists or intensifies, we may experience
difficulty in successfully raising and investing capital. In summary, we believe we are in a prolonged economic recovery; however, we do not know the full extent to which the impact of the current economic conditions will affect us or our portfolio
companies.

Portfolio Activity

While conditions
remain challenging, we are seeing many new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and sponsor-led buyouts of small and medium-sized companies in the
U.S. During the three months ended December 31, 2014, we invested a total of $43.3 million in two new deals, resulting in a net expansion in our overall portfolio to 32 portfolio companies and an increase quarter over quarter of 13.6% in
our portfolio at fair value. These new investments, along with our capital raising efforts discussed below, have allowed us to invest $375.3 million in 23 new debt and equity deals since October 2010.



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During the three and nine months ended December 31, 2014, our new investments provided a weighted average
current pay interest rate of 12.4% and 12.7%, a going in weighted average leverage of 5.0x and 4.7x, and a current weighted average life of 4.4 and 4.5 years, respectively, all based on the originating principal balances. For the three and nine
months ended December 31, 2014, our new investments consisted of approximately 77.9% and 77.7% senior term loans and 22.1% and 22.3% equity investments, based on the originating principal balances, respectively.

These new investments, as well as the majority of our debt securities in our portfolio, have a success fee component, which enhances the yield on our debt
investments. Unlike paid-in-kind (PIK) income, we generally do not recognize success fees as income until they are received in cash. Due to their contingent nature, there are no guarantees that we will be able to collect any or all of
these success fees or know the timing of such collections. As a result, as of December 31, 2014, we had unrecognized success fees of $23.5 million, or $0.89 per common share. Consistent with accounting principles generally accepted in the U.S.
(GAAP), we have not recognized our success fee receivable on our balance sheet or our income statement.

The improved investing environment
has presented us with an opportunity to realize gains and other income from four management-supported buyout liquidity events since June 2010, and in the aggregate, we have generated $54.5 million in realized gains and $13.1 million in other income,
for a total increase to our net assets of $67.6 million. We believe each of these transactions was an equity-oriented investment success and exemplifies our investment strategy of striving to achieve returns through current income on the debt
portion of our investments and capital gains from the equity portion. These successes, in part, enabled us to increase the monthly distribution 50.0% since March 2011, allowed us to declare and pay a $0.03 per common share one-time special
distribution in fiscal year 2012, a $0.05 per common share one-time special distribution in November 2013, and a $0.05 per common share one-time special distribution in December 2014.

With the four liquidity events that resulted in realized gains since June 2010, we have nearly overcome our cumulative realized losses since inception that
were primarily incurred during the recession and in connection with the sale of performing loans at a realized loss to pay off a former lender. We took the opportunity during the fiscal year ended March 31, 2014, to strategically sell our
investments in two of our portfolio companies, ASH Holding Corp. (ASH) and Packerland Whey Products, Inc. (Packerland) to existing members of their management teams and other existing owners, respectively, which resulted in
realized losses of $11.4 million and $1.8 million, respectively, as well as the write off our equity investments in Noble Logistics, Inc. (Noble), which resulted in a realized loss of $3.4 million. These sales and write off, while at a
realized loss, were accretive to our net asset value in aggregate by $5.7 million, reduced our distribution requirements related to our realized gains and reduced the amount of our debt investments on non-accrual status.

Capital Raising Efforts

Despite the challenges that have
existed in the economy for the past several years, we have been able to meet our capital needs through extensions and increases to our revolving line of credit (our Credit Facility) and by accessing the capital markets in the form of
public offerings of stock. We have successfully extended our Credit Facilitys revolving period multiple times, most recently to June 2017 and increased the commitment from $60.0 million to $185.0 million, and in November 2014, we issued
approximately 1.7 million shares of our Series B Term Preferred Stock for gross proceeds of $41.4 million. Refer to Liquidity and Capital ResourcesEquityTerm Preferred Stock) for further discussion of our term
preferred stock and Liquidity and Capital ResourcesRevolving Credit Facility) for further discussion of our Credit Facility.

Although we were able to access the capital markets during 2014, we believe market conditions continue to affect the trading price of our common stock and
thus our ability to finance new investments through the issuance of equity. On February 3, 2015, the closing market price of our common stock was $7.37, which represented a 13.8% discount to our December 31, 2014 net asset value
(NAV) per share of $8.55. When our stock trades below NAV, our ability to issue equity is constrained by provisions of the 1940 Act, which generally prohibit the issuance and sale of our common stock at an issuance price below the then
current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering.

At our 2014
Annual Meeting of Stockholders held on August 7, 2014, our stockholders approved a proposal authorizing us to issue and sell shares of our common stock at a price below our then current NAV per share, subject to certain limitations, including
that the number of shares issued and sold pursuant to such authority does not exceed 25.0% of our then outstanding common stock immediately prior to each such sale, provided that our board of directors (our Board of Directors) makes
certain determinations prior to any such sale. This August 2014 stockholder authorization is in effect for one year from the date of stockholder approval. We sought and obtained stockholder approval concerning a similar proposal at the Annual
Meeting of Stockholders held in August 2012, and with our Board of Directors subsequent approval, we issued shares of our common stock in October and November 2012 at a price per share below the then current NAV per share. The resulting
proceeds, in part, have allowed us to grow the portfolio by making new investments, generate additional income through these new investments, provide us additional equity capital to help



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ensure continued compliance with regulatory tests and increase our debt capital while still complying with our applicable debt-to-equity ratios. Refer to Liquidity and Capital
ResourcesEquityCommon Stock) for further discussion of our common stock

Regulatory Compliance

Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage
limitations of the 1940 Act, which require us to have an asset coverage ratio (as defined in Section 18(h) of the 1940 Act), of at least 200.0% on our senior securities representing indebtedness and our senior securities that are stock,
which we refer to collectively as Senior Securities. As of December 31, 2014, our asset coverage ratio was 220.7%. Our status as a RIC under Subchapter M of the Code, in addition to other requirements, also requires us, at the close
of each quarter of the taxable year, to meet an asset diversification test, which requires that at least 50.0% of the value of our assets consists of cash, cash items, U.S. government securities or certain other qualified securities (the 50.0%
threshold). In the past, we have obtained this ratio by entering into a short-term loan at quarter end to purchase qualifying assets; however, a short term loan was not necessary in or for the nine months ended December 31, 2014. Until
the composition of our assets is above the required 50.0% threshold on a consistent basis by a significant margin, we may have to continue to obtain short-term loans on a quarterly basis. When deployed, this strategy, while allowing us to satisfy
the 50.0% threshold for our RIC status, limits our ability to use increased debt capital to make new investments, due to our asset coverage ratio limitations under the 1940 Act.

Investment Highlights

During the nine months ended
December 31, 2014, we disbursed $67.2 million in new debt and equity investments and extended $12.1 million of investments to existing portfolio companies through revolver draws or additions to term notes. From our initial public offering in
June 2005 through December 31, 2014, we have made 228 investments in 111 companies for a total of approximately $1.0 billion, before giving effect to principal repayments on investments and divestitures.

Investment Activity

During the nine months ended
December 31, 2014, the following significant transactions occurred:



| |  |  | In May 2014, NDLI Acquisition Inc. completed the purchase of certain of Nobles assets out of bankruptcy. The resulting entity was listed as a portfolio company under NDLI Inc. on our accompanying Condensed
Consolidated Schedules of Investments beginning in the period ended June 30, 2014.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2014, we made a $1.8 million equity investment in Roanoke Industries Corp. (Roanoke), formerly known as Tread Real Estate Corp., which purchased the building owned by another one of our portfolio
companies, Tread Corp. (Tread). This building has subsequently been leased back to Tread. The resulting entity was listed as a portfolio company under Roanoke Industries Corp. on our accompanying Condensed Consolidated Schedules of
Investments beginning in the period ended December 31, 2014.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In September 2014, we invested $20.2 million in Cambridge Sound Management, Inc. (Cambridge) through a combination of debt and equity. Cambridge, based in Waltham, Massachusetts, is the developer of sound
systems and solutions.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2014, we invested $24.4 million in Old World Christmas, Inc. (Old World) through a combination of debt and equity. Old World, headquartered in Spokane, Washington, is a designer and distributor of
an extensive collection of blown glass Christmas ornaments, table top figurines, vintage-style light covers and nostalgic greeting cards into the independent gift channel.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2014, we invested $19.6 million in B+T Group Acquisition Inc. (B+T) through a combination of debt and equity. B+T, headquartered in Tulsa, Oklahoma, is a full-service provider of structural
engineering, construction, and technical services to the wireless tower industry for tower upgrades and modifications. Gladstone Capital also participated as a co-investor by providing $8.4 million of debt and equity financing at the same price and
terms as our investment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2014, B-Dry, LLC (B-Dry) was restructured, resulting in $2.0 million of senior term debt being converted into preferred equity.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------



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Recent Developments

Executive Officers

On January 9, 2015, David Watson
resigned as the Companys chief financial officer and treasurer. On January, 13, 2015, our Board of Directors accepted Mr. Watsons resignation and appointed Melissa Morrison, Gladstone Capitals chief financial officer and
treasurer, as the Companys chief financial officer and treasurer.

Term Preferred Stock Offering

In November 2014, we completed a public offering of 1,656,000 shares of our Series B Term Preferred Stock at a public offering price of $25.00 per share. Gross
proceeds totaled $41.4 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $39.7 million. We incurred $1.7 million in total offering costs related to these transactions, which have been recorded
as deferred financing costs on our accompanying Condensed Consolidated Statements of Assets and Liabilities and is being amortized over the period ending December 31, 2021, the mandatory redemption date. Refer to Liquidity and
Capital ResourcesEquityTerm Preferred Stock for further discussion of our term preferred stock.

Credit Facility Extension and
Expansion

On June 26, 2014, we, through our wholly-owned subsidiary, Gladstone Business Investment (Business Investment), entered
into Amendment No. 1 to the Fifth Amended and Restated Credit Agreement (our Credit Facility) originally entered into on April 30, 2013, with Key Equipment Finance, a division of KeyBank National Association (Key
Equipment) as administrative agent, lead arranger and a lender; Branch Banking and Trust Company (BB&T) as a lender and managing agent; and the Adviser, as servicer, to extend the revolving period and reduce the interest rate
of our revolving line of credit. The revolving period was extended 14 months to June 26, 2017. We incurred fees of $0.4 million in connection with this amendment, which are being amortized through our Credit Facilitys revolver period end
date of June 26, 2017.

On September 19, 2014, we further increased our borrowing capacity under our Credit Facility from $105.0 million to
$185.0 million (with a total commitment up to $250.0 million through additional commitments of existing or new committed lenders) by entering into Joinder Agreements pursuant to our Credit Facility, by and among Business Investment, Key Equipment,
the Adviser and each of East West Bank, Manufacturers and Traders Trust, Customers Bank and Talmer Bank and Trust. We incurred fees of $1.3 million in connection with this expansion, which are being amortized through our Credit Facilitys
revolver period end date of June 26, 2017. Refer to Liquidity and Capital ResourcesRevolving Credit Facility for further discussion of our Credit Facility.

Registration Statement

On June 3, 2014, we filed
Post-Effective Amendment No. 3 to the registration statement on Form N-2 (File No. 333-181879), and subsequently filed a Post-Effective Amendment No. 4 to the registration statement on September 2, 2014, which the SEC declared
effective on September 4, 2014. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt
securities and warrants to purchase common or preferred stock, including through a combined offering of two or more of such securities. We currently have the ability to issue up to $225.6 million in securities under the registration statement.



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RESULTS OF OPERATIONS

Comparison of the Three Months Ended December 31, 2014, to the Three Months Ended December 31, 2013



|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|--------------------------------------------------------------- |  | --------------------------------------- | ------ | - | ---- | - | ------- | -------- |  | - | -------- | - |  |  | ------ | -
|                                                                |  | For the Three Months Ended December 31, |       
|                                                                |  | 2014                                    |        |   | 2013 |   |         | $ Change |  |   | % Change |  
|INVESTMENT INCOME                                               |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Interest income                                                 |  | $                                       | 9,732  |   |      | $ | 7,593   |          |  | $ | 2,139    |   |  |  | 28.2   | %
|Other income                                                    |  |                                         | 1,830  |   |      |   | 1,103   |          |  |   | 727      |   |  |  | 65.9   |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Total investment income                                         |  |                                         | 11,562 |   |      |   | 8,696   |          |  |   | 2,866    |   |  |  | 33.0   |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|EXPENSES                                                        |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Base management fee                                             |  |                                         | 1,927  |   |      |   | 1,515   |          |  |   | 412      |   |  |  | 27.2   |  
|Incentive fee                                                   |  |                                         | 1,460  |   |      |   | 1,100   |          |  |   | 360      |   |  |  | 32.7   |  
|Administration fee                                              |  |                                         | 226    |   |      |   | 239     |          |  |   | (13      | ) |  |  | (5.4   | )
|Interest and dividend expense                                   |  |                                         | 2,127  |   |      |   | 1,108   |          |  |   | 1,019    |   |  |  | 92.0   |  
|Amortization of deferred financing costs                        |  |                                         | 404    |   |      |   | 262     |          |  |   | 142      |   |  |  | 54.2   |  
|Other                                                           |  |                                         | 446    |   |      |   | 852     |          |  |   | (406     | ) |  |  | (47.7  | )
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Expenses before credits from Adviser                            |  |                                         | 6,590  |   |      |   | 5,076   |          |  |   | 1,514    |   |  |  | 29.8   |  
|Credits to Adviser fees                                         |  |                                         | (867   | ) |      |   | (782    | )        |  |   | 85       |   |  |  | 10.9   |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Total expenses net of credits to fees                           |  |                                         | 5,723  |   |      |   | 4,294   |          |  |   | 1,429    |   |  |  | 33.3   |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|NET INVESTMENT INCOME                                           |  |                                         | 5,839  |   |      |   | 4,402   |          |  |   | 1,437    |   |  |  | 32.6   |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|REALIZED AND UNREALIZED GAIN (LOSS)                             |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Net realized loss on investments                                |  |                                         | (209   | ) |      |   | (13,115 | )        |  |   | 12,906   |   |  |  | 98.4   |  
|Net realized loss on other                                      |  |                                         |       |   |      |   | (29     | )        |  |   | 29       |   |  |  | 100.0  |  
|Net unrealized appreciation (depreciation) of investments       |  |                                         | 1,959  |   |      |   | (2,310  | )        |  |   | 4,269    |   |  |  | NM     |  
|Net unrealized depreciation of other                            |  |                                         |       |   |      |   | 366     |          |  |   | (366     | ) |  |  | (100.0 | )
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Net realized and unrealized gain (loss)                         |  |                                         | 1,750  |   |      |   | (15,088 | )        |  |   | 16,838   |   |  |  | NM     |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |  | $                                       | 7,589  |   |      | $ | (10,686 | )        |  | $ | 18,275   |   |  |  | NM     |  
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|BASIC AND DILUTED PER COMMON SHARE:                             |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Net investment income                                           |  | $                                       | 0.22   |   |      | $ | 0.17    |          |  | $ | 0.05     |   |  |  | 29.4   | %
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  
|Net increase (decrease) in net assets resulting from operations |  | $                                       | 0.29   |   |      | $ | (0.40   | )        |  | $ | 0.69     |   |  |  | 172.5  | %
|                                                                |  |                                         |        |   |      |   |         |          |  |   |          |   |  |  |        |  

NM = Not Meaningful

Investment Income

Total investment income increased by
33.0% for the three months ended December 31, 2014, as compared to the prior year period. This increase was due to an increase in both other income and also interest income, which resulted from an increase in the size of our portfolio during
the three months ended December 31, 2014.

Interest income from our investments in debt securities increased 28.2% for the three months ended
December 31, 2014, as compared to the prior year period. The level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding
during the period multiplied by the weighted average yield. The weighted average principal balance of our interest-bearing investment portfolio during the three months ended December 31, 2014, was approximately $307.7 million, compared to
approximately $237.5 million for the prior year period. This increase was primarily due to approximately $95.9 million in new investments originated after December 31, 2013, including Head Country Inc. (Head Country), Edge
Adhesives Holdings, Inc. (Edge), Roanoke, Cambridge, Old World, and B+T.

At December 31, 2014, loans of one portfolio company, Tread,
were on non-accrual status, with an aggregate weighted average principal balance of $11.0 million during the three months ended December 31, 2014. Our loans to Tread on non-accrual status had an aggregate weighted average principal balance of
$14.1 million during the three months ended December 31, 2013. The weighted average yield on our interest-bearing investments was 12.5% and 12.7% for the three months ended December 31, 2014 and 2013, excluding cash and cash equivalents
and receipts recorded as other income, respectively. The weighted average yield varies from period to period, based on the current stated interest rate on interest-bearing investments.



37



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##### Table of Contents

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



|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | ------------------------------------ |  | ----- | ---------------- |  | - | --------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2014 |         |  | Three months ended December 31, 2014 | 
|Portfolio Company                   |  | Fair Value              |         |  | % of Portfolio                       |  |       | InvestmentIncome |  |   | % of TotalInvestment Income | 
|SOG Specialty Knives and Tools, LLC |  | $                       | 24,940  |  |                                      |  | 6.4   | %                |  | $ | 1,170                       |  |  |  | 10.1  | %
|Old World Christmas, Inc.(A)        |  |                         | 24,380  |  |                                      |  | 6.2   |                  |  |   | 513                         |  |  |  | 4.4   |  
|Acme Cryogenics, Inc.               |  |                         | 22,942  |  |                                      |  | 5.8   |                  |  |   | 426                         |  |  |  | 3.7   |  
|Cambridge Sound Management, LLC (B) |  |                         | 22,556  |  |                                      |  | 5.7   |                  |  |   | 511                         |  |  |  | 4.5   |  
|Funko, LLC                          |  |                         | 19,011  |  |                                      |  | 4.8   |                  |  |   | 249                         |  |  |  | 2.2   |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 113,829 |  |                                      |  | 28.9  |                  |  |   | 2,869                       |  |  |  | 24.9  |  
|Other portfolio companies           |  |                         | 280,316 |  |                                      |  | 71.1  |                  |  |   | 8,693                       |  |  |  | 75.1  |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  
|Total investment portfolio          |  | $                       | 394,145 |  |                                      |  | 100.0 | %                |  | $ | 11,562                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  



|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | ------------------------------------ |  | ----- | ---------------- |  | - | --------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2013 |         |  | Three months ended December 31, 2013 | 
|Portfolio Company                   |  | Fair Value              |         |  | % of Portfolio                       |  |       | InvestmentIncome |  |   | % of TotalInvestment Income | 
|Acme Cryogenics, Inc.               |  | $                       | 27,719  |  |                                      |  | 9.5   | %                |  | $ | 426                         |  |  |  | 4.9   | %
|SOG Specialty Knives and Tools, LLC |  |                         | 27,271  |  |                                      |  | 9.4   |                  |  |   | 670                         |  |  |  | 7.7   |  
|Galaxy Tool Holding Corp.           |  |                         | 19,743  |  |                                      |  | 6.8   |                  |  |   | 535                         |  |  |  | 6.2   |  
|Alloy Die Casting Corp.(A)          |  |                         | 16,320  |  |                                      |  | 5.6   |                  |  |   | 421                         |  |  |  | 4.8   |  
|Schylling Investments, LLC          |  |                         | 16,160  |  |                                      |  | 5.6   |                  |  |   | 532                         |  |  |  | 6.1   |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 107,213 |  |                                      |  | 36.9  |                  |  |   | 2,584                       |  |  |  | 29.7  |  
|Other portfolio companies           |  |                         | 183,514 |  |                                      |  | 63.1  |                  |  |   | 6,112                       |  |  |  | 70.3  |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  
|Total investment portfolio          |  | $                       | 290,727 |  |                                      |  | 100.0 | %                |  | $ | 8,696                       |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                             |  |  |  |       |  



|(A) | New investment during the applicable period.
|--- | --------------------------------------------

|(B) | Investment added in September 2014.
|--- | -----------------------------------

Other income increased 65.9% from the prior year period. During
the three months ended December 31, 2014, other income primarily consisted of $1.3 million of dividends received from Mathey Investments, Inc. (Mathey) and $0.5 million resulting from prepayments of success fees received from SOG
Specialty Knives and Tools, LLC (SOG), respectively. During the three months ended December 31, 2013, other income primarily consisted of $0.2 million and $0.8 million in success fee income resulting from debt investment repayments
received from Cavert II Holding Corp. (Cavert) and Channel Technologies Group, LLC (Channel), respectively.

Expenses

Total expenses, excluding any voluntary, irrevocable and non-contractual credits from the Adviser to the base management and incentive fees, increased 29.8%
for the three months ended December 31, 2014, as compared to the prior year period, primarily due to an increase in the base management fee, interest and dividend expense, and incentive fee as compared to the prior year period. This was
partially offset by a decrease in other expenses for the three months ended December 31, 2014, as compared to the prior year period.

The base
management fee increased for the three months ended December 31, 2014, as compared to the prior year period, as a result of the increased size of our portfolio over the respective periods. An incentive fee of $1.5 million was earned by the
Adviser during the three months ended December 31, 2014, compared to an incentive fee of $1.1 million for the prior year period. The base management fees, incentive fees, and their related unconditional and irrevocable voluntary credits are
computed quarterly, as described under Investment Advisory and Management Agreement in Note 4 of the notes to our accompanying Condensed Consolidated Financial Statements and are summarized in the following table:



|                                                          |  |                                |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                          |  | Three Months EndedDecember 31, |        
|                                                          |  | 2014                           |         |   | 2013 |  
|Average gross assets subject to base management fee(A)    |  | $                              | 385,400 |   |      | $ | 303,000 |  
|Multiplied by prorated annual base management fee of 2.0% |  |                                | 0.5     | % |      |   | 0.5     | %
|                                                          |  |                                |         |   |      |   |         |  
|Base management fee(B)                                    |  |                                | 1,927   |   |      |   | 1,515   |  
|Other credits to Adviser fees(B)                          |  |                                | (867    | ) |      |   | (782    | )
|                                                          |  |                                |         |   |      |   |         |  
|Net base management fee                                   |  | $                              | 1,060   |   |      | $ | 733     |  
|                                                          |  |                                |         |   |      |   |         |  
|Incentive fee(B)                                          |  | $                              | 1,460   |   |      | $ | 1,100   |  
|                                                          |  |                                |         |   |      |   |         |  



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

|(B) | Reflected, on a gross basis, as a line item on our accompanying Condensed Consolidated Statement of Operations.
|--- | ---------------------------------------------------------------------------------------------------------------

Interest and dividend expense increased 92.0% for the three months ended December 31, 2014, as compared to the prior year period, primarily due to
increased average borrowings under our Credit Facility. The weighted average balance outstanding on our Credit Facility during the three months ended December 31, 2014, was $97.6 million, as compared to $19.5 million in the prior year period.
The increase in average borrowings under our Credit Facility was partially offset by the decrease in interest rate due to an amendment of our Credit Facility that occurred in June 2014. The dividend expense also increased with the offering of
our Series B Term Preferred Stock in November 2014. We paid distributions on the Series B Term Preferred Stock for the pro-rated month of November 2014 and the full month of December 2014, which distribution represented a $0.4 million increase from
the prior year period, when the Series B Term Preferred Stock was not yet outstanding.

Other expenses decreased 47.7% for the three months ended
December 31, 2014, as compared to the prior year period, primarily due to a decrease in the excise tax expense of $0.1 million and also a decrease in legal expenses, as compared to the prior year period.

Realized and Unrealized (Loss) Gain on Investments

Realized Loss

During the three months ended
December 31, 2014, we recorded a realized loss on investments of $0.2 million relating to post-closing adjustments on previous investment exits. During the three months ended December 31, 2013, we recorded a net realized loss of $13.1
million related to the ASH and Packerland exits.

Unrealized Appreciation (Depreciation)

During the three months ended December 31, 2014, we recorded net unrealized appreciation of investments in the aggregate amount of $2.0 million.

The realized loss and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2014, were as follows:



|                                |  |                                      |      |   |                                      |   |        |                |  |   |        |  
|------------------------------- |  | ------------------------------------ | ---- | - | ------------------------------------ | - | ------ | -------------- |  | - | ------ | -
|                                |  | Three months ended December 31, 2014 |     
|Portfolio Company               |  | RealizedLoss                         |      |   | UnrealizedAppreciation(Depreciation) |   |        | Net Gain(Loss) | 
|Funko, LLC                      |  | $                                    |     |   |                                      | $ | 3,648  |                |  | $ | 3,648  |  
|Cambridge Sound Management, LLC |  |                                      |     |   |                                      |   | 3,056  |                |  |   | 3,056  |  
|Drew Foam Company, Inc.         |  |                                      |     |   |                                      |   | 1,475  |                |  |   | 1,475  |  
|Ginsey Home Solutions, Inc.     |  |                                      |     |   |                                      |   | 1,450  |                |  |   | 1,450  |  
|Tread Corp.                     |  |                                      |     |   |                                      |   | 1,290  |                |  |   | 1,290  |  
|Head Country Inc.               |  |                                      |     |   |                                      |   | 1,123  |                |  |   | 1,123  |  
|Alloy Die Casting Corp.         |  |                                      |     |   |                                      |   | 973    |                |  |   | 973    |  
|SOG Specialty K&T, LLC          |  |                                      |     |   |                                      |   | 951    |                |  |   | 951    |  
|Mathey Investments, Inc.        |  |                                      |     |   |                                      |   | 440    |                |  |   | 440    |  
|Danco Acquisition Corp.         |  |                                      |     |   |                                      |   | 203    |                |  |   | 203    |  
|Frontier Packaging, Inc.        |  |                                      |     |   |                                      |   | (231   | )              |  |   | (231   | )
|Edge Adhesives Holdings, Inc.   |  |                                      |     |   |                                      |   | (451   | )              |  |   | (451   | )
|Jackrabbit, Inc.                |  |                                      |     |   |                                      |   | (460   | )              |  |   | (460   | )
|Meridian Rack & Pinion, Inc.    |  |                                      |     |   |                                      |   | (678   | )              |  |   | (678   | )
|NDLI Inc.                       |  |                                      |     |   |                                      |   | (709   | )              |  |   | (709   | )
|Country Club Enterprises, LLC   |  |                                      |     |   |                                      |   | (784   | )              |  |   | (784   | )
|Channel Technologies Group, LLC |  |                                      |     |   |                                      |   | (831   | )              |  |   | (831   | )
|Mitchell Rubber Products, Inc.  |  |                                      |     |   |                                      |   | (1,883 | )              |  |   | (1,883 | )
|B-Dry, LLC                      |  |                                      |     |   |                                      |   | (2,517 | )              |  |   | (2,517 | )
|Acme Cryogenics, Inc.           |  |                                      |     |   |                                      |   | (4,197 | )              |  |   | (4,197 | )
|Other, net (<$250 Net)          |  |                                      | (209 | ) |                                      |   | 91     |                |  |   | (118   | )
|                                |  |                                      |      |   |                                      |   |        |                |  |   |        |  
|Total                           |  | $                                    | (209 | ) |                                      | $ | 1,959  |                |  | $ | 1,750  |  
|                                |  |                                      |      |   |                                      |   |        |                |  |   |        |  



39



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##### Table of Contents

The primary reason for the change in our net unrealized appreciation of $2.0 million for the three months ended
December 31, 2014, was an increase in the equity valuation of two of our portfolio companies, Funko, LLC (Funko) and Cambridge, due to an increase in company performance and, to a lesser extent, an increase in certain comparable
multiples used to estimate the fair value of our investments. This was partially offset by decreased performance in several of our portfolio companies.

During the three months ended December 31, 2013, we recorded net unrealized depreciation of investments in the aggregate amount of $2.3 million, which
included the reversal of $13.2 million in aggregate unrealized depreciation, primarily related to the sales of ASH and Packerland. Excluding reversals, we had $15.5 million in net unrealized depreciation of investments for the three months ended
December 31, 2013.

The realized losses and gains and unrealized appreciation (depreciation) across our investments for the three months ended
December 31, 2013, were as follows:



|                                  |  |                                      |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  
|--------------------------------- |  | ------------------------------------ | ------- | - | ------------------------------------ | - | ------- | ----------------------------------------------- |  | - | -------------- | - |  | - | ------- | -
|                                  |  | Three months ended December 31, 2013 |        
|Portfolio Company                 |  | Realized(Loss) Gain                  |         |   | UnrealizedAppreciation(Depreciation) |   |         | Reversal ofUnrealizedDepreciation(Appreciation) |  |   | Net Gain(Loss) |  
|Auto Safety House, LLC(A)         |  | $                                    | (11,402 | ) |                                      | $ | 4,938   |                                                 |  | $ | 11,410         |   |  | $ | 4,946   |  
|SOG Specialty K&T, LLC            |  |                                      |        |   |                                      |   | 3,140   |                                                 |  |   |               |   |  |   | 3,140   |  
|Quench Holdings Corp.             |  |                                      |        |   |                                      |   | 2,864   |                                                 |  |   |               |   |  |   | 2,864   |  
|Mitchell Rubber Products, Inc.    |  |                                      |        |   |                                      |   | 951     |                                                 |  |   |               |   |  |   | 951     |  
|Packerland Whey Products, Inc.(B) |  |                                      | (1,754  | ) |                                      |   |        |                                                 |  |   | 2,500          |   |  |   | 746     |  
|Cavert II Holding Corp            |  |                                      |        |   |                                      |   | 58      |                                                 |  |   | (175           | ) |  |   | (117    | )
|Drew Foam Companies, Inc.         |  |                                      |        |   |                                      |   | (480    | )                                               |  |   |               |   |  |   | (480    | )
|B-Dry, LLC                        |  |                                      |        |   |                                      |   | (502    | )                                               |  |   |               |   |  |   | (502    | )
|Channel Technologies Group, LLC   |  |                                      |        |   |                                      |   | (232    | )                                               |  |   | (583           | ) |  |   | (815    | )
|SBS, Industries, LLC              |  |                                      |        |   |                                      |   | (1,606  | )                                               |  |   |               |   |  |   | (1,606  | )
|Country Club Enterprises, LLC     |  |                                      |        |   |                                      |   | (1,777  | )                                               |  |   |               |   |  |   | (1,777  | )
|Mathey Investments, Inc.          |  |                                      |        |   |                                      |   | (1,806  | )                                               |  |   |               |   |  |   | (1,806  | )
|Star Seed, Inc.                   |  |                                      |        |   |                                      |   | (1,862  | )                                               |  |   |               |   |  |   | (1,862  | )
|Precision Southeast, Inc.         |  |                                      |        |   |                                      |   | (2,168  | )                                               |  |   |               |   |  |   | (2,168  | )
|Ginsey Holdings, Inc.             |  |                                      |        |   |                                      |   | (2,229  | )                                               |  |   |               |   |  |   | (2,229  | )
|Jackrabbit, Inc.                  |  |                                      |        |   |                                      |   | (3,245  | )                                               |  |   |               |   |  |   | (3,245  | )
|Noble Logistics, Inc.             |  |                                      |        |   |                                      |   | (3,448  | )                                               |  |   |               |   |  |   | (3,448  | )
|Schylling Investments, LLC        |  |                                      |        |   |                                      |   | (3,840  | )                                               |  |   |               |   |  |   | (3,840  | )
|Galaxy Tool Holding Corp.         |  |                                      |        |   |                                      |   | (4,413  | )                                               |  |   |               |   |  |   | (4,413  | )
|Other, net (<$250 Net)            |  |                                      | 41      |   |                                      |   | 195     |                                                 |  |   |               |   |  |   | 236     |  
|                                  |  |                                      |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  
|Total                             |  | $                                    | (13,115 | ) |                                      | $ | (15,462 | )                                               |  | $ | 13,152         |   |  | $ | (15,425 | )
|                                  |  |                                      |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  



|(A) | ASH equity investment was sold in October 2013.
|--- | -----------------------------------------------

|(B) | Packerland investment was sold in November 2013.
|--- | ------------------------------------------------

Excluding reversals, the primary changes in our net
unrealized depreciation of $15.5 million for the three months ended December 31, 2013, were due to decreased equity valuations in several of our portfolio companies, primarily due to a decrease in certain comparable multiples used to estimate
the fair value of our investments and a decrease in portfolio company performance.

Over our entire investment portfolio, we recorded approximately $1.7
million of net unrealized depreciation on our debt positions and $3.7 million of net unrealized appreciation on our equity holdings for the three months ended December 31, 2014. At December 31, 2014, the fair value of our investment
portfolio was less than our cost basis by approximately $63.2 million, as compared to $65.2 million at September 30, 2014, representing net unrealized appreciation of $2.0 million for the three months ended December 31, 2014. We
believe that our aggregate investment portfolio is valued at a depreciated value due to the lingering effects of the recent recession on the performance of certain of our portfolio companies. Our entire portfolio was fair valued at 86.2% of cost as
of December 31, 2014. The unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders; however, it may be an indication of future realized losses, which could ultimately reduce
our income available for distribution.

Unrealized Gain on Other

Net Unrealized Depreciation on Borrowings

There was no
unrealized appreciation or depreciation of our Credit Facility recognized for the three months ended December 31, 2014. During the three months ended December 31, 2013, there was net unrealized depreciation of $0.4 million on our Credit
Facility. Our Credit Facility was fair valued at $95.8 million and $61.7 million as of December 31 and March 31, 2014, respectively.



40



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Comparison of the Nine Months Ended December 31, 2014, to the Nine Months Ended December 31, 2013



|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|--------------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------- | -------- |  | - | -------- | - |  |  | ------- | -
|                                                                |  | Nine Months Ended December 31, |       
|                                                                |  | 2014                           |        |   | 2013 |   |         | $ Change |  |   | % Change |  
|INVESTMENT INCOME                                               |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Interest income                                                 |  | $                              | 26,706 |   |      | $ | 22,481  |          |  | $ | 4,225    |   |  |  | 18.8    | %
|Other income                                                    |  |                                | 3,764  |   |      |   | 4,972   |          |  |   | (1,208   | ) |  |  | (24.3   | )
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Total investment income                                         |  |                                | 30,470 |   |      |   | 27,453  |          |  |   | 3,017    |   |  |  | 11.0    |  
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|EXPENSES                                                        |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Base management fee                                             |  |                                | 5,337  |   |      |   | 4,625   |          |  |   | 712      |   |  |  | 15.4    |  
|Incentive fee                                                   |  |                                | 3,726  |   |      |   | 2,822   |          |  |   | 904      |   |  |  | 32.0    |  
|Administration fee                                              |  |                                | 670    |   |      |   | 638     |          |  |   | 32       |   |  |  | 5.0     |  
|Interest and dividend expense                                   |  |                                | 5,010  |   |      |   | 3,607   |          |  |   | 1,403    |   |  |  | 38.9    |  
|Amortization of deferred financing fees                         |  |                                | 940    |   |      |   | 761     |          |  |   | 179      |   |  |  | 23.5    |  
|Other                                                           |  |                                | 1,740  |   |      |   | 1,964   |          |  |   | (224     | ) |  |  | (11.4   | )
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Expenses before credits from Adviser                            |  |                                | 17,423 |   |      |   | 14,417  |          |  |   | 3,006    |   |  |  | 20.9    |  
|Credits to Adviser fees                                         |  |                                | (1,855 | ) |      |   | (1,627  | )        |  |   | (228     | ) |  |  | (14.0   | )
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Total expenses net of credits to fee                            |  |                                | 15,568 |   |      |   | 12,790  |          |  |   | 2,778    |   |  |  | 21.7    |  
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|NET INVESTMENT INCOME                                           |  |                                | 14,902 |   |      |   | 14,663  |          |  |   | 239      |   |  |  | 1.6     |  
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|REALIZED AND UNREALIZED (LOSS) GAIN                             |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Net realized (loss) gain on investments                         |  |                                | (221   | ) |      |   | 11,689  |          |  |   | (11,910  | ) |  |  | NM      |  
|Net realized loss on other                                      |  |                                |       |   |      |   | (29     | )        |  |   | 29       |   |  |  | 100.0   |  
|Net unrealized appreciation (depreciation) of investments       |  |                                | 5,924  |   |      |   | (29,400 | )        |  |   | 35,324   |   |  |  | NM      |  
|Net unrealized depreciation of other                            |  |                                | 451    |   |      |   | 811     |          |  |   | (360     | ) |  |  | (44.4   | )
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Net realized and unrealized gain (loss)                         |  |                                | 6,154  |   |      |   | (16,929 | )        |  |   | 23,083   |   |  |  | NM      |  
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS |  | $                              | 21,056 |   |      | $ | (2,266  | )        |  | $ | 23,322   |   |  |  | 1,029.2 | %
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|BASIC AND DILUTED PER COMMON SHARE:                             |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Net investment income                                           |  | $                              | 0.56   |   |      | $ | 0.55    |          |  | $ | 0.01     |   |  |  | 1.8     | %
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  
|Net increase (decrease) in net assets resulting from operations |  | $                              | 0.80   |   |      | $ | (0.09   | )        |  | $ | 0.89     |   |  |  | 988.9   | %
|                                                                |  |                                |        |   |      |   |         |          |  |   |          |   |  |  |         |  

NM = Not Meaningful

Total investment income increased by 11.0% for the nine months ended December 31, 2014, as compared to the prior year period. This increase was primarily
due an overall increase in interest income in the nine months ended December 31, 2014, as a result of an increase in the size of our loan to portfolio during the nine months ended December 31, 2014. This was partially offset by a decrease
in other income during the nine months ended December 31, 2014 as compared to the prior year period, due to success fee and dividend income resulting from our exit from Venyu Solutions, Inc. (Venyu) during the nine months ended
December 31, 2013.

Interest income from our investments in debt securities increased 18.8% for the nine months ended December 31, 2014, as
compared to the prior year period. The level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield. The
weighted average principal balance of our interest-bearing investment portfolio during the nine months ended December 31, 2014, was approximately $282.1 million, compared to approximately $236.7 million for the prior year period. This
increase was primarily due to approximately $95.9 million in new investments originated after December 31, 2013, including Head Country, Edge, Roanoke, Cambridge, Old World, and B+T.

At December 31, 2014, loans to one portfolio company, Tread, were on non-accrual status, with an aggregate weighted average principal balance of $11.6
million during the nine months ended December 31, 2014. As of December 31, 2013, our loans to Tread were on non-accrual status. ASH, which was on non-accrual status as of September 30, 2013, was sold to certain members of its existing
management team during the three months ended December 31, 2013. As a result of the sale, we retained a $5.0 million accruing revolving credit facility in ASH, which was no longer on non-accrual status as of December 31, 2013. The
non-accrual aggregate weighted average principal balance was $22.4 million during the nine months ended December 2013. The weighted average yield on our interest-bearing investments was 12.6% for the nine months ended December 31, 2014 and
2013, excluding cash and cash equivalents and receipts recorded as other income. The weighted average yield varies from period to period, based on the current stated interest rate on interest-bearing investments.



41



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##### Table of Contents

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



|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | -------------- |  | ----- | - | ----------------------------------- |  |  | ---------------- |  | - | --------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2014 |         |  |                |  |       |   | Nine Months Ended December 31, 2014 | 
|Portfolio Company                   |  | Fair Value              |         |  | % of Portfolio |  |       |   |                                     |  |  | InvestmentIncome |  |   | % of TotalInvestment Income | 
|SOG Specialty Knives and Tools, LLC |  | $                       | 24,940  |  |                |  | 6.4   | % |                                     |  |  |                  |  | $ | 2,536                       |  |  |  | 8.3   | %
|Old World Christmas, Inc.(A)        |  |                         | 24,380  |  |                |  | 6.2   |   |                                     |  |  |                  |  |   | 513                         |  |  |  | 1.7   |  
|Acme Cryogenics, Inc.               |  |                         | 22,942  |  |                |  | 5.8   |   |                                     |  |  |                  |  |   | 1,274                       |  |  |  | 4.2   |  
|Cambridge Sound Management, LLC(A)  |  |                         | 22,556  |  |                |  | 5.7   |   |                                     |  |  |                  |  |   | 517                         |  |  |  | 1.7   |  
|Funko, LLC                          |  |                         | 19,011  |  |                |  | 4.8   |   |                                     |  |  |                  |  |   | 833                         |  |  |  | 2.7   |  
|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 113,829 |  |                |  | 28.9  |   |                                     |  |  |                  |  |   | 5,673                       |  |  |  | 18.6  |  
|Other portfolio companies           |  |                         | 280,316 |  |                |  | 71.1  |   |                                     |  |  |                  |  |   | 24,797                      |  |  |  | 81.4  |  
|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  
|Total investment portfolio          |  | $                       | 394,145 |  |                |  | 100.0 | % |                                     |  |  |                  |  | $ | 30,470                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  



|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | -------------- |  | ----- | - | ----------------------------------- |  |  | ---------------- |  | - | --------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2013 |         |  |                |  |       |   | Nine Months Ended December 31, 2013 | 
|Portfolio Company                   |  | Fair Value              |         |  | % of Portfolio |  |       |   |                                     |  |  | InvestmentIncome |  |   | % of TotalInvestment Income | 
|Acme Cryogenics, Inc.               |  | $                       | 27,719  |  |                |  | 9.5   | % |                                     |  |  |                  |  | $ | 1,274                       |  |  |  | 4.6   | %
|SOG Specialty Knives and Tools, LLC |  |                         | 27,271  |  |                |  | 9.4   |   |                                     |  |  |                  |  |   | 2,002                       |  |  |  | 7.3   |  
|Galaxy Tool Holding Corp.           |  |                         | 19,743  |  |                |  | 6.8   |   |                                     |  |  |                  |  |   | 1,601                       |  |  |  | 5.8   |  
|Alloy Die Casting Corp.(A)          |  |                         | 16,320  |  |                |  | 5.6   |   |                                     |  |  |                  |  |   | 421                         |  |  |  | 1.5   |  
|Schylling Investments, LLC(A)       |  |                         | 16,160  |  |                |  | 5.6   |   |                                     |  |  |                  |  |   | 844                         |  |  |  | 3.1   |  
|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 107,213 |  |                |  | 36.9  |   |                                     |  |  |                  |  |   | 6,142                       |  |  |  | 22.3  |  
|Other portfolio companies           |  |                         | 183,514 |  |                |  | 63.1  |   |                                     |  |  |                  |  |   | 21,311                      |  |  |  | 77.7  |  
|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  
|Total investment portfolio          |  | $                       | 290,727 |  |                |  | 100.0 | % |                                     |  |  |                  |  | $ | 27,453                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                |  |       |   |                                     |  |  |                  |  |   |                             |  |  |  |       |  



|(A) | New investment during the applicable period.
|--- | --------------------------------------------

Other income decreased 24.3% from the prior year period. During
the nine months ended December 31, 2014, other income primarily consisted of $2.3 million of dividend income received from Mathey and $0.5 million of prepayments of success fees from SOG. During the nine months ended December 31, 2013,
other income primarily consisted of a combined $3.3 million in success fee and dividend income received in connection with the exit of Venyu and $0.8 million and $0.2 million in success fee income resulting from prepayments received from Channel and
Cavert, respectively.

Expenses

Total expenses,
excluding any voluntary, irrevocable and non-contractual credits to the base management and incentive fees, increased 20.9% for the nine months ended December 31, 2014, as compared to the prior year period, primarily due to an increase in the
base management fee, incentive fee, and interest and dividend expense, as compared to the prior year period.

The base management fee increased for the
nine months ended December 31, 2014, as compared to the prior year period, as a result of the increased size of our portfolio over the respective periods. Additionally, an incentive fee of $3.7 million was earned by the Adviser during the nine
months ended December 31, 2014, compared to $2.8 million for the prior year period. The base management fees, incentive fees, and their related unconditional and irrevocable voluntary credits are computed quarterly, as described under
Investment Advisory and Management Agreement in Note 4 of the notes to our accompanying Condensed Consolidated Financial Statements and are summarized in the following table:



|                                                          |  |                                |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                          |  | Nine Months Ended December 31, |        
|                                                          |  | 2014                           |         |   | 2013 |  
|Average gross assets subject to base management fee(A)    |  | $                              | 355,800 |   |      | $ | 308,333 |  
|Multiplied by prorated annual base management fee of 2.0% |  |                                | 1.5     | % |      |   | 1.5     | %
|                                                          |  |                                |         |   |      |   |         |  
|Base management fee(B)                                    |  |                                | 5,337   |   |      |   | 4,625   |  
|Other credits to Adviser fees(B)                          |  |                                | (1,855  | ) |      |   | (1,627  | )
|                                                          |  |                                |         |   |      |   |         |  
|Net base management fee                                   |  | $                              | 3,482   |   |      | $ | 2,998   |  
|                                                          |  |                                |         |   |      |   |         |  
|Incentive fee(B)                                          |  | $                              | 3,726   |   |      | $ | 2,822   |  
|                                                          |  |                                |         |   |      |   |         |  



|(A) | Average gross assets subject to the base management fee is defined as total assets, including investments made with proceeds of
|--- | -------------------------------------------------------------------------------------------------------------------------------



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| | borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any
share issuances or repurchases during the periods.
| | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Reflected, on a gross basis, as a line item on our accompanying Condensed Consolidated Statement of Operations.
|--- | ---------------------------------------------------------------------------------------------------------------

Interest and dividend expense increased 38.9% for the nine months ended December 31, 2014, as compared to the prior year period, primarily due to
increased average borrowings under our Credit Facility. The weighted average balance outstanding on our Credit Facility during the nine months ended December 31, 2014, was $74.4 million, as compared to $31.1 million in the prior year period.
The increase in average borrowings under our Credit Facility was partially offset by the decrease in interest rate due to an amendment of our Credit Facility that occurred in June 2014. The dividend expense also increased with the offering of
our Series B Term Preferred Stock in November 2014. We paid distributions on the Series B Term Preferred Stock for the pro-rated month of November 2014 and the full month of December 2014, which distribution represented a $0.4 million increase from
the prior year period, when the Series B Term Preferred Stock was not yet outstanding.

Realized and Unrealized (Loss) Gain on Investments

Realized (Loss) Gain

During the nine months ended
December 31, 2014, we recorded a realized loss on investments of $0.2 million relating to post-closing adjustments on previous investment exits. During the nine months ended December 31, 2013, we recorded a net realized gain of $11.7
million related to the $24.8 million gain on the Venyu sale, partially offset by the realized losses of $11.4 million and $1.7 million related to the equity sales of ASH and Packerland, respectively.

Unrealized Appreciation (Depreciation)

During the nine
months ended December 31, 2014, we recorded net unrealized appreciation of investments in the aggregate amount of $5.9 million.

The realized loss
and unrealized appreciation (depreciation) across our investments for the nine months ended December 31, 2014, were as follows:



|                                |  |                                     |      |   |                                      |   |        |                |  |   |        |  
|------------------------------- |  | ----------------------------------- | ---- | - | ------------------------------------ | - | ------ | -------------- |  | - | ------ | -
|                                |  | Nine months ended December 31, 2014 |     
|Portfolio Company               |  | RealizedLoss                        |      |   | UnrealizedAppreciation(Depreciation) |   |        | Net Gain(Loss) | 
|Funko, LLC                      |  | $                                   |     |   |                                      | $ | 7,093  |                |  | $ | 7,093  |  
|Jackrabbit, Inc.                |  |                                     |     |   |                                      |   | 5,904  |                |  |   | 5,904  |  
|NDLI Inc.                       |  |                                     |     |   |                                      |   | 3,755  |                |  |   | 3,755  |  
|Cambridge Sound Management, LLC |  |                                     |     |   |                                      |   | 3,056  |                |  |   | 3,056  |  
|Mathey Investments, Inc.        |  |                                     |     |   |                                      |   | 2,749  |                |  |   | 2,749  |  
|SBS, Industries, LLC            |  |                                     |     |   |                                      |   | 1,894  |                |  |   | 1,894  |  
|Drew Foam Company, Inc.         |  |                                     |     |   |                                      |   | 1,893  |                |  |   | 1,893  |  
|Alloy Die Casting Corp.         |  |                                     |     |   |                                      |   | 1,583  |                |  |   | 1,583  |  
|Tread Corp.                     |  |                                     |     |   |                                      |   | 1,007  |                |  |   | 1,007  |  
|Edge Adhesives Holdings, Inc.   |  |                                     |     |   |                                      |   | 416    |                |  |   | 416    |  
|Venyu Solutions, Inc.(A)        |  |                                     | (220 | ) |                                      |   |       |                |  |   | (220   | )
|Quench Holdings Corp.           |  |                                     |     |   |                                      |   | (303   | )              |  |   | (303   | )
|Meridian Rack & Pinion, Inc.    |  |                                     |     |   |                                      |   | (557   | )              |  |   | (557   | )
|Head Country Inc.               |  |                                     |     |   |                                      |   | (1,120 | )              |  |   | (1,120 | )
|Country Club Enterprises, LLC   |  |                                     |     |   |                                      |   | (1,565 | )              |  |   | (1,565 | )
|SOG Specialty K&T, LLC          |  |                                     |     |   |                                      |   | (1,699 | )              |  |   | (1,699 | )
|Channel Technologies Group, LLC |  |                                     |     |   |                                      |   | (1,843 | )              |  |   | (1,843 | )
|Danco Acquisition Corp.         |  |                                     |     |   |                                      |   | (2,308 | )              |  |   | (2,308 | )
|B-Dry, LLC                      |  |                                     |     |   |                                      |   | (2,778 | )              |  |   | (2,778 | )
|Galaxy Tool Holding Corp.       |  |                                     |     |   |                                      |   | (2,992 | )              |  |   | (2,992 | )
|Acme Cryogenics, Inc.           |  |                                     |     |   |                                      |   | (3,958 | )              |  |   | (3,958 | )
|Mitchell Rubber Products, Inc.  |  |                                     |     |   |                                      |   | (4,166 | )              |  |   | (4,166 | )
|Other, net (<$250 Net)          |  |                                     | (1   | ) |                                      |   | (137   | )              |  |   | (138   | )
|                                |  |                                     |      |   |                                      |   |        |                |  |   |        |  
|Total                           |  | $                                   | (221 | ) |                                      | $ | 5,924  |                |  | $ | 5,703  |  
|                                |  |                                     |      |   |                                      |   |        |                |  |   |        |  



|(A) | Venyu was sold in August 2013.
|--- | ------------------------------

The primary changes in our net unrealized appreciation for the nine
months ended December 31, 2014, were due to an increase in equity valuations in several of our portfolio companies, primarily due to increased portfolio company performance and increases in certain comparable multiples used to estimate the fair
value of our investments.



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During the nine months ended December 31, 2013, we recorded net unrealized depreciation of investments in
the aggregate amount of $29.4 million, which included the reversal of a net $4.2 million in net unrealized appreciation, related to the sale of Venyu, ASH, and Packerland, and debt repayments of Cavert and Channel. Excluding reversals, we had $25.2
million in net unrealized depreciation for the nine months ended December 31, 2013.

The realized gains (losses) and unrealized appreciation
(depreciation) across our investments for the nine months ended December 31, 2013, were as follows:



|                                  |  |                                     |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  
|--------------------------------- |  | ----------------------------------- | ------- | - | ------------------------------------ | - | ------- | ----------------------------------------------- |  | - | -------------- | - |  | - | ------- | -
|                                  |  | Nine months ended December 31, 2013 |        
|Portfolio Company                 |  | RealizedGain (Loss)                 |         |   | UnrealizedAppreciation(Depreciation) |   |         | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) |  
|Venyu Solutions, Inc.(A)          |  | $                                   | 24,804  |   |                                      | $ | (1,596  | )                                               |  | $ | (17,374        | ) |  | $ | 5,834   |  
|Auto Safety House, LLC(B)         |  |                                     | (11,402 | ) |                                      |   | 4,938   |                                                 |  |   | 11,410         |   |  |   | 4,946   |  
|Quench Holdings Corp.             |  |                                     |        |   |                                      |   | 2,824   |                                                 |  |   |               |   |  |   | 2,824   |  
|Channel Technologies Group, LLC   |  |                                     |        |   |                                      |   | 2,921   |                                                 |  |   | (583           | ) |  |   | 2,338   |  
|Frontier Packaging, Inc.          |  |                                     |        |   |                                      |   | 1,734   |                                                 |  |   |               |   |  |   | 1,734   |  
|Funko, LLC                        |  |                                     |        |   |                                      |   | 1,043   |                                                 |  |   |               |   |  |   | 1,043   |  
|Packerland Whey Products, Inc.(C) |  |                                     | (1,754  | ) |                                      |   | (369    | )                                               |  |   | 2,500          |   |  |   | 377     |  
|Cavert II Holding Corp            |  |                                     |        |   |                                      |   | 145     |                                                 |  |   | (175           | ) |  |   | (30     | )
|Mitchell Rubber Products, Inc.    |  |                                     |        |   |                                      |   | (602    | )                                               |  |   |               |   |  |   | (602    | )
|Star Seed, Inc.                   |  |                                     |        |   |                                      |   | (936    | )                                               |  |   |               |   |  |   | (936    | )
|Tread Corp.                       |  |                                     |        |   |                                      |   | (1,110  | )                                               |  |   |               |   |  |   | (1,110  | )
|Galaxy Tool Holding Corp.         |  |                                     |        |   |                                      |   | (1,133  | )                                               |  |   |               |   |  |   | (1,133  | )
|Mathey Investments, Inc.          |  |                                     |        |   |                                      |   | (1,697  | )                                               |  |   |               |   |  |   | (1,697  | )
|SOG Specialty K&T, LLC            |  |                                     |        |   |                                      |   | (2,551  | )                                               |  |   |               |   |  |   | (2,551  | )
|Drew Foam Company, Inc.           |  |                                     |        |   |                                      |   | (2,645  | )                                               |  |   |               |   |  |   | (2,645  | )
|Precision Southeast, Inc.         |  |                                     |        |   |                                      |   | (3,227  | )                                               |  |   |               |   |  |   | (3,227  | )
|Noble Logistics, Inc.             |  |                                     |        |   |                                      |   | (3,832  | )                                               |  |   |               |   |  |   | (3,832  | )
|Schylling Investments, LLC        |  |                                     |        |   |                                      |   | (3,840  | )                                               |  |   |               |   |  |   | (3,840  | )
|B-Dry, LLC                        |  |                                     |        |   |                                      |   | (4,013  | )                                               |  |   |               |   |  |   | (4,013  | )
|SBS, Industries, LLC              |  |                                     |        |   |                                      |   | (4,414  | )                                               |  |   |               |   |  |   | (4,414  | )
|Ginsey Home Solutions, Inc.       |  |                                     |        |   |                                      |   | (6,731  | )                                               |  |   |               |   |  |   | (6,731  | )
|Other, net (<$250 Net)            |  |                                     | 41      |   |                                      |   | (87     | )                                               |  |   |               |   |  |   | (46     | )
|                                  |  |                                     |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  
|Total                             |  | $                                   | 11,689  |   |                                      | $ | (25,178 | )                                               |  | $ | (4,222         | ) |  | $ | (17,711 | )
|                                  |  |                                     |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  



|(A) | Venyu was sold in August 2013.
|--- | ------------------------------

|(B) | ASH equity investment was sold in October 2013.
|--- | -----------------------------------------------

|(C) | Packerland equity investment was sold in November 2013.
|--- | -------------------------------------------------------

The primary changes in our net unrealized
depreciation for the nine months ended December 31, 2013, were due to decreased equity valuations in several of our portfolio companies, primarily due to decreased portfolio company performance and decreases in certain comparable multiples used
to estimate the fair value of our investments.

Over our entire investment portfolio, we recorded, in the aggregate, approximately $1.7 million and $4.2
million of net unrealized appreciation on our debt and equity investments, respectively, for the nine months ended December 31, 2014. As of December 31, 2014, the fair value of our investment portfolio was less than our cost basis by
approximately $63.2 million, as compared to $69.1 million at March 31, 2014, representing net unrealized appreciation of $5.9 million for the nine months ended December 31, 2014. We believe that our aggregate investment portfolio is valued
at a depreciated value due to the lingering effects of the recent recession on the performance of certain of our portfolio companies. Our entire portfolio was fair valued at 86.2% of cost as of December 31, 2014. The unrealized depreciation of
our investments does not have an impact on our current ability to pay distributions to stockholders; however, it may be an indication of future realized losses, which could ultimately reduce our income available for distribution.

Realized and Unrealized (Loss) Gain on Other

Realized
Loss on Interest Rate Cap

We recorded no realized gains (losses) on interest rate caps during the nine months ended December 31, 2014. For the
nine months ended December 31, 2013, we recorded a net realized loss of $29, due to the expiration of our interest rate cap agreement.

Net
Unrealized Depreciation (Appreciation) on Borrowings

For the nine months ended December 31, 2014 and 2013, we recorded $0.5 million and $0.8 million,
respectively, of net unrealized depreciation.



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LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash used in operating
activities for the nine months ended December 31, 2014, was approximately $56.6 million, as compared to $11.3 million during the nine months ended December 31, 2013. Even though we disbursed $100.1 million in the prior year period to
purchase investments compared to $79.3 million in the current period, the prior year period had significant cash inflows from the sale of Venyu to offset the purchase of investments. The sale of Venyu in August 2013 resulted in proceeds of $30.8
million and principal repayments of $19.0 million. Our cash flows from operations generally come from cash collections of interest and dividend income from our portfolio companies, as well as cash proceeds received through repayments of loan
investments and sales of equity investments. These cash collections are primarily used to pay distributions to our stockholders, interest payments on our Credit Facility, dividend payments on our two series of term preferred stock, management fees
to the Adviser, and other entity-level expenses.

As of December 31, 2014, we had equity investments in or loans to 32 private companies with an
aggregate cost basis of approximately $457.4 million. As of December 31, 2013, we had equity investments in or loans to 26 private companies with an aggregate cost basis of approximately $360.1 million. The following table summarizes our total
portfolio investment activity during the nine months ended December 31, 2014 and 2013:



|                                              |  |                                |         |   |      |   |         |  
|--------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                              |  | Nine Months Ended December 31, |        
|                                              |  | 2014                           |         |   | 2013 |  
|Beginning investment portfolio, at fair value |  | $                              | 314,393 |   |      | $ | 286,482 |  
|New investments                               |  |                                | 67,202  |   |      |   | 96,848  |  
|Disbursements to existing portfolio companies |  |                                | 12,127  |   |      |   | 3,286   |  
|Increase in investment balance due to PIK     |  |                                | 78      |   |      |   | 58      |  
|Scheduled principal repayments                |  |                                | (878    | ) |      |   | (110    | )
|Unscheduled principal repayments              |  |                                | (4,701  | ) |      |   | (46,524 | )
|Net proceeds from sales                       |  |                                | 221     |   |      |   | (31,602 | )
|Net realized (loss) gain                      |  |                                | (221    | ) |      |   | 11,689  |  
|Net unrealized appreciation (depreciation)    |  |                                | 5,924   |   |      |   | (25,178 | )
|Reversal of net unrealized appreciation       |  |                                |        |   |      |   | (4,222  | )
|                                              |  |                                |         |   |      |   |         |  
|Ending investment portfolio, at fair value    |  | $                              | 394,145 |   |      | $ | 290,727 |  
|                                              |  |                                |         |   |      |   |         |  

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year,
assuming no voluntary prepayments, as of December 31, 2014:



|                                                |  |                                                            |  |        |         | 
|----------------------------------------------- |  | ---------------------------------------------------------- |  | ------ | ------- | 
|                                                |  |                                                            |  | Amount |        
|For the remaining three months ending March 31: |  | 2015                                                       |  | $      | 25,224  | 
|For the fiscal year ending March 31:            |  | 2016                                                       |  |        | 48,529  | 
|                                                |  | 2017                                                       |  |        | 24,915  | 
|                                                |  | 2018                                                       |  |        | 89,159  | 
|                                                |  | 2019                                                       |  |        | 84,181  | 
|                                                |  | Thereafter                                                 |  |        | 60,920  | 
|                                                |  |                                                            |  |        |         | 
|                                                |  | Total contractual repayments                               |  | $      | 332,928 | 
|                                                |  | Investments in equity securities                           |  |        | 124,437 | 
|                                                |  |                                                            |  |        |         | 
|                                                |  | Total cost basis of investments held at December 31, 2014: |  | $      | 457,365 | 
|                                                |  |                                                            |  |        |         | 

Financing Activities

Net
cash provided by financing activities for the nine months ended December 31, 2014, was approximately $57.0 million, which consisted primarily of $34.6 million of net borrowings on our Credit Facility. In addition, we had proceeds from the
issuance of our Series B Term Preferred Stock in November 2014 of $41.4 million, which was partially offset by $15.6 million in distributions to common stockholders. Net cash used in financing activities for the nine months ended December 31,
2013, was approximately $59.5 million and consisted primarily of net repayments of our short-term borrowings of $49.5 million and distributions to common stockholders of $14.0 million, partially offset by $5.2 million in net borrowings from our
Credit Facility.

Distributions

To qualify to be
taxed as a RIC and thus avoid corporate level tax on the income we distribute to our stockholders, we are required under Subchapter M of the Code, to distribute at least 90.0% of our ordinary income and short-term capital gains to our stockholders
on an annual basis. In accordance with these requirements, we declared and paid monthly cash distributions of $0.06 per common share for each of the nine months from April 2014 through December 2014, as well as a one-time special distribution of
$0.05 in December 2014. In January 2015, our Board of Directors also declared a monthly distribution of $0.06 per common share for each of January, February and March 2015. Our Board of Directors declared these distributions based on estimates of
net taxable income for the fiscal year ending March 31, 2015.



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For our federal income tax reporting purposes, we determine the tax characterization of our common distributions
as of the end of our fiscal year based upon our taxable income for the full fiscal year and distributions paid during the full fiscal year. Therefore, a determination of tax attributes made on a quarterly basis may not be representative of the
actual tax attributes of distributions for a full fiscal year. If we determined the tax attributes of our distributions as of December 31, 2014, 100.0% would be from ordinary income. For the nine months ended December 31, 2014, we recorded
a $0.3 million adjustment for estimated book-tax differences which decreased capital in excess of par value and increased net investment income in excess of distributions. For the fiscal year ended March 31, 2014, our distributions to common
stockholders totaled $18.8 million, and were less than our taxable income over the same year. At March 31, 2014, we elected to treat $3.9 million, of the first distribution paid after fiscal year-end as having been paid in the prior fiscal
year, in accordance with Section 855(a) of the Code. Additionally, the covenants in our Credit Facility generally restrict the amount of distributions that we can pay out to be no greater than our net investment income.

We also declared and paid monthly cash distributions of $0.1484375 per share to holders of our Series A Term Preferred Stock for each of the nine months from
April 2014 through December 2014. For the nine months ended December 31, 2014, our Board of Directors declared and we paid distributions for the pro-rated month of November 2014 and the full month of December 2014 in aggregate of $0.2250 to our
holders of Series B Term Preferred Stock. In January 2015, our Board of Directors also declared a monthly distribution of $0.1484375 and $0.140625 per preferred share for each of January, February and March 2015 to the holders of our Series A Term
Preferred Stock and Series B Term Preferred Stock, respectively. In accordance with GAAP, we treat these monthly distributions as an operating expense. The tax character of distributions paid by us to preferred stockholders generally constitute
ordinary income to the extent of our current and accumulated earnings and profits.

Equity

Registration Statement

We filed a registration statement
on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed a Pre-Effective Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective on July 26, 2012.
On June 7, 2013, we filed Post-Effective Amendment No. 2 to the registration statement, which the SEC declared effective on July 26, 2013. On June 3, 2014, we filed Post-Effective Amendment No. 3 to the registration
statement, and subsequently filed a Post-Effective Amendment No. 4 to the registration statement on September 2, 2014, which the SEC declared effective on September 4, 2014. The registration statement permits us to issue, through one
or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common or preferred stock, including through a combined offering of
two or more of such securities. We have the ability to issue up to $225.6 million in securities under the registration statement. We issued approximately $33.0 million of common stock under the registration statement in October and November 2012 and
approximately $41.4 million of our Series B Term Preferred Stock under the registration statement in November 2014. No other securities have been issued to date under the registration statement.

Common Stock

Pursuant to our registration statement on
Form N-2 (Registration No. 333-181879), on October 5, 2012, we completed a public offering of 4.0 million shares of our common stock at a public offering price of $7.50 per share, which was below then current NAV of $8.65 per share.
Gross proceeds totaled $30.0 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $28.3 million, which was used to repay borrowings under our Credit Facility. In connection with the offering, in
November 2012, the underwriters exercised their option to purchase an additional 395,825 shares at the public offering price to cover over-allotments, which resulted in gross proceeds of $3.0 million and net proceeds, after deducting underwriting
discounts, of $2.8 million.

We anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the terms of
any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. When our common stock is trading at a price below NAV per share, as it has consistently since September 30, 2008, the 1940 Act places
regulatory constraints on our ability to obtain additional capital by issuing common stock. Generally, the 1940 Act provides that we may not issue and sell our common stock at a price below our NAV per common share, other than to our then existing
common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors. On February 3, 2015, the closing market price of our common stock was $7.37 per share, representing a 13.8%
discount to our NAV of $8.55 as of December 31, 2014. To the extent that our common stock continues to trade at a market price below our NAV per common share, we will generally be precluded from raising equity capital through public offerings
of our common stock, other than pursuant to stockholder approval or through a rights offering to existing common stockholders. At our 2014 Annual Meeting of Stockholders held on August 7, 2014, our stockholders approved a proposal authorizing
us to issue and sell shares of our common stock at a price below our then current NAV per common share for a period of one year from the date of such approval, provided that our Board of Directors makes certain determinations prior to any such sale.



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##### Table of Contents

Term Preferred Stock

Pursuant to our registration statement on Form N-2 (File No. 333-181879), in November 2014, we completed an offering of approximately 1.7 million
shares of Series B Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $41.4 million, and net proceeds, after deducting underwriting discounts and offering expenses borne by us were $39.7 million, a portion of
which was used to repay borrowings under our Credit Facility, with the remaining proceeds being held to make additional investments and for general corporate purposes. We incurred $1.7 million in total offering costs related to the offering, which
have been recorded as an asset in accordance with GAAP and are being amortized over the redemption period ending December 31, 2021.

Our Series B
Term Preferred Stock provides for a fixed dividend equal to 6.75% per year, payable monthly (which equates to a total of $2.8 million per year). We are required to redeem all of our outstanding Series B Term Preferred Stock on December 31,
2021, for cash at a redemption price equal to $25.00 per share plus an amount equal to accumulated but unpaid dividends, if any, to the date of redemption. Our Series B Term Preferred Stock has a preference over our common stock with respect to
dividends, whereby no distributions are payable on our common stock unless the stated dividends, including any accrued and unpaid dividends, on our Series B Term Preferred Stock have been paid in full. Our Series B Term Preferred Stock is not
convertible into our common stock or any other security. In addition, two other potential mandatory redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a change in control of us, we would be
required to redeem all of our outstanding Series B Term Preferred Stock, (2) if we fail to maintain an asset coverage ratio of at least 200%, we are required to redeem a portion of our outstanding Series B Term Preferred Stock or otherwise cure
the ratio redemption trigger. We may also voluntarily redeem all or a portion of our Series B Term Preferred Stock at our sole option at the redemption price in order to have an asset coverage ratio of up to and including 215.0% and at any time on
or after December 31, 2017.

Pursuant to the prior registration statement on Form N-2 (File No. 333-160720), in March 2012, we completed an
offering of 1.6 million shares of Series A Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $40 million, and net proceeds, after deducting underwriting discounts and offering expenses borne by us were
$38 million, a portion of which was used to repay borrowings under our Credit Facility, with the remaining proceeds being held to make additional investments and for general corporate purposes. We incurred $2 million in total offering costs related
to the offering, which have been recorded as an asset in accordance with GAAP and are being amortized over the redemption period ending February 28, 2017.

Our Series A Term Preferred Stock provides for a fixed dividend equal to 7.125% per year, payable monthly (which equates to $2.9 million per year). We
are required to redeem all of our outstanding Series A Term Preferred Stock on February 28, 2017, for cash at a redemption price equal to $25.00 per share plus an amount equal to accumulated but unpaid dividends, if any, to the date of
redemption. Our Series A Term Preferred Stock has a preference over our common stock with respect to dividends, whereby no distributions are payable on our common stock unless the stated dividends, including any accrued and unpaid dividends, on our
Series A Term Preferred Stock have been paid in full. Our Series A Term Preferred Stock is not convertible into our common stock or any other security. In addition, three other potential redemption triggers are as follows: (1) upon the
occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of our outstanding Series A Term Preferred Stock; (2) if we fail to maintain an asset coverage ratio of at least 200.0%, we are
required to redeem a portion of our outstanding Series A Term Preferred Stock or otherwise cure the ratio redemption trigger and (3) at our sole option, at any time on or after February 28, 2016, we may redeem some or all of our Series A
Term Preferred Stock.

Our Series A Term Preferred Stock and Series B Term Preferred Stock have been recorded as a liability in accordance with GAAP and,
as such, affect our asset coverage, exposing us to additional leverage risks.

Revolving Credit Facility

On June 26, 2014, we, through Business Investment, entered into Amendment No. 1 to our Credit Facility, with Key Equipment, administrative agent,
lead arranger and a lender; BB&T, as a lender and managing agent; and the Adviser, as servicer, to extend the revolving period and reduce the interest rate of our revolving line of credit. The revolving period was extended 14 months to
June 26, 2017, and if not renewed or extended by June 26, 2017, all principal and interest will be due and payable on or before June 26, 2019 (two years after the revolving period end date). In addition, we have retained the two
one-year extension options, to be agreed upon by all parties, which may be exercised on or before June 26, 2015 and 2016, respectively, and upon exercise, the options would extend the revolving period to June 26, 2018 and 2019 and the
maturity date to June 26, 2020 and 2021, respectively. Subject to certain terms and conditions, our Credit Facility can be expanded by up to $145.0 million, to a total facility amount of $250 million, through additional commitments of existing
or new committed lenders. Advances under our Credit Facility generally bear interest at 30-day LIBOR, plus 3.25% per annum, down from 3.75% prior to the amendment, and our Credit Facility includes an unused fee of 0.50% on undrawn amounts. Once
the revolving period ends, the interest rate margin increases to 3.75% for the period from June 26, 2017 to June 26, 2018, and further increases to 4.25% through maturity. We incurred fees of $0.4 million in connection with this amendment,
which are being amortized through our Credit Facilitys revolver period end date of June 26, 2017.



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On September 19, 2014, we further increased our borrowing capacity under our Credit Facility from $105.0
million to $185.0 million by entering into Joinder Agreements pursuant to our Credit Facility, by and among Business Investment, Key Equipment, the Adviser and each of East West Bank, Manufacturers and Traders Trust, Customers Bank and Talmer Bank
and Trust. We incurred fees of $1.3 million in connection with this expansion, which are being amortized through our Credit Facilitys revolver period end date of June 26, 2017.

Our Credit Facility contains covenants that require Business Investment to maintain its status as a separate legal entity; prohibit certain significant
corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict material changes to our credit and collection policies without lenders consent. The facility generally also limits payments as distributions to
the aggregate net investment income for each of the twelve month periods ending March 31, 2015, 2016 and 2017. We are also subject to certain limitations on the type of loan investments we can make, including restrictions on geographic
concentrations, sector concentrations, loan size, dividend payout, payment frequency and status, average life and lien property. Our Credit Facility also requires us to comply with other financial and operational covenants, which obligate us to,
among other things, maintain certain financial ratios, including asset and interest coverage, a minimum net worth and a minimum number of obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a performance
guaranty that requires us to maintain (i) a minimum net worth of $170 million plus 50.0% of all equity and subordinated debt raised after April 30, 2013, which equates to $170 million as of December 31, 2014, (ii) asset
coverage with respect to senior securities representing indebtedness of at least 200.0%, in accordance with Section 18 of the 1940 Act and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of
December 31, 2014, and as defined in the performance guaranty of our Credit Facility, we had a minimum net worth of $307.7 million, an asset coverage of 220.7% and an active status as a BDC and RIC. As of December 31, 2014, we were in
compliance with all covenants.

Our Credit Facility also requires that any interest or principal payments on pledged loans be remitted directly by the
borrower into a lockbox account with Key Equipment and with The Bank of New York Mellon Trust Company, N.A. as custodian. Key Equipment is also the trustee of the account and generally remits the collected funds to us once a month.

Pursuant to the terms of our Credit Facility, in July 2013, we entered into a forward interest rate cap agreement, effective October 2013 and expiring April
2016, for a notional amount of $45 million. We incurred a premium fee of $75 in conjunction with this agreement. The interest rate cap agreement effectively limits the interest rate on a portion of the borrowings pursuant to the terms of our Credit
Facility.

Contractual Obligations and Off-Balance Sheet Arrangements

We have lines of credit to certain of our portfolio companies that have not been fully drawn. Since these lines of credit have expiration dates and we expect
many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the unused line of credit commitments as of December 31 and March 31, 2014 to
be minimal.

In addition to the lines of credit to our portfolio companies, we have also extended certain guarantees on behalf of some our portfolio
companies, whereby we have guaranteed an aggregate of $2.7 million of obligations of Country Club Enterprises, LLC (CCE). As of December 31, 2014, we have not been required to make any payments on any of the guarantees, and we
consider the credit risks to be remote and the fair value of the guarantees to be minimal.

The following table shows our contractual obligations as of
December 31, 2014, at cost:



|                                    |  |                        |         |  |                 |   |       |           |  |   |           |  |  |                  |         |  |  |   |        | 
|----------------------------------- |  | ---------------------- | ------- |  | --------------- | - | ----- | --------- |  | - | --------- |  |  | ---------------- | ------- |  |  | - | ------ | 
|                                    |  | Payments Due by Period |        
|Contractual Obligations(A)          |  | Total                  |         |  | Less than1 Year |   |       | 1-3 Years |  |   | 3-5 Years |  |  | More than5 Years |        
|Credit Facility                     |  |                        | 95,800  |  |                 |   |      |           |  |   |          |  |  |                  | 95,800  |  |  |   |       | 
|Term preferred stock                |  |                        | 81,400  |  |                 |   |      |           |  |   |          |  |  |                  | 40,000  |  |  |   | 41,400 | 
|Secured borrowing                   |  |                        | 5,096   |  |                 |   |      |           |  |   |          |  |  |                  | 5,096   |  |  |   |       | 
|Interest payments on obligations(B) |  |                        | 44,915  |  |                 |   | 9,766 |           |  |   | 17,321    |  |  |                  | 12,474  |  |  |   | 5,354  | 
|                                    |  |                        |         |  |                 |   |       |           |  |   |           |  |  |                  |         |  |  |   |        | 
|Total                               |  | $                      | 227,211 |  |                 | $ | 9,766 |           |  | $ | 17,321    |  |  | $                | 153,370 |  |  | $ | 46,754 | 
|                                    |  |                        |         |  |                 |   |       |           |  |   |           |  |  |                  |         |  |  |   |        | 



|(A) | Excludes our unused line of credit commitments and guaranties to our portfolio companies in the aggregate amount of $9.6 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(B) | Includes interest payments due on our Credit Facility and dividend obligations on each series of our term preferred stock. Dividend payments on our term preferred stock assume quarterly declarations and monthly
distributions through the date of mandatory redemption of each series.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the
reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially
from those estimates under different assumptions or conditions. We have identified our investment valuation policy (the Policy) as our most critical accounting policy.

Investment Valuation

The most significant estimate
inherent in the preparation of our consolidated financial statements is the valuation of our investments and the related amounts of unrealized appreciation and depreciation of investments recorded in our accompanying Condensed Consolidated
Financial Statements.

Accounting Recognition

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

In accordance with ASC 820, our investments fair value is determined to be the price that would be received for an investment in a current sale, which
assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use
of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.



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



| |  | Level 2 inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets and inputs that are observable for the financial instrument, either
directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices
vary substantially over time or among brokered market makers; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants
would use when pricing the financial instrument and can include the Valuation Teams own assumptions based upon the best available information.
|- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the
unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or, components that are actively quoted and can be
validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement. As of December 31 and
March 31, 2014, all of our investments were valued using Level 3 inputs and during the nine months ended December 31, 2014 and 2013, there were no investments transferred in to or out of Level 1, 2 or 3.

Board Responsibility

In accordance with the 1940 Act,
our Board of Director has the ultimate responsibility for reviewing and approving, in good faith, the fair value of our investments based on the Policy. Our Board of Directors reviews valuation recommendations that are provided by professionals of
the Adviser and Administrator with oversight and direction from the valuation officer (the Valuation Team). There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the
specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the valuation officer, uses the Policy and each quarter our Board of Directors reviews the Policy to
determine if changes thereto are advisable and also reviews whether the Valuation Team has applied the Policy consistently.



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Use of Third Party Valuation Firms

The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments. Currently, the
third-party service provider Standard & Poors Securities Evaluation, Inc. (SPSE) provides estimates of fair value on the majority of our debt investments.

The Valuation Team generally assigns SPSEs estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the
applicable portfolio company. The Valuation Team corroborates SPSEs estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Teams estimates of value on a specific debt investment may
significantly differ from SPSEs. When this occurs, our Board of Directors reviews whether the Valuation Team has followed the Policy and whether the Valuation Teams recommended value is reasonable in light of the Policy and other
relevant facts and circumstances and then votes to accept or reject the Valuation Teams recommended valuation.

Valuation Techniques

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



| |  |  | Total Enterprise Value  In determining the fair value using a total enterprise value (TEV), the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of
the following factors: the portfolio companys ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes,
depreciation and amortization (EBITDA)); EBITDA or revenue multiples obtained from our indexing methodology whereby the original transaction EBITDA or revenue multiple at the time of our closing is indexed to a general subset of
comparable disclosed transactions and EBITDA or revenue multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries; and other pertinent factors. The
Valuation Team generally references industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team then allocates the TEV to the portfolio companys
securities in order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt
investments.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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

In addition to the above valuation techniques, the Valuation Team may also consider other factors when determining fair values of our investments, including,
but not limited to: the nature and realizable value of the collateral, including external parties guaranties; any relevant offers or letters of intent to acquire the portfolio company; and the markets in which the portfolio company operates.
If applicable, new and follow-on debt and equity investments made during the most recently completed quarter are generally valued at original cost basis. Fair value measurements of our investments may involve subjective judgments and estimates and
due to the inherent uncertainty of determining these fair values, the fair value of our investments may fluctuate from period to period. Additionally, changes in the market environment and other events that may occur over the life of the investment
may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid
than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

Credit Monitoring and Risk Rating

The Adviser monitors a
wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and, in some instances, are used as inputs in our valuation techniques. We, through the
Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to



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provide annual audited and monthly unaudited financial statements. Using these statements or comparable information and board discussions, the Adviser calculates and evaluates certain credit
statistics.

The Adviser risk rates all of our investments in debt securities. The Adviser does not risk rate our equity securities. For debt securities,
the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the Nationally Recognized Statistical Rating Organization (NRSRO) systems, we cannot provide any assurance that the Advisers risk rating system
will provide the same risk rating as an NRSRO for these securities. The Advisers risk rating system is used to estimate the probability of default on debt securities and the expected loss if there is a default. The Advisers risk rating
system uses a scale of 0 to >10, with >10 being the lowest probability of default. It is the Advisers understanding that most debt securities of medium-sized companies do not exceed the grade of BBB on an NRSRO scale, so there would be
no debt securities in the middle market that would meet the definition of AAA, AA or A. Therefore, the Advisers scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no
assurance can be given that a >10 on the Advisers scale is equal to a BBB or Baa2 on an NRSRO scale. The Advisers risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold. During
the three months ended June 30, 2014, we modified our risk rating model to incorporate additional factors in our qualitative and quantitative analysis. While the overall process did not change, we believe the additional factors enhance the
quality of the risk ratings of our investments. No adjustments were made to prior periods as a result of this modification.

The following table lists the
risk ratings for all loans in our portfolio as of December 31 and March 31, 2014, representing 100.0%, of the principal balance of all loans in our portfolio at the end of each period:



|                 |  |                        |     |  |                     |  |     | 
|---------------- |  | ---------------------- | --- |  | ------------------- |  | --- | 
|Rating           |  | As of December 31,2014 |     |  | As of March 31,2014 | 
|Highest          |  |                        | 8.6 |  |                     |  | 9.1 | 
|Average          |  |                        | 6.2 |  |                     |  | 5.7 | 
|Weighted Average |  |                        | 6.2 |  |                     |  | 5.2 | 
|Lowest           |  |                        | 2.8 |  |                     |  | 2.6 | 

Tax Status

Federal
Income Taxes

We intend to continue to qualify for treatment as a RIC under Subchapter M of the Code. As a RIC, we are not subject to federal income
tax on the portion of our taxable income and gains distributed to stockholders. To maintain our qualification as a RIC, we must meet certain source-of-income, asset diversification and annual distribution requirements. In addition, in order to
qualify to be taxed as a RIC, we must also meet certain annual stockholder distribution requirements. To satisfy the RIC annual distribution requirement, we must distribute to stockholders at least 90.0% of our investment company taxable income, as
defined by the Code. Our policy generally is to make distributions to our stockholders in an amount up to 100.0% of our investment company taxable income.

In an effort to limit certain excise taxes imposed on RICs, we generally distribute during each calendar year, an amount at least equal to the sum of
(1) 98.0% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gains in
excess of capital losses for preceding years that were not distributed during such years. However, we did incur an excise tax of $0.3 million and $31 for the calendar years ended December 31, 2013 and 2012, respectively and as of
December 31, 2014, have accrued $0.1 million in excise tax expense recorded in other general and administrative expenses on our accompanying Condensed Consolidated Statement of Operations for the calendar year ended December 31,
2014. Under the RIC Modernization Act (the RIC Act), we are permitted to carry forward capital losses incurred in taxable years beginning after March 31, 2011, for an unlimited period. However, any losses incurred during those
future taxable years must be used prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term
capital losses rather than only being considered short-term as permitted under previous regulation. Our total capital loss carryforward balance was $0.2 million as of March 31, 2014.

Revenue Recognition

Interest income, adjusted for
amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or
if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the
ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon managements
judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid, and, in managements judgment, are likely to remain current, or due to a restructuring, the interest income is deemed to be
collectible. As of December 31, 2014, our loans to Tread were on non-accrual status, with an aggregate debt cost basis of $10.7 million, or 3.2% of the cost basis of all debt investments in our



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portfolio, and an aggregate fair value of $0. As of March 31, 2014, our loans to Tread were on non-accrual status, with an aggregate debt cost basis of $11.7 million, or 4.2% of the cost
basis of all debt investments in our portfolio, and an aggregate fair value of $0.

PIK interest, computed at the contractual rate specified in the loan
agreement, is added to the principal balance of the loan and recorded as interest income over the life of the obligation. As of December 31, 2014, we did not have any loans with a PIK interest component and as of March 31, 2014, we had one
loan with a PIK interest component. During the three and nine months ended December 31, 2014, we recorded PIK income of $29 and $68, respectively. During the three and nine months ended December 31, 2014, we recorded PIK income of $20 and
$78, respectively. We collected $0.2 million PIK interest in cash during the three and nine months ended December 31, 2014 and $0 PIK interest in cash during the three and nine months ended December 31, 2013.

Other Income Recognition

We generally record success
fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company. We received an aggregate of $0.5 million and $1.0 million of success fees for the three and nine months ended December 31, 2014,
respectively, which resulted from prepaid success fees of $0.5 million from SOG in December 2014, 0.2 million from ASH in September 2014, $0.2 million from Frontier Packaging, Inc. in September 2014 and $0.1 million from Mathey in September
2014. We received an aggregate of $1.1 million and $3.4 million of success fees during the three and nine months ended December 31, 2013, respectively, which resulted from $0.8 million related to the Channel debt repayment in October 2013 and
$0.2 million related to the Cavert debt repayment in December 2013.

We accrue dividend income on preferred and common equity securities to the
extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration. During the three and nine months ended December 31, 2014, we recorded $1.4 million and $2.7 million of
dividend income from Mathey, respectfully. During the three and nine months ended December 31, 2013, we recorded $1.4 million in dividend income related to the exit of Venyu.

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

Recent Accounting Pronouncements

See Note 2 Summary of Significant Accounting Policies in the accompanying notes to our Condensed Consolidated Financial Statements included elsewhere in this report for a description and our adoption of recent accounting pronouncements.



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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes
that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies whose securities are owned by us; conditions affecting the general economy;
overall market changes; local, regional or global political, social or economic instability; and interest rate fluctuations.

The primary risk we believe
we are exposed to is interest rate risk. Because we borrow money to make investments, our net investment is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest those funds. As a result, there can
be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. We use a combination of debt and equity capital to finance our investing activities. We do use interest rate
risk management techniques to limit our exposure to interest rate fluctuations. Such techniques may include various interest rate hedging activities to the extent permitted by the 1940 Act.

Our target is to have approximately 20.0% of the loans in our portfolio at fixed rates and approximately 80.0% at variable rates or variables rates with a
floor mechanism. Currently, all of our variable-rate loans have rates associated with the current 30-day LIBOR rate. As of December 31, 2014, our portfolio consisted of the following breakdown based on total principal balance of all outstanding
debt investments:



| |       |   |  |                            
| | ----- | - |  | ---------------------------
| | 82.3  | % |  | Variable rates with a floor
| | 17.7  |   |  | Fixed rates                
| |       |   |  |                            
| | 100.0 | % |  | Total                      
| |       |   |  |                            

There have been no material changes in the quantitative and qualitative market risk disclosures for the three and nine months
ended December 31, 2014 from that disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2014, as filed with the SEC on May 13, 2014.

ITEM 4. CONTROLS AND PROCEDURES.

a) Evaluation of Disclosure Controls and Procedures

As of
December 31, 2014 (the end of the period covered by this report), we, including our chief executive officer and chief financial officer, evaluated the effectiveness and design and operation of our disclosure controls and procedures. Based on
that evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level in timely alerting management, including the
chief executive officer and chief financial officer, of material information about us required to be included in periodic SEC filings. However, in evaluation of the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures.

b) Changes in Internal Control over Financial Reporting

There were no changes in internal controls for the three months ended December 31, 2014 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.



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PART IIOTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business.
Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters if they arise would materially affect our business,
financial condition or results of operations, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources.

ITEM 1A. RISK FACTORS.

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the
trading price of our securities. For a discussion of these risks, please refer to this section and the section captioned Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the fiscal year ended March 31, 2014, as
filed with the SEC on May 13, 2014. The risks described below and in our Quarterly and Annual Reports are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial
also may materially and adversely affect our business, financial condition and/or operating results.

The recent volatility of oil and natural gas
prices could impair certain of our portfolio companies operations and ability to satisfy obligations to their respective lenders and investors, including us, which could negatively impact our financial condition.

Many of our portfolio companies businesses are heavily dependent upon the prices of, and demand for, oil and natural gas, which have recently declined
significantly and such volatility could continue or increase in the future. A substantial or extended decline in oil and natural gas demand or prices may adversely affect the business, financial condition, cash flow, liquidity or results of
operations of these portfolio companies and might impair their ability to meet capital expenditure obligations and financial commitments. A prolonged or continued decline in oil prices could therefore have a material adverse effect on our business,
financial condition and results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE
SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS

See the
exhibit index.



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SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.



GLADSTONE INVESTMENT CORPORATIONBy:

/s/ Melissa MorrisonMelissa MorrisonChief Financial Officer and Treasurer


Dated: February 4, 2015



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EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                                                      
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                          
|        | 
|3.1     |  | 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     |  | Certificate of Designation of 7.125% Series A Cumulative Term Preferred Stock, incorporated by reference to Exhibit 2.A.2 to Post-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-160720), filed
February 29, 2012.
|        | 
|3.3     |  | Certificate of Designation of 6.75% Series B Cumulative Term Preferred Stock, incorporated by reference to Exhibit 3.3 to the Registration Statement on Form 8-A (File No. 001-34007), filed November 7, 2014.                                       
|        | 
|3.4     |  | Amended and Restated Bylaws, incorporated by reference to Exhibit B.2 to the Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.                                                     
|        | 
|3.5     |  | First Amendment to Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 814-00704), filed July 10, 2007.                                                             
|        | 
|4.1     |  | Specimen Stock Certificate, incorporated by reference to Exhibit 99.D to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.                                                         
|        | 
|4.2     |  | Specimen 7.125% Series A Cumulative Term Preferred Stock Certificate, incorporated by reference to Exhibit 2.D.4 to Post-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-160720), filed February 29,
2012.         
|        | 
|4.3     |  | Specimen 6.75% Series B Cumulative Term Preferred Stock Certificate, incorporated by reference to Exhibit 4.3 to the Registration Statement on Form 8-A (File No. 001-34007), filed November 7, 2014.                                                
|        | 
|11      |  | Computation of Per Share Earnings (included in the notes to the 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.+                                                                                                                                                 



|* | Filed herewith
|- | --------------

|+ | Furnished herewith
|- | ------------------

All other exhibits for which provision is made in the applicable regulations of the
Securities and Exchange Commission are not required under the related instruction or are inapplicable and therefore have been omitted.



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