##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q   (Mark One) ☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2020 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: 814-00704   GLADSTONE INVESTMENT CORPORATION (Exact name of registrant as specified in its charter)  DELAWARE

83-0423116(State or other jurisdiction of
incorporation or organization)

(I.R.S. Employer
Identification No.)1521 WESTBRANCH DRIVE, SUITE 100MCLEAN, VIRGINIA

22102(Address of principal executive offices)

(Zip Code) (703) 287-5800 (Registrants telephone number, including area code) Not Applicable (Former
name, former address and former fiscal year, if changed since last report)   Securities
registered pursuant to Section 12(b) of the Act:  Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which RegisteredCommon Stock, $0.001 par value per share

GAIN

The Nasdaq Stock Market LLC6.250% Series D Cumulative Term Preferred Stock, $0.001 par value per share

GAINM

The Nasdaq Stock Market LLC6.375% Series E Cumulative Term Preferred Stock, $0.001 par value per share

GAINL

The Nasdaq Stock Market LLC Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the
past 90 days.     ☒  Yes    ☐  No Indicate by check mark whether
the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the
registrant was required to submit such files).    ☐  Yes    ☐  No Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of large accelerated filer, accelerated filer, smaller reporting
company, and emerging growth company in Rule 12b-2 of the Exchange Act.  Large accelerated filer

☐

Accelerated filer

☐Non-accelerated filer

☒

Smaller reporting company

☐Emerging growth company

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    ☐  Yes    ☒  No The number of shares of the
issuers Common Stock, $0.001 par value per share, outstanding as of November 2, 2020 was 33,205,023.




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION TABLE OF CONTENTS  PART I.

FINANCIAL INFORMATION:Item 1.

Financial Statements (Unaudited)Consolidated Statements of Assets and Liabilities as of September 
30, 2020 and March 31, 2020


2Consolidated Statements of Operations for the three and six months ended September 30,
 2020 and 2019


3Consolidated Statements of Changes in Net Assets for the three and six months ended
 September 30, 2020 and 2019


5Consolidated Statements of Cash Flows for the six months ended September 30,
 2020 and 2019


6Consolidated Schedules of Investments as of September 
30, 2020 and March 31, 2020


7Notes to Consolidated Financial Statements


19Item 2.

Managements Discussion and Analysis of Financial Condition and Results of
OperationsOverview


45Results of Operations


50Liquidity and Capital Resources


58Item 3.

Quantitative and Qualitative Disclosures About Market Risk


65Item 4.

Controls and Procedures


65PART II.

OTHER INFORMATION:Item 1.

Legal Proceedings


66Item 1A.

Risk Factors


66Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


66Item 3.

Defaults Upon Senior Securities


66Item 4.

Mine Safety Disclosures


66Item 5.

Other Information


66Item 6.

Exhibits


67SIGNATURES


68




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)  September 30,


March 31,2020


2020ASSETSInvestments at fair valueNon-Control/Non-Affiliate
investments (Cost of $313,703 and $276,589, respectively)

$
316,228


$
292,129Affiliate investments (Cost of $320,651 and $311,481, respectively)


264,777



247,637Control investments (Cost of $21,512 and $21,512 respectively)


27,957



26,158Cash and cash equivalents


1,667



2,778Restricted cash and cash equivalents


889



1,282Interest receivable


2,153



3,429Due from administrative agent


12,220



771Deferred financing costs, net


846



991Other assets, net


1,528



1,202TOTAL ASSETS

$
628,265


$
576,377LIABILITIESBorrowings:Line of credit at fair value (Cost of $116,600 and $49,200, respectively)

$
116,600


$
49,200Secured borrowing


5,096



5,096Total borrowings


121,696



54,296Mandatorily redeemable preferred stock, $0.001 par value per share, $25.00 liquidation
preference per share; 8,990,000 and 6,500,000 shares authorized; 5,548,610 and 5,290,000 shares issued and outstanding, respectively, net


135,722



129,160Accounts payable and accrued expenses


1,006



1,222Fees due to Adviser(A)


7,731



7,178Fee due to Administrator(A)


358



582Other liabilities


1,226



14,908TOTAL LIABILITIES

$
267,739


$
207,346Commitments and contingencies(B)NET ASSETS

$
360,526


$
369,031ANALYSIS OF NET ASSETSCommon stock, $0.001 par value per share, 100,000,000 shares authorized,
33,205,023 and 33,049,463 shares issued and outstanding, respectively

$
33


$
33Capital in excess of par value


402,156



401,023Cumulative net unrealized depreciation of investments


(46,904
)


(43,658
)Underdistributed net investment income


2,219



6,370Accumulated net realized gain in excess of distributions


3,022



5,263Total distributable earnings


(41,663
)


(32,025
)TOTAL NET ASSETS

$
360,526


$
369,031NET ASSET VALUE PER SHARE AT END OF PERIOD

$
10.86


$
11.17  (A)
Refer to Note 4  Related Party Transactions in the accompanying Notes to Consolidated
Financial Statements for additional information. (B)
Refer to Note 10  Commitments and Contingencies in the accompanying Notes to
Consolidated Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF
THESE CONSOLIDATED FINANCIAL STATEMENTS.  2




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)  Three Months Ended September 30,


Six Months Ended September 30,2020


2019


2020


2019INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate
investments

$
7,014


$
6,636


$
12,978


$
12,476Affiliate investments


4,616



7,274



8,964



13,083Control investments


210



214



419



428Cash and cash equivalents






19



4



31Total interest income


11,840



14,143



22,365



26,018Dividend incomeNon-Control/Non-Affiliate
investments






612







2,727Affiliate investments














3,080Total dividend income






612







5,807Success fee incomeNon-Control/Non-Affiliate
investments










182



Affiliate investments






1,881







2,121Total success fee income






1,881



182



2,121Total investment income


11,840



16,636



22,547



33,946EXPENSESBase management fee(A)


2,989



3,144



5,845



6,315Loan servicing fee(A)


1,747



1,593



3,456



3,345Incentive fee(A)


452



1,600



(302
)


3,169Administration fee(A)


390



423



836



737Interest expense on borrowings


1,055



1,207



1,972



2,266Dividends on mandatorily redeemable preferred stock


2,158



2,090



4,260



4,180Amortization of deferred financing costs and discounts


466



373



840



746Professional fees


254



467



825



971Other general and administrative expenses


778



1,357



1,535



1,954Expenses before credits from Adviser


10,289



12,254



19,267



23,683Credits to base management fee  loan servicing fee(A)


(1,747
)


(1,593
)


(3,456
)


(3,345
)Credits to fees from Adviser 
other(A)


(1,070
)


(608
)


(1,805
)


(1,830
)Total expenses, net of credits to fees


7,472



10,053



14,006



18,508NET INVESTMENT INCOME


4,368



6,583



8,541



15,438REALIZED AND UNREALIZED GAIN (LOSS)Net realized gain (loss):Non-Control/Non-Affiliate
investments


47



791



60



1,321Affiliate investments


574



20,353



1,314



20,356Total net realized gain


621



21,144



1,374



21,677Net unrealized appreciation (depreciation):Non-Control/Non-Affiliate
investments


(4,076
)


8,231



(13,014
)


7,465Affiliate investments


6,612



(26,617
)


7,970



(26,118
)Control investments


(895
)


1,532



1,798



(1,248
)Other






131







(164
)Total net unrealized appreciation (depreciation)


1,641



(16,723
)


(3,246
)


(20,065
)Net realized and unrealized gain (loss)


2,262



4,421



(1,872
)


1,612NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
6,630


$
11,004


$
6,669


$
17,050  (A)
Refer to Note 4  Related Party Transactions in the accompanying Notes to Consolidated
Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.  3




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Continued) (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS) (UNAUDITED)  Three Months Ended September 30,


Six Months Ended September 30,2020


2019


2020


2019BASIC AND DILUTED PER COMMON SHARE:Net investment income

$
0.13


$
0.20


$
0.26


$
0.47Net increase in net assets resulting from operations

$
0.20


$
0.34


$
0.20


$
0.52WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:Basic and diluted


33,205,023



32,822,459



33,148,652



32,822,459 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  4




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) (UNAUDITED)  2020


2019NET ASSETS, MARCH 31

$
369,031


$
407,110OPERATIONSNet investment income


4,173



8,855Net realized gain on investments


753



533Net unrealized depreciation of investments


(4,887
)


(3,047
)Net unrealized appreciation of other






(295
)Net increase in net assets from operations


39



6,046DISTRIBUTIONS(A)Distributions to common stockholders from net investment income ($0.28and $0.20 per
share, respectively)


(9,272
)


(6,523
)Distributions to common stockholders from net realized gains ($0.02 and $0.09 per share,
respectively)


(666
)


(3,127
)Net decrease in net assets from distributions


(9,938
)


(9,650
)CAPITAL ACTIVITYIssuance of common stock


1,772



Discounts, commissions, and offering costs for issuance of common stock


(35
)


Net increase in net assets from capital activity


1,737



NET DECREASE IN NET ASSETS


(8,162
)


(3,604
)NET ASSETS, JUNE 30

$
360,869


$
403,506OPERATIONSNet investment income


4,368



6,583Net realized gain on investments


621



21,144Net unrealized appreciation (depreciation) of investments


1,641



(16,854
)Net unrealized depreciation of other






131Net increase in net assets from operations


6,630



11,004DISTRIBUTIONS(A)Distributions to common stockholders from net investment income ($0.20and $0.16 per
share, respectively)


(6,553
)


(5,236
)Distributions to common stockholders from net realized gains ($0.01and $0.07 per share,
respectively)


(420
)


(2,444
)Net decrease in net assets from distributions


(6,973
)


(7,680
)NET (DECREASE) INCREASE IN NET ASSETS


(343
)


3,324NET ASSETS, SEPTEMBER 30

$
360,526


$
406,830  (A)
Refer to Note 9  Distributions to Common Stockholders in the accompanying Notes to Consolidated
Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.  5




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)  Six Months EndedSeptember 30,2020


2019CASH FLOWS FROM OPERATING ACTIVITIESNet increase in net assets resulting from operations

$
6,669


$
17,050Adjustments to reconcile net increase in net assets resulting from operations to net cash (used
in) provided by operating activities:Purchase of investments


(57,382
)


(71,380
)Principal repayments of investments


1,000



53,926Net proceeds from the sale of investments


1,104



34,539Net realized gain on investments


(1,374
)


(21,677
)Net unrealized depreciation of investments


3,246



19,901Net unrealized appreciation of other






164Amortization of premiums, discounts, and acquisition costs, net


(9
)


(9
)Amortization of deferred financing costs and discounts


840



746Bad debt expense, net of recoveries


60



148Changes in assets and liabilities:Decrease in interest receivable


1,232



79Increase in due from administrative agent


(1,342
)


(534
)Increase in other assets, net


(100
)


(33
)(Decrease) increase in accounts payable and accrued expenses


(216
)


861Increase in fees due to
Adviser(A)


525



16(Decrease) increase in fee due to
Administrator(A)


(224
)


79Decrease in other liabilities


(13,412
)


(9,879
)Net cash (used in) provided by operating activities


(59,383
)


23,997CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock


1,772



Discounts, commissions, and offering costs for issuance of common stock


(31
)


Proceeds from line of credit


81,500



100,000Repayments on line of credit


(14,100
)


(106,200
)Proceeds from issuance of mandatorily redeemable preferred stock


6,283



Deferred financing and offering costs


(634
)


(133
)Distributions paid to common stockholders


(16,911
)


(17,330
)Net cash provided by (used in) financing activities


57,879



(23,663
)NET (DECREASE) INCREASE IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH
EQUIVALENTS


(1,504
)


334CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT BEGINNING OF
PERIOD


4,060



3,605CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF
PERIOD

$
2,556


$
3,939CASH PAID FOR INTEREST

$
1,374


$
1,536  (A)
Refer to Note 4  Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.  6




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2020 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS(N)  87.7%Secured First Lien Debt  56.3%Containers, Packaging, and Glass  2.6%Frontier Packaging, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 3/2021)(L)

$
9,500


$
9,500


$
9,500Diversified/Conglomerate Manufacturing  1.1%Phoenix Door Systems, Inc.  Line of Credit, $80 available (L+7.0%, 9.0% Cash (0.3% Unused
Fee), Due 3/2021)(L)


670



670



670Phoenix Door Systems, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 9/2024)(L)


3,200



3,200



3,2003,870



3,870Diversified/Conglomerate Services  31.2%Bassett Creek Services, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 4/2023)(K)


37,500



37,500



35,672Counsel Press, Inc.  Term Debt (L+11.8%, 12.8% Cash, Due 3/2023)(L)


18,000



18,000



18,000Counsel Press, Inc.  Term Debt (L+13.0%, 14.0% Cash, Due 3/2023)(L)


5,500



5,500



5,500Horizon Facilities Services, Inc.  Term Debt (L+9.5%, 12.0% Cash, Due 6/2024)(G)(L)


27,700



27,700



27,700Mason West, LLC  Line of Credit, $2,651 available (L+8.0%, 10.0% Cash, Due 7/2021)(L)


349



349



349Mason West, LLC  Term Debt (L+10.0%, 12.5% Cash, Due 7/2025)(L)


25,250



25,250



25,250114,299


112,471Healthcare, Education, and Childcare  5.5%Educators Resource, Inc.  Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)(L)


20,000



20,000



20,000Home and Office Furnishings, Housewares, and Durable Consumer Products  6.8%Brunswick Bowling Products, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)


17,700



17,700



17,700Brunswick Bowling Products, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)


6,850



6,850



6,85024,550


24,550Leisure, Amusement, Motion Pictures, and Entertainment  6.0%Schylling, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)


13,081



13,081



13,081Schylling, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)


8,500



8,500



8,50021,581


21,581Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  3.1%SBS Industries Holdings, Inc.  Term Debt (L+5.0%, 7.0% Cash, Due 11/2024)(L)


11,355



11,355



11,355Total Secured First Lien Debt





$
205,155


$
203,327Secured Second Lien Debt  11.6%Automobile  1.1%Country Club Enterprises, LLC  Term Debt (L+8.0%, 10.0% Cash, Due 2/2022)(K)

$
4,000


$
4,000


$
3,830Country Club Enterprises, LLC  Guaranty ($1,000)(T)










4,000


3,830Cargo Transport  3.5%Diligent Delivery Systems  Term Debt (L+9.0%, 11.0% Cash, Due 11/2022)(K)


13,000



12,960



12,772Home and Office Furnishings, Housewares, and Durable Consumer Products  3.7%Ginsey Home Solutions, Inc.  Term Debt (L+10.0%, 13.5% Cash, Due 1/2025)(H)(L)


13,300



13,300



13,300Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  3.3%SBS Industries Holdings, Inc.  Term Debt (L+12.0%, 14.0% Cash, Due 11/2024)(L)


11,736



11,736



11,736Total Secured Second Lien Debt





$
41,996


$
41,638 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  7




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2020 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValuePreferred Equity  16.4%Containers, Packaging, and Glass  0.4%Frontier Packaging, Inc.  Preferred
Stock(C)(L)


1,373


$
1,373


$
1,457Diversified/Conglomerate Services  8.7%Bassett Creek Services, Inc.  Preferred
Stock(C)(L)


4,900



4,900



Counsel Press, Inc.  Preferred
Stock(C)(L)


6,995



6,995



18,614Horizon Facilities Services, Inc.  Preferred Stock(C)(L)


10,080



10,080



1,285Mason West, LLC  Preferred
Stock(C)(L)


11,206



11,206



11,20633,181



31,105Healthcare, Education, and Childcare  1.5%Educators Resource, Inc.  Preferred
Stock(C)(L)


8,560



8,560



5,410Home and Office Furnishings, Housewares, and Durable Consumer Products  4.6%Brunswick Bowling Products, Inc.  Preferred Stock(C)(L)


4,943



4,943



6,625Ginsey Home Solutions, Inc.  Preferred
Stock(C)(L)


19,280



9,583



10,08914,526



16,714Leisure, Amusement, Motion Pictures, and Entertainment  1.2%Schylling, Inc.  Preferred
Stock(C)(L)


4,000



4,000



4,263Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  0.0%SBS Industries Holdings, Inc.  Preferred Stock(C)(L)


27,705



2,771



Total Preferred Equity





$
64,411


$
58,949Common Equity/Equivalents  3.4%Cargo Transport  0.0%Diligent Delivery Systems  Common Stock Warrants(C)(L)


8
%

$
500


$
Containers, Packaging, and Glass  3.3%Frontier Packaging, Inc.  Common
Stock(C)(L)


153



153



11,937Diversified/Conglomerate Manufacturing  0.1%Phoenix Door Systems, Inc.  Common
Stock(C)(L)


2,515



1,200



329Home and Office Furnishings, Housewares, and Durable Consumer Products  0.0%Ginsey Home Solutions, Inc.  Common
Stock(C)(L)


63,747



8



Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  0.0%SBS Industries Holdings, Inc.  Common
Stock(C)(L)


221,500



222



Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.0%Funko Acquisition Holdings, LLC(M) 
Common Units(C)(S)


12,180



58



48Total Common Equity/Equivalents





$
2,141


$
12,314Total
Non-Control/Non-Affiliate Investments





$
313,703


$
316,228 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS  8




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2020 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueAFFILIATE INVESTMENTS(O) 
73.3%Secured First Lien Debt  42.3%Beverage, Food, and Tobacco  2.5%Head Country, Inc.  Term Debt (L+10.5%, 12.5% Cash, Due 2/2021)(L)


9,050


$
9,050


$
9,050Chemicals, Plastics, and Rubber  5.7%PSI Molded Plastics, Inc.  Term Debt (L+5.5%, 7.0% Cash, Due 1/2024)(G)(L)


26,618


$
26,618


$
20,522Diversified/Conglomerate Manufacturing  6.2%D.P.M.S., Inc.  Line of Credit, $250 available (L+6.5%, 9.0% Cash (0.5% Unused Fee), Due
10/2021)(L)


1,250



1,250



1,250D.P.M.S., Inc.  Term Debt (10.0% Cash, Due 10/2021)(I)(L)


10,796



10,796



8,158Edge Adhesives Holdings, Inc.(M)  Line
of Credit, $0 available (L+8.0%, 10.0% Cash, Due 12/2020)(K)


1,020



1,020



995Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+10.5%, 12.5% Cash, Due 2/2022)(K)


9,300



9,300



9,068Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+11.8%, 13.8% Cash, Due 2/2022)(K)


3,000



3,000



2,92525,366



22,396Diversified/Conglomerate Services  14.0%ImageWorks Display and Marketing Group, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 11/2022)(L)


22,000



22,000



22,000The Maids International, LLC  Line of Credit, $1,000 available (L+7.5%, 9.5% Cash (0.3%
Unused Fee), Due 3/2021)(L)










The Maids International, LLC  Term Debt (L+10.5%, 12.0% Cash, Due 3/2025)(L)


28,560



28,560



28,56050,560



50,560Leisure, Amusement, Motion Pictures, and Entertainment  2.4%SOG Specialty Knives & Tools, LLC  Term Debt (Due 12/2023)(L)(R)


538



538



538SOG Specialty Knives & Tools, LLC  Term Debt (L+4.0%, 6.0% Cash, Due 12/2023)(G)(L)


8,399



8,399



8,3998,937



8,937Personal and Non-Durable Consumer Products
(Manufacturing Only)  7.3%The Mountain Corporation  Line of Credit, $0 available (L+5.0%, 9.0% Cash, Due 4/2021)(G)(L)


3,400



3,400



3,400Pioneer Square Brands, Inc.  Term Debt (L+12.0%, 13.0% Cash, Due 8/2022)(L)


23,100



23,100



23,10026,500



26,500Telecommunications  4.2%B+T Group Acquisition, Inc.(M)  Line of
Credit, $0 available (L+11.0%, 13.0% Cash, Due 12/2021)(G)(K)


2,800



2,800



2,534B+T Group Acquisition, Inc.(M)  Term
Debt (L+11.0%, 13.0% Cash, Due 12/2021)(G)(K)


14,000



14,000



12,67016,800



15,204Total Secured First Lien Debt





$
163,831


$
153,169 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  9




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2020 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


FairValueSecured Second Lien Debt  13.5%Diversified/Conglomerate Services  12.8%J.R. Hobbs Co.  Atlanta, LLC  Line of Credit, $0 available (L+6.0%, 8.0% Cash, Due
10/2024)(L)


10,000


$
10,000


$
10,000J.R. Hobbs Co.  Atlanta, LLC  Term Debt (L+10.3%, 11.8% Cash, Due 10/2024)(L)


36,000



36,000



36,00046,000



46,000Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.7%The Mountain Corporation  Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)


11,700



11,700



2,377The Mountain Corporation  Delayed Draw Term Debt, $1,200 available (L+4.0%, 7.0% Cash, Due
4/2024)(G)(L)


300



300



6112,000



2,438Total Secured Second Lien Debt





$
58,000


$
48,438Preferred Equity  17.5%Beverage, Food, and Tobacco  1.2%Head Country, Inc.  Preferred
Stock(C)(L)


4,000


$
4,000


$
4,342Chemicals, Plastics, and Rubber  0.0%PSI Molded Plastics, Inc.  Preferred
Stock(C)(L)


158,598



19,730



Diversified/Conglomerate Manufacturing  0.0%Channel Technologies Group, LLC  Preferred Stock(C)(L)


2,279



1,841



Edge Adhesives Holdings, Inc.(M) 
Preferred Stock(C)(L)


8,199



8,199



10,040



Diversified/Conglomerate Services  3.7%ImageWorks Display and Marketing Group, Inc.  Preferred Stock(C)(L)


67,490



6,749



8,363J.R. Hobbs Co.  Atlanta, LLC  Preferred Stock(C)(L)


10,920



10,920



The Maids International, LLC  Preferred
Stock(C)(L)


6,640



6,640



5,07324,309



13,436Home and Office Furnishings, Housewares, and Durable Consumer Products  5.8%Old World Christmas, Inc.  Preferred
Stock(C)(L)


7,450



7,450



20,868Leisure, Amusement, Motion Pictures, and Entertainment  0.7%SOG Specialty Knives & Tools, LLC  Preferred Stock(C)(L)


14,949



14,949



2,549Personal and Non-Durable Consumer Products
(Manufacturing Only)  6.1%The Mountain Corporation  Preferred
Stock(C)(L)


6,899



6,899



Pioneer Square Brands, Inc.  Preferred
Stock(C)(L)


5,502



5,500



21,97512,399



21,975Telecommunications  0.0%B+T Group Acquisition, Inc.(M) 
Preferred Stock(C)(L)


14,304



4,722



Total Preferred Equity





$
97,599


$
63,170 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  10




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2020 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueCommon Equity/Equivalents  0.0%Diversified/Conglomerate Manufacturing  0.0%Channel Technologies Group, LLC  Common
Stock(C)(L)


2,319,184


$



$
D.P.M.S., Inc.  Common
Stock(C)(L)


627



1



1



Diversified/Conglomerate Services  0.0%Nth Degree Investment Group, LLC  Common Stock(C)(L)


14,360,000



1,219



Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.0%The Mountain Corporation  Common
Stock(C)(L)


751



1



Telecommunications  0.0%B+T Group Acquisition, Inc.(M) 
Common Stock Warrant(C)(L)


3.5
%






Total Common Equity/Equivalents





$
1,221


$
Total Affiliate Investments





$
320,651


$
264,777CONTROL INVESTMENTS(P) 
7.8%:Secured Second Lien Debt  2.8%Aerospace and Defense  2.8%Galaxy Tool Holding Corporation  Line of Credit, $0 available (L+4.5%, 6.5% Cash (1.0%
Unused Fee), Due 8/2021)(L)

$
5,000


$
5,000


$
5,000Galaxy Tool Holding Corporation  Term Debt (L+6.0%, 10.0% Cash, Due 8/2021)(L)


5,000



5,000



5,000$
10,000


$
10,000Preferred Equity  5.0%Aerospace and Defense  5.0%Galaxy Tool Holding Corporation  Preferred Stock(C)(L)


5,517,444


$
11,464


$
17,957Common Equity  0.0%Aerospace and Defense  0.0%Galaxy Tool Holding Corporation  Common Stock(C)(L)


88,843


$
48


$
Total Control Investments





$
21,512


$
27,957TOTAL INVESTMENTS  168.8%





$
655,866


$
608,962 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  11




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2020 (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 $476.4 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5  Borrowings in the accompanying Notes to Consolidated
Financial Statements. Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the 1940 Act), we may not acquire any non-qualifying assets unless, at the time such
acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2020, our investment in Funko Acquisition Holdings, LLC (Funko) was considered a
non-qualifying asset under Section 55 of the 1940 Act and represented less than 0.1% of total investments, at fair value. (B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 0.1% as of September 30, 2020. If applicable,
paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the
greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date. (C)
Security is non-income producing. (D)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of September 30, 2020. (E)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the Financial
Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) fair value hierarchy. Refer to Note 3 
Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (F)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. (G)
Debt security is on non-accrual status. (H)
$5.1 million of the debt security was participated to a third party, but is accounted for as collateral
for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilitiesas of September 30, 2020. (I)
Debt security has a fixed interest rate. (J)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable. (K)
Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. Refer to Note 3  Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (L)
Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to
the portfolio companys securities in order of their relative priority in the capital structure. Refer to Note 3  Investments in the accompanyingNotes to Consolidated Financial Statements for additional information. (M)
One of our affiliated funds, Gladstone Capital Corporation, co-invested
with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. (N)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. (O)
Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we
own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. (P)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. (Q)
Reserved. (R)
Debt security does not have a stated current interest rate. (S)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol FNKO. Refer to Note 3  Investments in the accompanying Notes to Consolidated Financial Statements for additional
information. (T)
Refer to Note 10  Commitments and Contingencies in the accompanyingNotes to
Consolidated Financial Statements for additional information regarding this guaranty. THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  12




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2020 (DOLLAR AMOUNTS IN THOUSANDS)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS(N)  79.4%Secured First Lien Debt  46.8%Containers, Packaging, and Glass  2.6%Frontier Packaging, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 3/2021)(L)

$
9,500


$
9,500


$
9,500Diversified/Conglomerate Manufacturing  1.0%Phoenix Door Systems, Inc  Line of Credit, $380 available (L+7.0%, 9.0% Cash (0.3% Unused
Fee), Due 3/2021)(L)


370



370



370Phoenix Door Systems, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 9/2024)(L)


3,200



3,200



3,2003,570


3,570Diversified/Conglomerate Services  24.1%Bassett Creek Services, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 4/2023)(L)


37,500



37,500



37,500Counsel Press, Inc.  Term Debt (L+11.8%, 12.8% Cash, Due 3/2023)(L)


18,000



18,000



18,000Counsel Press, Inc.  Term Debt (L+13.0%, 14.0% Cash, Due 3/2023)(L)


5,500



5,500



5,500Horizon Facilities Services, Inc.  Term Debt (L+9.5%, 12.0% Cash, Due 6/2024)(L)


27,700



27,700



27,70088,700


88,700Healthcare, Education, and Childcare  5.4%Educators Resource, Inc.  Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)(L)


20,000



20,000



20,000Home and Office Furnishings, Housewares, and Durable Consumer Products  4.8%Brunswick Bowling Products, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)


17,700



17,700



17,700Leisure, Amusement, Motion Pictures, and Entertainment  5.8%Schylling, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)


13,081



13,081



13,081Schylling, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)


8,500



8,500



8,50021,581


21,581Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  3.1%SBS Industries Holdings, Inc.  Term Debt (L+12.0%, 14.0% Cash, Due 11/2024)(L)


11,355



11,355



11,355Total Secured First Lien Debt





$
172,406


$
172,406Secured Second Lien Debt  13.1%Automobile  1.0%Country Club Enterprises, LLC  Term Debt (L+8.0%, 10.0% Cash, Due 2/2022)(K)

$
4,000


$
4,000


$
3,600Country Club Enterprises, LLC  Guaranty ($1,000)(U)










4,000


3,600Cargo Transport  3.4%Diligent Delivery Systems  Term Debt (L+9.0%, 11.0% Cash, Due 11/2022)(K)


13,000



12,951



12,545Home and Office Furnishings, Housewares, and Durable Consumer Products  5.5%Brunswick Bowling Products, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)


6,850



6,850



6,850Ginsey Home Solutions, Inc.  Term Debt (L+10.0%, 13.5% Cash, Due 1/2021)(H)(L)


13,300



13,300



13,30020,150


20,150Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  3.2%SBS Industries Holdings, Inc.  Term Debt (L+12.0%, 14.0% Cash, Due 11/2024)(L)


11,736



11,736



11,736Total Secured Second Lien Debt





$
48,837


$
48,031 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  13




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2020 (DOLLAR AMOUNTS IN THOUSANDS)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValuePreferred Equity  16.5%Containers, Packaging, and Glass  0.4%Frontier Packaging, Inc.  Preferred
Stock(C)(L)


1,373


$
1,373


$
1.400Diversified/Conglomerate Services  6.3%Bassett Creek Services, Inc.  Preferred
Stock(C)(L)


4,900



4,900



Counsel Press, Inc.  Preferred
Stock(C)(L)


6,995



6,995



20,593Horizon Facilities Services, Inc.  Preferred Stock(C)(L)


10,080



10,080



2,69921,975


23,292Healthcare, Education, and Childcare  1.5%Educators Resource, Inc.  Preferred
Stock(C)(L)


8,560



8,560



5,563Home and Office Furnishings, Housewares, and Durable Consumer Products  7.1%Brunswick Bowling Products, Inc.  Preferred Stock(C)(L)


4,943



4,943



19,848Ginsey Home Solutions, Inc.  Preferred
Stock(C)(L)


19,280



9,583



6,41914,526


26,267Leisure, Amusement, Motion Pictures, and Entertainment  1.2%Schylling, Inc.  Preferred
Stock(C)(L)


4,000



4,000



4,332Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  0.0%SBS Industries Holdings, Inc.  Preferred Stock(C)(L)


27,705



2,771



Total Preferred Equity





$
53,205


$
60,854Common Equity/Equivalents  3.0%Cargo Transport  0.2%Diligent Delivery Systems  Common Stock Warrants(C)(L)


8
%

$
500


$
771Containers, Packaging, and Glass  2.6%Frontier Packaging, Inc.  Common
Stock(C)(L)


152



152



9,460Diversified/Conglomerate Manufacturing 0.2%Phoenix Door Systems, Inc.  Common
Stock(C)(L)


2,515



1,200



574Home and Office Furnishings, Housewares, and Durable Consumer Products  0.0%Ginsey Home Solutions, Inc.  Common
Stock(C)(L)


63,747



8



Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  0.0%SBS Industries Holdings, Inc.  Common
Stock(C)(L)


221,500



222



Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.0%Funko Acquisition Holdings, LLC(M) 
Common Units(C)(S)


12,180



59



33Total Common Equity/Equivalents





$
2,141


$
10,838Total
Non-Control/Non-Affiliate Investments





$
276,589


$
292,129 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS  14




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2020 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueAFFILIATE INVESTMENTS(O) 
67.0%Secured First Lien Debt  36.8%Beverage, Food, and Tobacco  2.5%Head Country, Inc.  Term Debt (L+10.5%, 12.5% Cash, Due 2/2021)(L)


9,050



9,050



9,050Diversified/Conglomerate Manufacturing  6.4%D.P.M.S., Inc.  Line of Credit, $250 available (L+6.5%, 9.0% Cash (0.5% Unused Fee), Due
10/2021)(L)


1,250



1,250



1,250D.P.M.S., Inc.  Term Debt (10.0% Cash, Due 10/2021)(I)(L)


10,796



10,796



10,796Edge Adhesives Holdings, Inc.(M)  Line
of Credit, $600 available (L+8.0%, 10.0% Cash, Due 5/2020)(K)


420



420



395Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+10.5%, 12.5% Cash, Due 2/2022)(K)


9,300



9,300



8,742Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+11.8%, 13.8% Cash, Due 2/2022)(K)


3,000



3,000



2,82024,766


24,003Diversified/Conglomerate Services  14.0%ImageWorks Display and Marketing Group, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 11/2022)(L)


22,000



22,000



22,000The Maids International, LLC  Line of Credit, $0 available (L+7.5%, 9.5% Cash (0.3% Unused
Fee), Due 3/2021)(L)


1,000



1,000



1,000The Maids International, LLC  Term Debt (L+10.5%, 12.0% Cash, Due 3/2025)(L)


28,560



28,560



28,56051,560


51,560Leisure, Amusement, Motion Pictures, and Entertainment  2.4%SOG Specialty Knives & Tools, LLC  Term Debt (Due 8/2020)(L)(R)


538



538



538SOG Specialty Knives & Tools, LLC  Term Debt (L+4.0%, 6.0% Cash, Due 8/2022)(G)(L)


8,399



8,399



8,3998,937


8,937Personal and Non-Durable Consumer Products
(Manufacturing Only)  7.2%The Mountain Corporation  Line of Credit, $0 available (L+5.0%, 9.0% Cash, Due 4/2021)(L)


3,400



3,400



3,400Pioneer Square Brands, Inc.  Term Debt (L+12.0%, 13.0% Cash, Due 8/2022)(L)


23,100



23,100



23,10026,500


26,500Telecommunications  4.3%B+T Group Acquisition, Inc.(M)  Line of
Credit, $0 available (L+11.0%, 13.0% Cash, Due 12/2021)(G)(K)


2,800



2,800



2,632B+T Group Acquisition, Inc.(M)  Term
Debt (L+11.0%, 13.0% Cash, Due 12/2021)(G)(K)


14,000



14,000



13,16016,800



15,792Total Secured First Lien Debt





$
137,613


$
135,842 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  15




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2020 (DOLLAR AMOUNTS IN THOUSANDS)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


FairValueSecured Second Lien Debt  17.7%Chemicals, Plastics, and Rubber  4.5%PSI Molded Plastics, Inc.  Term Debt (L+12.0%, 13.5% Cash, Due 1/2024)(G)(L)

$
26,618


$
26,618


$
16,737Diversified/Conglomerate Services  12.5%J.R. Hobbs Co.  Atlanta, LLC  Line of Credit, $0 available (L+6.0%, 8.0% Cash, Due
10/2024)(L)


10,000



10,000



10,000J.R. Hobbs Co.  Atlanta, LLC  Term Debt (L+10.3%, 11.8% Cash, Due 10/2024)(L)


36,000



36,000



36,00046,000


46,000Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.7%The Mountain Corporation  Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)


11,700



11,700



2,572Total Secured Second Lien Debt





$
84,318


$
65,309Preferred Equity  11.5%Beverage, Food, and Tobacco  0.9%Head Country, Inc.  Preferred
Stock(C)(L)


4,000



4,000



3,495Chemicals, Plastics, and Rubber  0.0%PSI Molded Plastics, Inc.  Preferred
Stock(C)(L)


78,598



11,730



Diversified/Conglomerate Manufacturing  0.0%Channel Technologies Group, LLC  Preferred Stock(C)(L)


2,279



1,841



Edge Adhesives Holdings, Inc.(M) 
Preferred Stock(C)(L)


8,199



8,199



10,040


Diversified/Conglomerate Services  3.6%ImageWorks Display and Marketing Group, Inc.  Preferred Stock(C)(L)


67,490



6,749



8,265J.R. Hobbs Co.  Atlanta, LLC  Preferred Stock(C)(L)


10,920



10,920



The Maids International, LLC  Preferred
Stock(C)(L)


6,640



6,640



5,33924,309


13,604Home and Office Furnishings, Housewares, and Durable Consumer Products  5.3%Old World Christmas, Inc.  Preferred
Stock(C)(L)


6,180



6,180



19,588Leisure, Amusement, Motion Pictures, and Entertainment  0.1%SOG Specialty Knives & Tools, LLC  Preferred Stock(C)(L)


14,949



14,949



390Personal and Non-Durable Consumer Products
(Manufacturing Only)  1.6%The Mountain Corporation  Preferred
Stock(C)(L)


6,899



6,899



Pioneer Square Brands, Inc.  Preferred
Stock(C)(L)


5,502



5,500



5,76012,399


5,760Telecommunications  0.0%B+T Group Acquisition, Inc.(M) 
Preferred Stock(C)(L)


14,304



4,722



Total Preferred Equity





$
88,329


$
42,837 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  16




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2020 (DOLLAR AMOUNTS IN THOUSANDS)  Company and Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueCommon Equity/Equivalents  1.0%Diversified/Conglomerate Manufacturing  0.0%Channel Technologies Group, LLC  Common
Stock(C)(L)


2,319,184







D.P.M.S., Inc.  Common
Stock(C)(L)


627



1



1



Diversified/Conglomerate Services  1.0%Nth Degree Investment Group, LLC  Common Stock(C)(L)


14,360,000



1,219



3,649Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.0%The Mountain Corporation  Common
Stock(C)(L)


751



1



Telecommunications  0.0%B+T Group Acquisition, Inc.(M) 
Common Stock Warrants(C)(L)


3.5
%






Total Common Equity/Equivalents





$
1,221


$
3,649Total Affiliate Investments





$
311,481


$
247,637CONTROL INVESTMENTS(P) 
7.2%:Secured Second Lien Debt  2.8%Aerospace and Defense  2.8%Galaxy Tool Holding Corporation  Line of Credit, $0 available (L+4.5%, 6.5% Cash (1.0%
Unused Fee), Due 8/2021)(L)

$
5,000


$
5,000


$
5,000Galaxy Tool Holding Corporation  Term Debt (L+6.0%, 10.0% Cash, Due 8/2021)(L)


5,000



5,000



5,000$
10,000


$
10,000Preferred Equity  4.4%Aerospace and Defense  4.4%Galaxy Tool Holding Corporation  Preferred Stock(C)(L)


5,517,444


$
11,464


$
16,158Common Equity  0.0%Aerospace and Defense  0.0%Galaxy Tool Holding Corporation  Common Stock(C)(L)


88,843


$
48


$
Total Control Investments





$
21,512


$
26,158TOTAL INVESTMENTS 
153.6%(V)





$
609,582


$
565,924 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  17




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2020 (DOLLAR AMOUNTS IN THOUSANDS)  (A)
Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The
majority of the securities listed, totaling $496.4 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5Borrowings in the accompanying Notes to Consolidated
Financial Statements. Additionally, under Section 55 of the 1940 Act, we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least
70% of our total assets. As of March 31, 2020, our investment in Funko was considered a non-qualifying asset under Section 55 of the 1940 Act and represented less than 0.1% of total investments, at
fair value. (B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day LIBOR, which was 1.0% as of March 31, 2020. If applicable, paid-in-kind interest rates are noted separately from the
cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity
date. (C)
Security is non-income producing. (D)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of March 31, 2020. (E)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair
value hierarchy. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (F)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. (G)
Debt security is on non-accrual status. (H)
$5.1 million of the debt security was participated to a third party, but is accounted for as collateral
for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilitiesas of March 31, 2020. (I)
Debt security has a fixed interest rate. (J)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable. (K)
Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (L)
Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to
the portfolio companys securities in order of their relative priority in the capital structure. Refer to Note 3Investments in the accompanyingNotes to Consolidated Financial Statements for additional information. (M)
One of our affiliated funds, Gladstone Capital Corporation, co-invested
with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. (N)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. (O)
Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we
own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. (P)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. (Q)
Reserved. (R)
Debt security does not have a stated current interest rate. (S)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol FNKO. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional
information. (T)
Reserved. (U)
Refer to Note 10Commitments and Contingencies in the accompanyingNotes to Consolidated
Financial Statements for additional information regarding this guaranty. (V)
Cumulative gross unrealized depreciation for federal income tax purposes is $105.3 million; cumulative
gross unrealized appreciation for federal income tax purposes is $60.7 million. Cumulative net unrealized depreciation is $44.6 million, based on a tax cost of $610.5 million. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  18




---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2020 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED) (UNAUDITED) NOTE 1. ORGANIZATION Gladstone Investment Corporation (Gladstone Investment) was incorporated under the General Corporation Law of the State of Delaware on
February 18, 2005, and completed an initial public offering on June 22, 2005. The terms the Company, we, our and us all refer to Gladstone Investment and its consolidated subsidiaries. We are
an externally advised, closed-end, non-diversified management investment company that has elected to be treated as a business development company (BDC) under
the Investment Company Act of 1940, as amended (the 1940 Act), and are applying the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946, Financial
Services-Investment Companies (ASC 946). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended
(the Code). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (U.S.). Debt investments primarily take the form of two types of loans: secured
first lien loans and secured second lien loans. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. Our investment
objectives are to: (i) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding
indebtedness and make distributions to stockholders that grow over time, and (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in
combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our equity investments for capital gains. We intend that our investment portfolio over time will consist of approximately 75.0% in debt
investments and 25.0% in equity investments, at cost. Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of
ours, was established on August 11, 2006 for the sole purpose of holding certain investments pledged as collateral under our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment. We
also have significant subsidiaries (as defined under Rule 1-02(w) of the U.S. Securities and Exchange Commissions (SEC) Regulation S-X) whose financial
statements are not consolidated with ours. Refer to Note 12  Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries. We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours and an
SEC-registered investment adviser, pursuant to an investment advisory and management agreement (the Advisory Agreement). Administrative services are provided by Gladstone Administration, LLC (the
Administrator), an affiliate of ours and the Adviser, pursuant to an administration agreement (the Administration Agreement). Refer to Note 4  Related Party Transactions for more information regarding these
arrangements. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Statements and Basis of Presentation We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of SEC Regulation S-X. Accordingly, we have not included in
this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules
and regulations pursuant to the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another
investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments,
consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and six months ended September 30, 2020 are not
necessarily indicative of results that ultimately may be achieved for the fiscal year ending March 31, 2021 or any future interim period. The interim financial statements and notes thereto should be read in conjunction with the financial
statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended March 31, 2020, as filed with the SEC on May 12, 2020.  19




---

##### Table of Contents

Use of Estimates Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated
Financial Statements and these Notes to Consolidated Financial Statements. Actual results may differ from those estimates. Investment
Valuation Policy Accounting Recognition We
record our investments at fair value in accordance with the FASB ASC Topic 820, Fair Value Measurements and Disclosures (ASC 820) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains
or losses are generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments
charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or
losses are realized. Board Responsibility In
accordance with the 1940 Act, our board of directors (Board of Directors) has the ultimate responsibility for reviewing and determining, in good faith, the fair value of our investments for which market quotations are not readily
available based on our investment valuation policy (which has been approved by our Board of Directors) (the Policy). Such review occurs in three phases. First, prior to its quarterly meetings, the Board of Directors receives written
valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from the chief valuation officer (the Valuation Team). Second, the Valuation Committee of our
Board of Directors (comprised entirely of independent directors) meets to review the valuation recommendations and supporting materials, presented by the chief valuation officer. Third, after the Valuation Committee concludes its meeting, it and the
chief valuation officer present the Valuation Committees findings to the entire Board of Directors so that the full Board of Directors may review and determine in good faith the fair value of such investments in accordance with the Policy. There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and
circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy, and each quarter the Valuation Committee and Board of Directors review the Policy
to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently. Use of Third Party Valuation Firms The Valuation Team engages third party valuation firms to provide independent assessments of fair value of certain of our investments. ICE Data Pricing and Reference Data, LLC (ICE), a valuation specialist, generally provides estimates of fair value on our debt investments. The
Valuation Team generally assigns ICEs estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates ICEs estimates of fair value
using one or more of the valuation techniques discussed below. The Valuation Teams estimate of value on a specific debt investment may significantly differ from ICEs. When this occurs, our Valuation Committee and Board of Directors
review whether the Valuation Team has followed the Policy and whether the Valuation Teams recommended fair value is reasonable in light of the Policy and other facts and circumstances before determining fair value. We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for
incorporation into the total enterprise value (TEV) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review the valuation of each of our significant equity investments,
which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes a
recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value and whether it is reasonable in light of the Policy and other relevant facts and circumstances
before determining fair value.  20




---

##### Table of Contents

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

Total Enterprise Value  In determining the fair value using a TEV, the Valuation Team first
calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio companys ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the
trailing or projected twelve month revenue or earnings before interest, taxes, depreciation and amortization (EBITDA)); EBITDA obtained from our indexing methodology whereby the original transaction EBITDA at the time of our closing is
indexed to a general subset of comparable disclosed transactions and EBITDA from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries; and other pertinent
factors. The Valuation Team generally reviews industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio
companys securities based on the facts and circumstances of the securities, which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation
Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments. TEV is primarily calculated using EBITDA; however, TEV may also be calculated using revenue multiples or a discounted cash flow
(DCF) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity
risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit-impaired
portfolio companies.  

Yield Analysis  The Valuation Team generally determines the fair value of our debt investments for
which we do not have the ability to effectuate a sale of the applicable portfolio company using the yield analysis, which includes a DCF calculation and assumptions that the Valuation Team believes market participants would use, including: estimated
remaining life, current market yield, current leverage, and interest rate spreads. This technique develops a modified discount rate that incorporates risk premiums including, among other things, increased probability of default, increased loss upon
default, and increased liquidity risk. Generally, the Valuation Team uses the yield analysis to corroborate both estimates of value provided by ICE and market quotes.  

Market Quotes  For our investments for which a limited market exists, we generally base fair value
on readily available and reliable market quotations, which are corroborated by the Valuation Team (generally by using the yield analysis explained above). In addition, the Valuation Team assesses trading activity for similar investments and
evaluates variances in quotations and other market insights to determine if any available quoted prices are reliable. Typically, the Valuation Team uses the lower indicative bid price in the bid-to-ask price range obtained from the respective originating syndication agents trading desk on or near the valuation date. The Valuation Team may take further steps to consider additional
information to validate that price in accordance with the Policy. For securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date. For restricted securities that
are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the
restriction.  

Investments in Funds  For equity investments in other funds for which we cannot effectuate a sale of
the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (NAV) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par
value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity. In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments,
including: the nature and realizable value of the collateral, including external parties guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the
portfolio company operates.  21




---

##### Table of Contents

Fair value measurements of our investments may involve subjective judgments and estimates and, due to the
uncertainty inherent in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be
materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other
events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other
restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded. Refer to Note 3  Investments for additional information regarding fair value measurements and our application of ASC 820. Revenue Recognition Interest Income Recognition Interest income, adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the
accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we
will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain
contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid and, in managements judgment, are likely to remain current, or, due to a
restructuring, the interest income is deemed to be collectible. As of September 30, 2020, our loans to B+T Group Acquisition, Inc. (B+T), Horizon Facilities Services, Inc. (Horizon), The Mountain Corporation (The
Mountain), PSI Molded Plastics, Inc. (PSI Molded), and SOG Specialty Knives & Tools, LLC (SOG) were on non-accrual status, with an aggregate debt cost basis of
$94.9 million, or 19.8% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $77.7 million, or 17.0% of the fair value of all debt investments in our portfolio. As of March 31, 2020, certain of
our loans to B+T, The Mountain, PSI Molded, and SOG were on non-accrual status, with an aggregate debt cost basis of $63.5 million, or 14.0% of the cost basis of all debt investments in our portfolio, and
an aggregate fair value of $43.5 million, or 10.1% of the fair value of all debt investments in our portfolio. Paid-in-kind (PIK) interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. As of
September 30, 2020 and March 31, 2020, we did not have any loans with a PIK interest component. Success Fee Income Recognition We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in
a portfolio company, typically resulting from an exit or sale, and are non-recurring. Dividend Income
Recognition We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we
have the option to collect such amounts in cash or other consideration. Related Party Fees We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the
Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the
terms of the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (the Credit Facility). We are also party to
the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services. Refer to Note 4  Related Party Transactionsfor additional information regarding these related party fees and agreements.  22




---

##### Table of Contents

Recent Accounting Pronouncements In August 2018, the FASB issued Accounting Standards Update 2018-13, Fair Value Measurement (Topic 820):
Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value (ASU 2018-13), which modifies the disclosure requirements in ASC 820. ASU 2018-13 was effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted, and we adopted ASU 2018-13 effective April 1, 2020. The adoption of ASU 2018-13 did not have a material impact on our financial position, results of operations or cash flows. NOTE 3. INVESTMENTS Fair Value In accordance with ASC 820, we determine the fair value of our investments to be the price that would be received for an investment in a current sale, which
assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use
of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.  

Level1  inputs to the valuation methodology are quoted prices (unadjusted) for
identical financial instruments in active markets;  

Level2  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 those in 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  

Level3  inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Teams assumptions based upon the best available
information. When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such
determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable
inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the
fair value measurement. As of September 30, 2020 and March 31, 2020, all of our investments were valued using Level 3 inputs within the
ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (Funko), which was valued using Level 2 inputs. We transfer investments in and out of Level 1, 2 and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of
observable and unobservable inputs utilized to perform the valuation for the period. There were no transfers in or out of Level 1, 2 and 3 during the six months ended September 30, 2020 and 2019, respectively.  23




---

##### Table of Contents

As of September 30, 2020 and March 31, 2020, our investments, by security type, at fair value were
categorized as follows within the ASC 820 fair value hierarchy:  Fair Value MeasurementsFair Value


Quoted Prices inActive Marketsfor Identical Assets(Level 1)


Significant OtherObservableInputs(Level 2)


SignificantUnobservableInputs(Level 3)As of September 30, 2020:Secured first lien debt

$
356,496


$



$



$
356,496Secured second lien debt


100,076











100,076Preferred equity


140,076











140,076Common equity/equivalents


12,314







48
(A)


12,266Total Investments as of September 30, 2020

$
608,962


$



$
48


$
608,914  Fair Value MeasurementsFair Value


Quoted Prices inActive Marketsfor Identical Assets(Level 1)


Significant OtherObservableInputs(Level 2)


SignificantUnobservableInputs(Level 3)As of March 31, 2020:Secured first lien debt

$
308,248


$



$



$
308,248Secured second lien debt


123,340











123,340Preferred equity


119,849











119,849Common equity/equivalents


14,487







33
(A)


14,454Total Investments as of March 31, 2020

$
565,924


$



$
33


$
565,891  (A)
Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be
converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability, as our investment was subject to certain restrictions.  24




---

##### Table of Contents

The following table presents our investments, valued using Level 3 inputs within the ASC 820 fair value
hierarchy, and carried at fair value as of September 30, 2020 and March 31, 2020, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:  Total Recurring Fair Value MeasurementsReported inConsolidated Statementsof Assets and
LiabilitiesValued Using Level 3 InputsSeptember 30, 2020


March 31, 2020Non-Control/Non-Affiliate
InvestmentsSecured first lien debt

$
203,327


$
172,406Secured second lien debt


41,638



48,031Preferred equity


58,949



60,854Common equity/equivalents(A)


12,266



10,805Total
Non-Control/Non-Affiliate Investments


316,180



292,096Affiliate InvestmentsSecured first lien debt


153,169



135,842Secured second lien debt


48,438



65,309Preferred equity


63,170



42,837Common equity/equivalents






3,649Total Affiliate Investments


264,777



247,637Control InvestmentsSecured first lien debt






Secured second lien debt


10,000



10,000Preferred equity


17,957



16,158Common equity/equivalents






Total Control Investments


27,957



26,158Total investments at fair value using Level 3 inputs

$
608,914


$
565,891  (A)
Excludes our investment in Funko with a fair value of $48 and $33 as of September 30, 2020 and
March 31, 2020, respectively, which was valued using Level 2 inputs.  25




---

##### Table of Contents

In accordance with ASC 820, the following table provides quantitative information about our investments
valued using Level 3 fair value measurements as of September 30, 2020 and March 31, 2020. The table below is not intended to be all-inclusive, but rather provides information on the significant
Level 3 inputs as they relate to our fair value measurements. The weighted-average calculations in the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations
for the particular input.  Quantitative Information about Level 3 Fair Value MeasurementsFair Value as of


ValuationTechnique/
Methodology

UnobservableInput

Range / Weighted-Average as ofSeptember 30, 2020


March 31, 2020


September 30, 2020

March 31, 2020Secured first lien debt

$
292,633


$
280,499


TEV

EBITDA multiple

4.1x  8.0x / 6.3x

4.2x  8.1x / 6.2xEBITDA

$1,372  $12,750 /
$6,591

$1,372  $13,042 /
$5,894Revenue multiple

0.4x  0.7x / 0.5x

0.3x  0.7x / 0.5xRevenue

$12,501  $26,113 / $17,970

$14,343  $24,060 / $18,141Discount Rate

17.5%  17.5% / 17.5%

63,863



27,749


Yield Analysis

Discount Rate

11.9%  18.8% / 15.5%

16.2%  18.7% / 16.8%Secured second lien debt


83,474



107,195


TEV

EBITDA multiple

5.0x  6.3x / 5.4x

5.1x  6.2x / 5.6xEBITDA

$4,942  $10,486 / $8,294

$4,459  $13,042 / $7,444Revenue multiple

0.7x  0.7x / 0.7x

0.7x  0.7x / 0.7xRevenue

$14,832  $14,832 / $14,832

$15,267  $15,267 / $15,26716,602



16,145


Yield Analysis

Discount Rate

11.9%  13.5% / 12.3%

12.6%  16.4% / 13.5%Preferred equity


140,076



119,849


TEV

EBITDA multiple

5.0x  8.0x / 6.2x

5.1x  8.1x / 6.1xEBITDA

$1,492  $12,750 / $6,038

$356 $13,042 / $5,596Revenue multiple

0.4x  0.7x / 0.6x

0.6x  0.7x / 0.6xRevenue

$12,501  $26,113 / $21,420

$15,267  $24,060 / $21,283Discount Rate

17.5%  17.5% / 17.5%

Common equity/equivalents(A)


12,266



14,454


TEV

EBITDA multiple

4.1x  7.3x / 5.8x

4.2x  7.4x / 5.9xEBITDA

$1,372  $9,895 / $4,685

$1,372  $16,061 / $9,258Revenue multiple

0.4x  0.7x / 0.4x

0.7x  0.7x / 0.7xRevenue

$12,501  $14,832 / $12,509

$15,267  $15,267 / $15,267Total

$
608,914


$
565,891  (A)
Fair value as of both September 30, 2020 and March 31, 2020 excludes our investment in Funko with a
fair value of $48 and $33, respectively, which was valued using Level 2 inputs. Fair value measurements can be sensitive to
changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in
discount rates or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase in the fair value of certain of our investments.  26




---

##### Table of Contents

Changes in Level 3 Fair Value Measurements of Investments The following tables provide our portfolios changes in fair value, broken out by security type, during the three and six months ended September 30,
2020 and 2019 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs. Fair Value
Measurements Using Significant Unobservable Inputs (Level 3)  Secured


Secured





CommonFirst Lien


Second Lien


Preferred


Equity/Debt


Debt


Equity


Equivalents


TotalThree Months ended September 30, 2020:Fair value as of June 30, 2020

$
312,628


$
116,134


$
122,237


$
10,295


$
561,294Total gain (loss):Net realized gain (loss)(A)














114



114Net unrealized appreciation
(depreciation)(B)


1,355



951



(2,636
)


1,971



1,641Reversal of previously recorded (appreciation) depreciation upon realization(B)


















New investments, repayments and
settlements(C):Issuances / originations


33,399



105



23,581







57,085Settlements / repayments


(8,000
)














(8,000
)Sales










(3,106
)


(114
)


(3,220
)Transfers(D)


17,114



(17,114
)










Fair value as of September 30, 2020

$
356,496


$
100,076


$
140,076


$
12,266


$
608,914Secured


Secured





CommonFirst Lien


Second Lien


Preferred


Equity/Debt


Debt


Equity


Equivalents


TotalSix Months ended September 30, 2020:Fair value as of March 31, 2020

$
308,248


$
123,340


$
119,849


$
14,454


$
565,891Total gain (loss):Net realized gain (loss)(A)














114



114Net unrealized appreciation
(depreciation)(B)


(1,215
)


390



(248
)


(2,188
)


(3,261
)Reversal of previously recorded (appreciation) depreciation upon realization(B)


















New investments, repayments and
settlements(C):Issuances / originations


33,499



310



23,581







57,390Settlements / repayments


(8,000
)














(8,000
)Sales










(3,106
)


(114
)


(3,220
)Transfers(D)


23,964



(23,964
)










Fair value as of September 30, 2020

$
356,496


$
100,076


$
140,076


$
12,266


$
608,914Secured


Secured





CommonFirst Lien


Second Lien


Preferred


Equity/Debt


Debt


Equity


Equivalents


TotalThree Months ended September 30, 2019:Fair value as of June 30, 2019

$
338,586


$
76,475


$
188,639


$
27,099


$
630,799Total gain (loss):Net realized gain (loss)(A)










2,788



17,576



20,364Net unrealized appreciation
(depreciation)(B)


(1,532
)


(2,503
)


1,178



(1,202
)


(4,059
)Reversal of previously recorded (appreciation) depreciation upon realization(B)






67



(2,672
)


(10,029
)


(12,634
)New investments, repayments and
settlements(C):Issuances / originations


12,450



5,005



1,500



1,200



20,155Settlements / repayments


(7,640
)


(13,300
)










(20,940
)Sales










(7,902
)


(17,617
)


(25,519
)Transfers(D)


(41,000
)


41,000











Fair value as of September 30, 2019

$
300,864


$
106,744


$
183,531


$
17,027


$
608,166  27




---

##### Table of Contents

Secured


Secured





CommonFirst Lien


Second Lien


Preferred


Equity/Debt


Debt


Equity


Equivalents


TotalSix Months ended September 30, 2019:Fair value as of March 31, 2019

$
331,090


$
75,293


$
195,377


$
22,011


$
623,771Total gain (loss):Net realized gain (loss)(A)










1,533



19,295



20,828Net unrealized appreciation
(depreciation)(B)


(1,700
)


(1,325
)


(9,367
)


6,451



(5,941
)Reversal of previously recorded (appreciation) depreciation upon realization(B)






67



(2,121
)


(11,748
)


(13,802
)New investments, repayments and
settlements(C):Issuances / originations


53,100



5,009



12,080



1,200



71,389Settlements / repayments


(40,626
)


(13,300
)










(53,926
)Sales










(13,971
)


(20,182
)


(34,153
)Transfers(D)


(41,000
)


41,000











Fair value as of September 30, 2019

$
300,864


$
106,744


$
183,531


$
17,027


$
608,166  (A)
Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of
Operations for the respective periods ended September 30, 2020 and 2019. (B)
Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated
Statements of Operations for the respective periods ended September 30, 2020 and 2019. (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)
2020: Transfers represent (1) secured second lien debt of Brunswick Bowling Products, Inc. with a total
cost basis and fair value of $6.9 million, which was converted into secured first lien debt during the three months ended June 30, 2020 and (2) secured second lien debt of PSI Molded, with a total cost basis and fair value of
$26.6 million and $17.1 million, respectively, which was converted into secured first lien debt during the three months ended September 30, 2020. 2019: Transfers represent (1) secured first lien debt of B-Dry, LLC with a cost basis of
$11.9 million and a fair value of $0, which was converted into equity during the three months ended June 30, 2019 and (2) secured first lien debt of J.R. Hobbs Co.  Atlanta, LLC, with a total cost basis and fair value of
$41.0 million, which was converted into secured second lien debt during the three months ended September 30, 2019. Investment Activity During the six months ended September 30, 2020, the following significant transactions occurred:  

In July 2020, we invested $46.9 million in Mason West, LLC (Mason West) through a combination of
secured first lien debt and preferred equity. Mason West, headquartered in Placentia, California, is a provider of engineered seismic restraint and vibration isolation solutions. In September 2020, Mason West repaid $7.0 million of secured
first lien debt and redeemed $3.1 million of preferred equity, which was included in Due from administrative agent in our accompanying Consolidated Statements of Assets and Liabilities as of September 30, 2020.  

In September 2020, we invested an additional $8.0 million into PSI Molded in the form of preferred equity
and also amended certain terms of our existing debt. Investment Concentrations As of September 30, 2020, our investment portfolio consisted of investments in 29 portfolio companies located in 17 states across 14 different industries
with an aggregate fair value of $609.0 million. Our investments in J.R. Hobbs Co.  Atlanta, LLC, Pioneer Square Brands, Inc., Counsel Press, Inc., Mason West, and Bassett Creek Services, Inc. represented our five largest portfolio
investments at fair value as of September 30, 2020, and collectively comprised $205.7 million, or 33.8%, of our total investment portfolio at fair value.  28




---

##### Table of Contents

The following table summarizes our investments by security type as of September 30, 2020 and
March 31, 2020:  September 30, 2020


March 31, 2020Cost


Fair Value


Cost


Fair ValueSecured first lien debt

$
368,986



56.3
%

$
356,496



58.5
%

$
310,019



50.9
%

$
308,248



54.5
%Secured second lien debt


109,996



16.8



100,076



16.4



143,155



23.5



123,340



21.8Total debt


478,982



73.1



456,572



74.9



453,174



74.4



431,588



76.3Preferred equity


173,474



26.4



140,076



23.0



152,998



25.1



119,849



21.2Common equity/equivalents


3,410



0.5



12,314



2.1



3,410



0.5



14,487



2.5Total equity/equivalents


176,884



26.9



152,390



25.1



156,408



25.6



134,336



23.7Total investments

$
655,866



100.0
%

$
608,962



100.0
%

$
609,582



100.0
%

$
565,924



100.0
% Investments at fair value consisted of the following industry classifications as of September 30, 2020 and March 31,
2020:  September 30, 2020


March 31, 2020Fair Value


Percentage ofTotal Investments


Fair Value


Percentage ofTotal InvestmentsDiversified/Conglomerate Services

$
253,572



41.6
%

$
226,805



40.1
%Home and Office Furnishings, Housewares, and Durable Consumer Products


75,432



12.4



83,705



14.8Personal and Non-Durable Consumer Products
(Manufacturing Only)


50,961



8.4



34,865



6.2Leisure, Amusement, Motion Pictures, and Entertainment


37,330



6.1



35,240



6.2Aerospace and Defense


27,957



4.6



26,158



4.6Diversified/Conglomerate Manufacturing


26,595



4.4



28,147



5.0Healthcare, Education, and Childcare


25,410



4.2



25,563



4.5Machinery (Non-agriculture, Non-construction, and Non-electronic)


23,091



3.8



23,091



4.1Containers, Packaging, and Glass


22,894



3.8



20,360



3.6Chemicals, Plastics, and Rubber


20,522



3.4



16,737



3.0Telecommunications


15,204



2.5



15,792



2.8Beverage, Food, and Tobacco


13,392



2.2



12,545



2.2Cargo Transport


12,772



2.1



13,316



2.4Other < 2.0%


3,830



0.5



3,600



0.5Total investments

$
608,962



100.0
%

$
565,924



100.0
% Investments at fair value were included in the following geographic regions of the U.S. as of September 30, 2020 and
March 31, 2020:  September 30, 2020


March 31, 2020Location

Fair Value


Percentage ofTotal Investments


Fair Value


Percentage ofTotal InvestmentsSouth

$
179,219



29.4
%

$
182,178



32.2
%Northeast


150,522



24.7



146,434



25.9West


146,584



24.1



90,214



15.9Midwest


132,637



21.8



147,098



26.0Total investments

$
608,962



100.0
%

$
565,924



100.0
% The geographic region indicates the location of the headquarters for our portfolio companies. A portfolio company may have
additional business locations in other geographic regions.  29




---

##### Table of Contents

Investment Principal Repayments The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments,
as of September 30, 2020:  AmountFor the remaining six months ending March 31:

2021

$
20,240For the fiscal years ending March 31:

2022


58,8942023


106,1502024


93,0552025


175,432Thereafter


25,250Total contractual repayments

$
479,021Adjustments to cost basis of debt investments


(39
)Investments in equity securities


176,884Total cost basis of investments held as of September 30, 2020:

$
655,866 Receivables from Portfolio Companies Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies.
Such receivables, net of any allowance for uncollectible receivables, are included in Other assets, net on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables
from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon managements judgment, that the portfolio company is unable to pay its obligations. We
write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of September 30, 2020 and March 31, 2020, we had gross receivables from
portfolio companies of $1.3 million and $1.4 million, respectively. As of each of September 30, 2020 and March 31, 2020, the allowance for uncollectible receivables was $0.9 million. NOTE 4. RELATED PARTY TRANSACTIONS Transactions
with the Adviser We pay the Adviser certain fees as compensation for its services under the Advisory Agreement, consisting of a base management fee
and an incentive fee and a loan servicing fee for the Advisers role as servicer pursuant to the Credit Facility, all as described below. On July 14, 2020, our Board of Directors, including a majority of the directors who are not parties
to the Advisory Agreement or interested persons of either party, approved the annual renewal of the Advisory Agreement through August 31, 2021. Two
of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of the Adviser, which is 100% indirectly owned and
controlled by Mr. Gladstone. David Dullum (our president) is also the executive vice president of private equity (buyouts) of the Adviser. Michael LiCalsi, our general counsel and secretary (who also serves as the Administrators
president, general counsel and secretary), is also the executive vice president of administration of our Adviser.  30




---

##### Table of Contents

The following table summarizes the base management fees, loan servicing fees, incentive fees, and associated
non-contractual, unconditional, and irrevocable credits reflected in our accompanying Consolidated Statements of Operations:  Three Months Ended September 30,


Six Months Ended September 30,2020


2019


2020


2019Average total assets subject to base management fee(A)

$
597,800


$
628,790


$
584,500


$
631,500Multiplied by prorated annual base management fee of 2.0%


0.5
%


0.5
%


1.0
%


1.0
%Base management fee(B)


2,989



3,144



5,845



6,315Credits to fees from Adviser -
other(B)


(1,070
)


(608
)


(1,805
)


(1,830
)Net base management fee

$
1,919


$
2,536


$
4,040


$
4,485Loan servicing fee(B)


1,747



1,593



3,456



3,345Credits to base management fee - loan servicing fee(B)


(1,747
)


(1,593
)


(3,456
)


(3,345
)Net loan servicing fee

$



$



$



$
Incentive fee  income-based

$



$
742


$



$
2,823Incentive fee  capital
gains-based(C)


452



858



(302
)


346Total incentive fee(B)

$
452


$
1,600


$
(302
)

$
3,169Credits to fees from Adviser -
other(B)














Net total incentive fee

$
452


$
1,600


$
(302
)

$
3,169  (A) Average total assets subject to
the base management fee is defined in the Advisory Agreement as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable
quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.(B)  Reflected as a line item
on our accompanying Consolidated Statement of Operations.(C)  The capital gains-based
incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement. Base Management Fee The
base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 2.0%, computed on the basis of the value of our average gross assets at the end of the two most recently completed
quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within
the respective period and adjusted appropriately for any share issuances or repurchases during the period. Additionally, pursuant to the requirements of
the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than
managerial assistance. Such services may include: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial
relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in
interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser non-contractually, unconditionally,
and irrevocably credits 100% of any fees received for such services against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of
such fees, totaling $71 and $97 for the three and six months ended September 30, 2020, respectively, and $37 and $87 for the three and six months ended September 30, 2019, respectively, was retained by the Adviser in the form of
reimbursement, at cost, for tasks completed by personnel of the Adviser, primarily related to the valuation of portfolio companies. Loan Servicing Fee The Adviser also services the loans held by our wholly-owned subsidiary, Business Investment (the borrower under the Credit Facility), in return for
which the Adviser receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans pledged under the Credit Facility. Since Business Investment is a consolidated subsidiary of ours, coupled with the fact that the total base
management fee paid to the Adviser pursuant to the Advisory Agreement cannot exceed 2.0% of total assets (less any uninvested cash or cash equivalents resulting from borrowings) during any given calendar year, we treat payment of the loan servicing
fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100%
non-contractually, unconditionally, and irrevocably credited back to us by the Adviser.  31




---

##### Table of Contents

Incentive Fee The incentive fee payable to the Adviser under our Advisory Agreement consists of two parts: an income-based incentive fee and a capital gains-based incentive
fee. The income-based incentive fee rewards the Adviser if our quarterly net investment income (before giving effect to any incentive fee) exceeds 1.75%
of our net assets, which we define as total assets less indebtedness and before taking into account any incentive fees payable or contractually due but not payable during the period, at the end of the immediately preceding calendar quarter, adjusted
appropriately for any share issuances or repurchases during the period (the Hurdle Rate). The income-based incentive fee with respect to our pre-incentive fee net investment income is payable
quarterly to the Adviser and is computed as follows:  

No incentive fee in any calendar quarter in which our pre-incentive fee
net investment income does not exceed the Hurdle Rate;  

100.0% of our pre-incentive fee net investment income with respect to
that portion of such pre-incentive fee net investment income, if any, that exceeds the Hurdle Rate but is less than 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases
during the period, in any calendar quarter; and  

20.0% of the amount of our pre-incentive fee net investment income, if
any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter. The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or
upon termination of the Advisory Agreement, as of the termination date), and equals 20.0% of our realized capital gains, less any realized capital losses and unrealized depreciation, calculated as of the end of the preceding calendar year. The
capital gains-based incentive fee payable to the Adviser is calculated based on (i) cumulative aggregate realized capital gains since our inception, less (ii) cumulative aggregate realized capital losses since our inception, less
(iii) the entire portfolios aggregate unrealized capital depreciation, if any, as of the date of the calculation. If this number is positive at the applicable calculation date, then the capital gains-based incentive fee for such year
equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. For calculation purposes, cumulative aggregate realized capital gains, if any, equals the sum of
the excess between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the deficit between the net sales price of each
investment, when sold, and the original cost of such investment since our inception. The entire portfolios aggregate unrealized capital depreciation, if any, equals the sum of the deficit between the fair value of each investment security as
of the applicable calculation date and the original cost of such investment security. As of September 30, 2020, no capital gains-based incentive fees were contractually due to the Adviser. During the year ended March 31, 2020, capital
gains-based incentive fees of $8.1 million were contractually due and paid to the Adviser. In accordance with GAAP, accrual of the capital
gains-based incentive fee is determined as if our investments had been liquidated at their fair values as of the end of the reporting period. Therefore, GAAP requires that the capital gains-based incentive fee accrual consider the aggregate
unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that any such unrealized capital appreciation will be
realized in the future. Accordingly, a GAAP accrual is calculated at the end of the reporting period based on (i) cumulative aggregate realized capital gains since our inception, plus (ii) the entire portfolios aggregate unrealized
capital appreciation, if any, less (iii) cumulative aggregate realized capital losses since our inception, less (iv) the entire portfolios aggregate unrealized capital depreciation, if any. If such amount is positive at the end of a
reporting period, a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of capital gains-based incentive fees accrued in all prior years, is recorded, regardless of whether such amount is contractually due
under the terms of the Advisory Agreement. If such amount is negative, then there is no accrual for such period and prior period accruals are reversed, as appropriate. During the three months ended September 30, 2020, we recorded capital
gains-based incentive fees of $0.5 million. During the six months ended September 30, 2020, we recorded a reversal of $0.3 million of previously accrued capital gains-based incentive fees. During the three and six months ended
September 30, 2019, we recorded capital gains-based incentive fees of $0.9 million and $0.3 million, respectively. Transactions with
the Administrator We reimburse the Administrator pursuant to the Administration Agreement for our allocable portion of the Administrators
expenses incurred while performing services to us, which are primarily rent and salaries and benefits expenses of the Administrators employees, including: our chief financial officer and treasurer, chief valuation officer, chief compliance
officer, and general counsel and secretary, and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as
members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone. Another of our officers, Mr. LiCalsi (our general counsel & secretary), serves as the
Administrators president as well as the executive vice president of administration for the Adviser.  32




---

##### Table of Contents

Our allocable portion of the Administrators expenses is generally derived by multiplying the
Administrators total expenses by the approximate percentage of time during the current quarter the Administrators employees performed services for us in relation to their time spent performing services for all companies serviced by the
Administrator. On July 14, 2020, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the annual renewal of the Administration
Agreement through August 31, 2021. Transactions with Gladstone Securities Gladstone Securities, LLC (Gladstone Securities) is a privately held broker dealer registered with the Financial Industry Regulatory Authority and
insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is 100% owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves
on the board of managers of Gladstone Securities. Dealer Manager Agreement On May 22, 2020, the Company, entered into a dealer manager agreement (the Dealer Manager Agreement), with Gladstone Securities whereby
Gladstone Securities will serve as the Companys exclusive dealer manager in connection with the Companys offering (the Offering) of up to $350.0 million aggregate principal amount of the Companys 6.00% Notes due
2040 (the Notes) on a reasonable best efforts basis. Under the Dealer Manager Agreement, Gladstone Securities will
provide certain sales, promotional and marketing services to the Company in connection with the Offering, and the Company will pay (i) selling commissions of up to 6.0% of the gross proceeds from sales of the Notes in the
Offering and (ii) a dealer manager fee of up to 3.0% of the gross proceeds from sales of the Notes in the Offering (the Dealer Manager Fee). Gladstone Securities may, in its sole discretion, reallow a portion of the Dealer Manager
Fee to participating broker-dealers in support of the Offering. During the six months ended September 30, 2020, no Notes were sold and there were no selling commissions or Dealer Manager Fee incurred pursuant to the Dealer Manager
Agreement. Other Transactions From time to time,
Gladstone Securities provides other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which it receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact
the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. During the three and six months ended September 30, 2020, the fees received
by Gladstone Securities from portfolio companies totaled $0.4 million. During the three and six months ended September 30, 2019, the fees received by Gladstone Securities from portfolio companies totaled $0.0 million and
$0.4 million, respectively. Related Party Fees Due Amounts due to related parties on our accompanying Consolidated Statements of Assets and Liabilities were as follows:  As of September 30,


As of March 31,2020


2020Base management and loan servicing fee due to Adviser, net of credits

$
606


$
(222
)Incentive fee due to Adviser(A)


7,085



7,387Other due to Adviser


40



13Total fees due to Adviser

$
7,731


$
7,178Fee due to Administrator

$
358


$
582Total related party fees due

$
8,089


$
7,760  (A)
Includes a capital gains-based incentive fee of $7.1 million and $7.4 million, respectively, recorded
in accordance with GAAP requirements, and which was not contractually due under the terms of the Advisory Agreement as of September 30, 2020 and March 31, 2020. Refer to Note 4  Related Party Transactions
Transactions with the Adviser Incentive Fee for additional information, including capital gains-based incentive fee payments made. Net expenses receivable from Gladstone Capital Corporation, one of our affiliated funds, for reimbursement purposes, which includes certain co-investment expenses, totaled $0 and $70 as of September 30, 2020 and March 31, 2020, respectively. These amounts are generally settled in the quarter subsequent to being incurred and have been included
in Other assets, net on the accompanying Consolidated Statements of Assets and Liabilitiesas of September 30, 2020 and March 31, 2020, respectively.  33




---

##### Table of Contents

NOTE 5. BORROWINGS Revolving Line of Credit On August 22, 2018, we,
through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 4 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended, with KeyBank National
Association (KeyBank) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to August 22, 2021, and if not renewed or
extended by such date, all principal and interest will be due and payable on August 22, 2023 (two years after the revolving period end date). Additionally, the Credit Facility commitment amount was increased from $165.0 million to
$200.0 million and, subject to certain terms and conditions, can be expanded to a total facility amount of $300.0 million through additional commitments from existing or new lenders. On August 10, 2020, we, through Business Investment, entered into Amendment No. 5 to the Credit Facility. Among other things, Amendment No. 5
amends the Credit Facility to (i) add London Interbank Offered Rate (LIBOR) replacement language; (ii) implement a 0.5% LIBOR floor; (iii) reduce the facility size from $200.0 million to $180.0 million, which may
be expanded to $300.0 million through additional commitments; and (iv) provide certain other changes to existing terms and covenants. In addition, Amendment No. 5 provides for certain temporary changes during the COVID-19 Relief Period (which began on August 10, 2020 and ends on March 31, 2021, and which may be extended, subject to certain conditions) including: (i) amending the definition of Effective
Advance Rate, provided that during such period the overall effective advance rate does not exceed 55%; and (ii) removing or changing certain Excess Concentration Limits (as defined in the Credit Facility). Advances under the Credit Facility generally bear interest at 30-day LIBOR, subject to a floor of 0.5%, plus 2.85% per
annum until August 21, 2021, with the margin then increasing to 3.10% for the period from August 22, 2021 to August 21, 2022, and increasing further to 3.35% thereafter. The Credit Facility has an unused commitment fee on the daily
unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than
50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount. The following tables summarize noteworthy information related to the Credit Facility:  As of September 30,


As of March 31,2020


2020Commitment amount

$
180,000


$
200,000Borrowings outstanding at cost


116,600



49,200Availability(A)


63,400



150,800  For the Three Months EndedSeptember 30,


For the Six Months EndedSeptember 30,2020


2019


2020


2019Weighted-average borrowings outstanding

$
106,123


$
57,120


$
80,503


$
49,935Effective interest rate(B)


3.6
%


7.8
%


4.5
%


8.4
%Commitment (unused) fees incurred

$
122


$
364


$
490


$
763  (A)
Availability is subject to various constraints, characteristics and applicable advance rates based on
collateral quality under the Credit Facility, which equated to an adjusted availability of $63.4 million and $137.6 million as of September 30, 2020 and March 31, 2020, respectively. (B)
Excludes the impact of deferred financing costs and includes unused commitment fees. Among other things, the Credit Facility contains a performance guaranty that requires us to maintain (i) a minimum net worth (defined in the Credit
Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired
after November 16, 2016, which equated to $224.4 million as of September 30, 2020, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in
Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of September 30, 2020, and as defined in the performance guaranty of the
Credit Facility, we had a net worth of $495.4 million, asset coverage on our senior securities representing indebtedness of 502.1%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a
BDC and RIC. As of September 30, 2020, we were in compliance with all covenants under the Credit Facility.  34




---

##### Table of Contents

Notes Offering In May 2020, we entered into a Dealer Manager Agreement with our affiliated dealer manager, Gladstone Securities, under which we may sell a maximum of
$350.0 million aggregate principal amount of our 6.00% notes due 2040. However, the Company can only offer for sale up to $200.0 million aggregate principal amount of the Notes pursuant to a prospectus supplement dated May 22, 2020
and a base prospectus dated July 24, 2019 relating to the registration statement on Form N-2 (File No. 333- 232124) under the Securities Act of
1933, as amended. The Notes will mature on November 1, 2040. We will pay interest on the Notes on the first day of each month, commencing on the
first day of the month following the issuance of such Note. Subject to certain limitations, holders of the Notes will have the option to tender their Notes for redemption at a redemption price of $22.50 per Note until the earlier of the date upon
which our Board of Directors, by resolution, suspends or terminates the optional redemption right of the holders or the date, if any, on which the Notes are listed on Nasdaq Global Select Market or another national securities exchange. In addition,
we will repurchase the Notes, upon request, in the event of the holders death at a redemption price of $25.00 per Note. Except upon the occurrence of certain events that would constitute a change in control of us or to comply with applicable
law, we may not redeem the Notes at our option until the later of (1) the one-year anniversary of the termination of the offering of the Notes and (2) July 1, 2025. After such date, we may, at
our sole option, redeem all or a portion of the Notes at a redemption price of $25.00 per Note. The Notes will be our direct unsecured obligations and rank equal in right of payment with all outstanding and future unsecured, unsubordinated
indebtedness issued by us. As of September 30, 2020, no Notes have been issued. Secured Borrowing In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our secured second lien term debt investment in
Ginsey Home Solutions, Inc. (Ginsey). In May 2014, we amended the agreement with the third-party to include an additional $0.1 million. ASC Topic 860, Transfers and Servicing requires us to treat the participation
as a financing-type transaction. Specifically, the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual
rate established at origination. Therefore, our accompanying Consolidated Statements of Assets and Liabilities reflect the entire secured second lien term debt investment in Ginsey and a corresponding $5.1 million secured borrowing
liability. The secured borrowing has a stated fixed interest rate of 7.0% and a maturity date of January 3, 2025. Fair Value We elected to apply the fair value option of ASC Topic 825, Financial Instruments, to the Credit Facility, which was consistent with our
application of ASC 820 to our investments. Generally, the fair value of the Credit Facility is determined using a yield analysis, which includes a DCF calculation and also takes into account the assumptions the Valuation Team believes market
participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. As of September 30, 2020, the discount rate used to
determine the fair value of the Credit Facility was 30-day LIBOR, with a 0.5% floor, plus 2.85% per annum, plus an unused commitment fee of 0.5%. As of March 31, 2020, the discount rate used to determine
the fair value of the Credit Facility was 30-day LIBOR, plus 2.85% per annum, plus an unused commitment fee of 1.0%. Generally, an increase or decrease in the discount rate used in the DCF calculation may
result in a corresponding decrease or increase, respectively, in the fair value of the Credit Facility. As of each of September 30, 2020 and March 31, 2020, the Credit Facility was valued using Level 3 inputs and any changes in its
fair value are recorded in Net unrealized depreciation of other on our accompanying Consolidated Statements of Operations.  35




---

##### Table of Contents

The following tables provide relevant information and disclosures about the Credit Facility as of
September 30, 2020 and March 31, 2020, and for the three and six months ended September 30, 2020 and 2019, as required by ASC 820:  Level 3  BorrowingsRecurring Fair Value MeasurementsReported inConsolidatedStatements of Assets and LiabilitiesUsingSignificant Unobservable Inputs (Level 3)September 30, 2020


March 31, 2020Credit Facility

$
116,600


$
49,200  Fair Value Measurements of Borrowings Using SignificantUnobservable Inputs (Level 3) Reported inConsolidated Statements of Assets and LiabilitiesCreditFacilityThree Months Ended September 30, 2020:Fair value at June 30, 2020

$
59,500Borrowings


63,300Repayments


(6,200
)Unrealized depreciation


Fair value at September 30, 2020

$
116,600Six Months Ended September 30, 2020:Fair value at March 31, 2020

$
49,200Borrowings


81,500Repayments


(14,100
)Unrealized depreciation


Fair value at September 30, 2020

$
116,600  Fair Value Measurements of Borrowings Using SignificantUnobservable Inputs (Level 3) Reported inConsolidated Statements of Assets and LiabilitiesCreditFacilityThree Months Ended September 30, 2019:Fair value at June 30, 2019

$
73,795Borrowings


25,500Repayments


(52,200
)Unrealized depreciation


(131
)Fair value at September 30, 2019

$
46,964Six Months Ended September 30, 2019:Fair value at March 31, 2019

$
53,000Borrowings


100,000Repayments


(106,200
)Unrealized appreciation


164Fair value at September 30, 2019

$
46,964 The fair value of the collateral under the Credit Facility was $476.4 million and $496.4 million as of
September 30, 2020 and March 31, 2020, respectively. NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK Preferred Stock Offerings In May 2020, we entered into
sales agreements with Wedbush Securities, Inc. (Wedbush) and Virtu Americas LLC (Virtu) (each a Series E ATM Sales Agent), under which we have the ability to issue and sell shares of our 6.375% Series E Cumulative
Term Preferred Stock (our Series E Term Preferred Stock or Series E), from time to time, through the Series E ATM Sales Agents, up to $50.0 million aggregate liquidation preference in an at-the-market program (the Series E ATM Program). As of September 30, 2020, we had remaining capacity to sell up to $43.5 million of our Series E Term Preferred Stock under
the Series E ATM Program.  36




---

##### Table of Contents

During the six months ended September 30, 2020, we sold 258,610 shares of our Series E Term Preferred
Stock under the Series E ATM Program with Wedbush and Virtu with an aggregate liquidation preference of $6.5 million. The weighted-average gross price per share net of discounts was $24.29 and resulted in gross proceeds of approximately
$6.3 million. After deducting commissions and offering costs borne by us, net proceeds totaled approximately $6.2 million. The following tables
summarize our 6.250% Series D Cumulative Term Preferred Stock (our Series D Term Preferred Stock or Series D) and our Series E Term Preferred Stock outstanding as of September 30, 2020 and March 31, 2020: As of September30, 2020:  Class of TermPreferred Stock

Ticker Symbol

Date Issued

MandatoryRedemptionDate(A)

Interest Rate

SharesOutstanding


LiquidationPreference perShare


AggregateLiquidationPreferenceSeries D

GAINM

September 26,2016

September 30,2023

6.250%


2,300,000


$
25.00


$
57,500Series E

GAINL

August 22,2018

August 31,2025

6.375%


3,248,610



25.00



81,215Term preferred stock,
gross(A)


5,548,610


$
25.00


$
138,715Less: Discounts










(2,993
)Term preferred stock,
net(B)









$
135,722 As of March31, 2020:  Class of TermPreferred Stock

Ticker Symbol

Date Issued

MandatoryRedemptionDate(A)

Interest Rate

SharesOutstanding


LiquidationPreference perShare


AggregateLiquidationPreferenceSeries D

GAINM

September 26,2016

September 30,2023

6.250%


2,300,000


$
25.00


$
57,500Series E

GAINL

August 22,2018

August 31,2025

6.375%


2,990,000



25.00



74,750Term preferred stock,
gross(A)


5,290,000


$
25.00


$
132,250Less: Discounts










(3,090
)Term preferred stock,
net(B)









$
129,160  (A)
As of September 30, 2020 and March 31, 2020, asset coverage on our senior securities that are
stock, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 235.9% and 293.8%, respectively. (B)
Reflected as a line item on our accompanying Consolidated Statement of Assets and Liabilitiespursuant to the adoption of Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs.  37




---

##### Table of Contents

The following tables summarize dividends declared by our Board of Directors and paid by us on each of our
series of mandatorily redeemable preferred stock during the six months ended September 30, 2020 and 2019: For the Six Months Ended
September30, 2020:  Declaration Date

RecordDate

Payment Date

Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare ofSeries E TermPreferred StockApril 14, 2020

April 24, 2020

April 30, 2020

$
0.13020833


$
0.13281250April 14, 2020

May 19, 2020

May 29, 2020


0.13020833



0.13281250April 14, 2020

June 19, 2020

June 30, 2020


0.13020833



0.13281250July 14, 2020

July 24, 2020

July 31, 2020


0.13020833



0.13281250July 14, 2020

August 24, 2020

August 31, 2020


0.13020833



0.13281250July 14, 2020

September 23, 2020

September 30, 2020


0.13020833



0.13281250Total

$
0.78124998


$
0.79687500 For the Six Months Ended September30, 2019:  Declaration Date

RecordDate

Payment Date

Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare ofSeries E TermPreferred StockApril 9, 2019

April 22, 2019

April 30, 2019

$
0.13020833


$
0.13281250April 9, 2019

May 22, 2019

May 31, 2019


0.13020833



0.13281250April 9, 2019

June 19, 2019

June 28, 2019


0.13020833



0.13281250July 9, 2019

July 22, 2019

July 31, 2019


0.13020833



0.13281250July 9, 2019

August 20, 2019

August 30, 2019


0.13020833



0.13281250July 9, 2019

September 17, 2019

September 30, 2019


0.13020833



0.13281250Total

$
0.78124998


$
0.79687500 The federal income tax characteristics of dividends paid to our preferred stockholders generally constitute ordinary income or
capital gains to the extent of our current and accumulated earnings and profits and are reported after the end of the calendar year based on tax information for the full fiscal year. Estimates of tax characterization made on a quarterly basis may
not be representative of the actual tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. If we determined the tax characterization of dividends paid to preferred
stockholders in the current calendar year as of September 30, 2020, 41.9% would be from ordinary income and 58.1% would be from capital gains. In
accordance with ASC Topic 480, Distinguishing Liabilities from Equity, mandatorily redeemable financial instruments should be classified as liabilities on the balance sheet. Our mandatorily redeemable preferred stock is recorded
at the liquidation preference, less discounts, on our accompanyingConsolidated Statements of Assets and Liabilities as of September 30, 2020 and March 31, 2020. The related dividend payments to preferred stockholders are treated as
dividend expense on our accompanyingConsolidated Statements of Operations on the ex-dividend date. The
following table summarizes the fair value of each of our series of mandatorily redeemable preferred stock based on the last reported closing sale price as of September 30, 2020 and March 31, 2020, each of which we consider to be a
Level 1 input within the fair value hierarchy:  Fair Value as ofSeptember 30, 2020


March 31, 2020Series D Term Preferred Stock

$
56,649


$
53,590Series E Term Preferred Stock


78,162



64,554Total

$
134,811


$
118,144  38




---

##### Table of Contents

NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS Registration Statement On June 14, 2019, we filed a
registration statement on Form N-2 (File No. 333-232124), which the SEC declared effective on July 24, 2019. The registration statement permits us to issue,
through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities,
including through concurrent, separate offerings of such securities.As of September 30, 2020, we had the ability to issue up to $288.6 million of the securities registered under the registration statement. Common Equity Offerings In December 2019, we entered
into equity distribution agreements with Wedbush, Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc. (each a Common Stock ATM Sales Agent), under which we have the ability to issue and sell shares of our common
stock, from time to time, through the Common Stock ATM Sales Agents, up to an aggregate offering price of $35.0 million in an at-the-market program (the
Common Stock ATM Program). As of September 30, 2020, we had remaining capacity to sell up to $30.1 million of common stock under the Common Stock ATM Program. During the three months ended June 30, 2020, we sold 155,560 shares of our common stock under the Common Stock ATM Program with Wedbush at a
weighted-average gross price of $11.39 per share and raised approximately $1.8 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $11.17 and resulted in total net
proceeds of approximately $1.7 million. These sales were above our then current estimated NAV per share. We did not sell any shares of our common stock under the Common Stock ATM Program during the three months ended September 30, 2020. During the year ended March 31, 2020, we sold 227,004 shares of our common stock under the Common Stock ATM Program with Wedbush at a
weighted-average gross price of $13.80 per share and raised approximately $3.1 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $13.55 and resulted in total net
proceeds of approximately $3.1 million. These sales were above our then current estimated NAV per share. NOTE 8. NET INCREASE (DECREASE) IN
NET ASSETS RESULTING FROM OPERATIONS PER WEIGHTED-AVERAGE COMMON SHARE The following table sets forth the computation of basic and diluted Net
increase in net assets resulting from operations per weighted-average common share for the three and six months ended September 30, 2020 and 2019:  Three Months Ended September 30,


Six Months Ended September 30,2020


2019


2020


2019Numerator: net increase in net assets resulting from operations

$
6,630


$
11,004


$
6,669


$
17,050Denominator: basic and diluted weighted-average common shares


33,205,023



32,822,459



33,148,652



32,822,459Basic and diluted net increase in net assets resulting from operations per weighted-average
common share

$
0.20


$
0.34


$
0.20


$
0.52 NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our
taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income). The amount to be paid out as distributions to our stockholders is determined by our Board
of Directors and is based upon managements estimate of Investment Company Taxable Income and net long-term capital gains, as well as amounts to be distributed in accordance with Section 855(a) of the Code. Based on that estimate, our
Board of Directors declares monthly distributions, and supplemental distributions, as appropriate, to stockholders each quarter and deemed distributions of long-term capital gains annually as of the end of the fiscal year, as applicable. The U.S. federal income tax characteristics of cash distributions paid to our common stockholders generally are reported to stockholders on IRS Form 1099
after the end of each calendar year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of cash distributions for the full year. Estimates made on a quarterly basis are updated as
of each interim reporting date. If we determined the tax characterization of cash distributions paid to common stockholders in the current calendar year as of September 30, 2020, 93.6% would be from ordinary income and 6.4% would be from
capital gains.  39




---

##### Table of Contents

We paid the following cash distributions to our common stockholders for the six months ended
September 30, 2020 and 2019:  Fiscal Year

Declaration Date

Record Date

Payment Date

Distributionper Common Share2021

April 14, 2020

April 24, 2020

April 30, 2020

$
0.070April 14, 2020

May 19, 2020

May 29, 2020


0.070April 14, 2020

June 8, 2020

June 17, 2020


0.090
(A)April 14, 2020

June 19, 2020

June 30, 2020


0.070July 14, 2020

July 24, 2020

July 31, 2020


0.070July 14, 2020

August 24, 2020

August 31, 2020


0.070July 14, 2020

September 23, 2020

September 30, 2020


0.070Six Months Ended September 30, 2020:

$
0.510Fiscal Year

Declaration Date

Record Date

Payment Date

Distributionper Common Share2020

April 9, 2019

April 22, 2019

April 30, 2019

$
0.068April 9, 2019

May 22, 2019

May 31, 2019


0.068April 9, 2019

June 5, 2019

June 14, 2019


0.090
(A)April 9, 2019

June 19, 2019

June 28, 2019


0.068July 9, 2019

July 22, 2019

July 31, 2019


0.068July 9, 2019

August 20, 2019

August 30, 2019


0.068July 9, 2019

September 4, 2019

September 13, 2019


0.030
(A)July 9, 2019

September 17, 2019

September 30, 2019


0.068Six Months Ended September 30, 2019:

$
0.528  (A)
Represents a supplemental distribution to common stockholders. Aggregate cash distributions to our common stockholders declared and paid were $16.9 million and $17.3 million for the six months ended
September 30, 2020 and 2019, respectively. For the fiscal year ended March 31, 2020, Investment Company Taxable Income exceeded distributions
declared and paid and, in accordance with Section 855(a) of the Code, we elected to treat $17.9 million of the first distributions paid subsequent to fiscal year-end, as having been paid in the prior
year. In addition, for the fiscal year ended March 31, 2020, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $5.3 million of the first distributions
paid subsequent to fiscal year-end as having been paid in the prior year. For the three and six months ended
September 30, 2020, we recorded $0.4 million and $0.6 million, respectively, of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in
excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed net investment income for both periods on our accompanying Consolidated Statements of Assets and Liabilities. For the three and six months ended September 30, 2019, we recorded $0.9 million and $1.3 million, respectively, of net adjustments for
estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed
(Overdistributed) net investment income for both periods on our Consolidated Statements of Assets and Liabilities. We may distribute our net
long-term capital gains, if any, in cash or elect to retain some or all of such gains, pay taxes at the U.S. federal corporate-level income tax rate on the amount retained, and designate the retained amount as a deemed distribution. If
we elect to retain net long-term capital gains and deem them distributed, each U.S. common stockholder will be treated as if they received a distribution of their pro-rata share of the retained net long-term
capital gain and the U.S. federal income tax paid. As a result, each U.S. common stockholder will (i) be required to report their pro rata share of the retained gain on their tax return as long-term capital gain, (ii) receive a refundable
tax credit for their pro-rata share of federal income tax paid by us on the retained gain, and (iii) increase the tax basis of their shares of common stock by an amount equal to the deemed distribution
less the tax credit. In order to use the deemed distribution approach, we must provide written notice to our common stockholders prior to the expiration of 60 days after the close of the relevant taxable year. For the year ended March 31, 2020,
we elected to retain $38.0 million, or $1.15 per common share, of long-term capital gains and to treat them as deemed distributions to common stockholders. We incurred $8.0 million, or $0.24 per common share, of federal income taxes on
behalf of common stockholders, which was included in Taxes on deemed distribution of long-term capital gains on our Consolidated Statements of Operations for the year ended March 31, 2020 and in Other liabilities on our accompanying
Consolidated Statements of Assets and Liabilities as of March 31, 2020 and which was paid during the three months ended June 30, 2020.  40




---

##### Table of Contents

In addition, we obtained clarification of the treatment of deemed distributions with respect to Virginia
state taxes from the Virginia Department of Revenue, which ruled that Virginia state taxes are imposed. Related to this matter, we previously recorded a $3.0 million reserve for uncertain tax positions, which was included in Taxes on deemed
distribution of long-term capital gains on our accompanyingConsolidated Statements of Operations and in Other Liabilities on our accompanyingConsolidated Statements of Assets and Liabilities as of and for the year ended
March 31, 2019. During the three months ended June 30, 2020, we reported and paid this amount with an amended Virginia tax return. As a result of the ruling, we also incurred $2.3 million of Virginia state taxes related to the deemed
distribution for the year ended March 31, 2020, which was included in Taxes on deemed distribution of long-term capital gains on our Consolidated Statements of Operations for the year ended March 31, 2020 and in Other Liabilities on
our accompanyingConsolidated Statements of Assets and Liabilities as of March 31, 2020 and which was paid during the three months ended September 30, 2020. NOTE 10. COMMITMENTS AND CONTINGENCIES Legal
Proceedings We are party to certain legal proceedings incidental to the normal course of our business. We are required to establish reserves for
litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that
loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our financial condition, results of operation or cash flows. Additionally, based on our current knowledge, we do
not believe such loss contingencies are both probable and estimable and therefore, as of September 30, 2020 and March 31, 2020, we had no established reserves for such loss contingencies. Escrow Holdbacks From time to time, we enter into
arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and
cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and
Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves
and holdbacks against escrow amounts were $1.5 million and $2.3 million as of September 30, 2020 and March 31, 2020, respectively. Financial Commitments and Obligations We may have line
of credit and delayed draw term loan commitments to certain of our portfolio companies that have not been fully drawn. Since these line of credit and delayed draw term loan commitments have expiration dates and we expect many will never be fully
drawn, the total line of credit and delayed draw term loan commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused line of credit and delayed draw term loan commitments as of
September 30, 2020 and March 31, 2020 to be immaterial. We have also extended a guaranty on behalf of one of our portfolio companies. As of
September 30, 2020, we have not been required to make any payments on this guaranty, or any guaranties that existed in previous periods, and we consider the credit risk to be remote and the fair value of the guaranty as of September 30,
2020 and March 31, 2020 to be immaterial. As of September 30, 2020, the following guaranty was outstanding:  

A $1.0 million continuing guaranty of a wholesale financing facility agreement (the Floor Plan
Facility) between DLL Finance LLC (f/k/a Agricredit Acceptance, LLC) and Country Club Enterprises, LLC (CCE). The Floor Plan Facility provides CCE with financing to bridge the time and cash flow gap between the order and delivery
of golf carts to customers.  41




---

##### Table of Contents

The following table summarizes the principal balances of unused line of credit and delayed draw term loan
commitments and guaranties as of September 30, 2020 and March 31, 2020, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:  September 30, 2020


March 31, 2020Unused line of credit and delayed draw term loan commitments

$
5,181


$
1,230Guaranties


1,000



1,000Total

$
6,181


$
2,230  42




---

##### Table of Contents

NOTE 11. FINANCIAL HIGHLIGHTS  Three Months EndedSeptember 30,


Six Months EndedSeptember 30,2020


2019


2020


2019Per Common Share Data:Net asset value at beginning of
period(A)

$
10.87


$
12.29


$
11.17


$
12.40Income from investment
operations(B)Net investment income


0.13



0.20



0.26



0.47Net realized gain on investments and other


0.02



0.65



0.04



0.66Net unrealized appreciation (depreciation) of investments and other


0.05



(0.51
)


(0.10
)


(0.61
)Total from investment operations


0.20



0.34



0.20



0.52Effect of equity capital
activity(B)Cash distributions to common stockholders from net investment income(C)


(0.20
)


(0.16
)


(0.48
)


(0.36
)Cash distributions to common stockholders from realized gains(C)


(0.01
)


(0.07
)


(0.03
)


(0.17
)Total from equity capital activity


(0.21
)


(0.23
)


(0.51
)


(0.53
)Other, net(B)(E)






(0.01
)






Net asset value at end of
period(A)

$
10.86


$
12.39


$
10.86


$
12.39Per common share market value at beginning of period

$
10.24


$
11.23


$
7.85


$
11.60Per common share market value at end of period


9.10



12.34



9.10



12.34Total investment return(F)


(9.10
)%


12.07
%


21.91
%


11.26
%Common stock outstanding at end of
period(A)


33,205,023



32,822,459



33,205,023



32,822,459Statement of Assets and Liabilities Data:Net assets at end of period

$
360,526


$
406,830


$
360,526


$
406,830Average net assets(G)


360,232



407,970



362,964



407,929Senior Securities Data:Total borrowings, at cost

$
121,696


$
51,896


$
121,696


$
51,896Mandatorily redeemable preferred stock(H)


138,715



132,250



138,715



132,250Ratios/Supplemental Data:Ratio of net expenses to average net assets  annualized(I)


8.30
%


9.86
%


7.72
%


9.07
%Ratio of net investment income to average netassets  annualized(J)


4.85



6.45



4.71



7.57  (A)
Based on actual shares of common stock outstanding at the beginning or end of the corresponding period, as
appropriate. (B)
Based on weighted-average basic common share data for the corresponding period. (C)
The tax character of distributions is determined based on taxable income calculated in accordance with income
tax regulations, which may differ from amounts determined under GAAP. For further information on the estimated character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9 
Distributions to Common Stockholders. (D)
Reserved. (E)
Represents the impact of the different share amounts (weighted-average basic common shares outstanding for the
corresponding period and actual common shares outstanding at the end of the period) in the Per Common Share Data calculations and rounding impacts. (F)
Total return equals the change in the market value of our common stock from the beginning of the period, taking
into account dividends reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated
character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9  Distributions to Common Stockholders. (G)
Calculated using the average balance of net assets at the end of each month of the reporting period. (H)
Represents the aggregate liquidation preference of our mandatorily redeemable preferred stock. (I)
Ratio of net expenses to average net assets is computed using total expenses, net of any non-contractual, unconditional, and irrevocable credits of fees from the Adviser. Had we not received any non-contractual, unconditional, and irrevocable credits of fees due
to the Adviser, the ratio of expenses to average net assetsannualized would have been 11.42% and 12.01% for the three months ended September 30, 2020 and 2019, respectively, and 10.62% and 11.61% for the six months ended
September 30, 2020 and 2019, respectively. (J)
Had we not received any non-contractual, unconditional, and irrevocable
credits of fees from the Adviser, the ratio of net investment income to average net assetsannualized would have been 1.72% and 4.30% for the three months ended September 30, 2020 and 2019, respectively, and 1.81% and 5.03% for the six
months ended September 30, 2020 and 2019, respectively.  43




---

##### Table of Contents

NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES In accordance with the SECs Regulation S-X, we do not consolidate portfolio company investments. Further, in
accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to
the investment company or its consolidated subsidiaries. We had one unconsolidated subsidiary, Galaxy Tool Holding Corporation (Galaxy),
which met at least one of the significance conditions under Rule 1-02(w) of the SECs Regulation S-X as of or during at least one of the six month periods ended
September 30, 2020 and 2019. Accordingly, summarized, comparative financial information, pursuant to Rule 10-01(b), is presented below for Galaxy, which is a designer and manufacturer of precision tools
for the business jet industry and of injection and blow molds for the plastics industry.  For the Six MonthsEnded September 30,Income Statement

2020


2019Net sales

$
12,505


$
14,261Gross profit


2,360



2,927Net profit


473



787 NOTE 13. SUBSEQUENT EVENTS ATM Activity Subsequent to September 30, 2020 and
through October 23, 2020, we sold 61,536 shares of our Series E Term Preferred Stock under the Series E ATM Program with Virtu with an aggregate liquidation preference of $1.5 million. The weighted-average gross price per share net of
discounts was $24.29 and resulted in gross proceeds of approximately $1.5 million. After deducting commissions and offering costs borne by us, net proceeds totaled approximately $1.5 million. Distributions and Dividends In October 2020, our Board
of Directors declared the following monthly distributions to common stockholders and monthly dividends to holders of our Series D Term Preferred Stock and Series E Term Preferred Stock:  Record Date

Payment Date

Distribution perCommon Share


Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare ofSeries E TermPreferred StockOctober 23, 2020

October 30, 2020

$
0.07


$
0.13020833


$
0.13281250November 20, 2020

November 30, 2020


0.07



0.13020833



0.13281250December 23, 2020

December 31, 2020


0.07



0.13020833



0.13281250Total for the Quarter:

$
0.21


$
0.39062499


$
0.39843750 COVID-19 Impact We continue to closely monitor and work with our portfolio companies to navigate the significant challenges created by the continuing COVID-19 pandemic and are focused on ensuring the safety of the Advisers and Administrators personnel and of the employees of our portfolio companies, while also managing our ongoing business activities.
While we are closely monitoring all of our portfolio companies, our portfolio continues to be diverse from a geographic and industry perspective. Through proactive measures and continued diligence, the management teams of our portfolio companies
continue to demonstrate their ability to respond effectively and efficiently to the challenges posed by COVID-19 and related orders imposed by state and local governments, including paused or reversed
reopening orders. We believe we have sufficient levels of liquidity to support our existing portfolio companies, as necessary, and selectively deploy capital in new investment opportunities.  44




---

##### Table of Contents

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 (the
Adviser) 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, project, intend, expect, should, would, if, seek, possible, potential,
likely or the negative or variations 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: (1) 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, David Dullum, or Terry Lee Brubaker;
(4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates, regulation,
or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (9) changes in governmental regulation, tax rates and similar matters; (10) our
ability to exit investments in a timely manner; (11) our ability to maintain our qualification as a regulated investment company (RIC) and as a business development company (BDC); (12) the impact of COVID-19 generally and on the economy, the capital markets and our portfolio companies, including the measures taken by governmental authorities to address it; and (13) those factors described in
Item 1A.Risk Factorsherein and the Risk Factors sections of our Annual Report on Form 10-K for the fiscal year
ended March 31, 2020, filed with the U.S. Securities and Exchange Commission (SEC) on May 12, 2020 (the Annual Report). 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 Quarterly Report on Form 10-Q (the Quarterly Report). Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, after the date of this Quarterly Report. 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 subsequent annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this Quarterly Report
are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended. In this Quarterly Report, the Company, we, us, and our refer to Gladstone Investment Corporation and its
wholly-owned subsidiaries unless the context otherwise indicates. Dollar amounts, except per share amounts, are in thousands, unless otherwise indicated. The following analysis of our financial condition and results of operations should be read in conjunction with our accompanyingConsolidated
Financial Statementsand the notes thereto contained elsewhere in this Quarterly Report and in our Annual Report. Historical financial condition and results of operations and percentage relationships among any amounts in the financial
statements are not necessarily indicative of financial condition, results of operations or percentage relationships for any future periods. OVERVIEW General We were incorporated
under the General Corporation Law of the State of Delaware on February 18, 2005. On June 22, 2005, we completed our initial public offering and commenced operations. We operate as an externally managed,
closed-end, non-diversified management investment company and have elected to be treated as a BDC under the Investment Company Act of 1940, as amended (the 1940
Act). For U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). To continue to qualify as a RIC for U.S. federal income tax purposes
and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements. From our initial public offering in 2005 through September 30, 2020, we have paid 183 consecutive monthly
distributions to common stockholders.  45




---

##### Table of Contents

We are externally managed by the Adviser, an affiliate of ours and an
SEC-registered investment adviser, pursuant to an investment advisory and management agreement (the Advisory Agreement). We have also entered into an administration agreement (the
Administration Agreement) with Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser. Each of the Adviser and the Administrator are privately-held companies that are indirectly owned and
controlled by David Gladstone, our chairman and chief executive officer. David Dullum, our president, also serves as the executive vice president of private equity (buyouts) of the Adviser. Michael LiCalsi, our general counsel and secretary, also
serves as the Administrators president, general counsel, and secretary, as well as the executive vice president of administration of the Adviser). Additionally, Gladstone Securities, LLC (Gladstone Securities), a privately-held broker-dealer (indirectly owned and controlled by
Mr. Gladstone, our chairman and chief executive officer) registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, has provided other services, such as investment banking and due
diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. For additional information refer to Note 4  Related Party Transactions in the accompanying Notes to
Consolidated Financial Statements. Since May of 2020, Gladstone Securities also acts as dealer manager in connection with our offering of up to $350.0 million aggregate principal amount of our 6.00% Notes due 2040 on a reasonable best
efforts basis. We were established for the purpose of investing in debt and equity securities of established private businesses operating in the
United States (U.S.). Our investment objectives are to: (i) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make
principal and interest payments on our outstanding indebtedness, and make distributions to our stockholders that grow over time; and (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in
equity securities of established businesses, generally in combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our objectives, our
investment strategy is to invest in several categories of debt and equity securities, with individual investments generally totaling up to $30 million, although investment size may vary depending upon our total assets or available capital at
the time of investment. We expect that our investment portfolio over time will consist of approximately 75% in debt securities and 25% in equity securities, at cost. As of September 30, 2020, our investment portfolio was comprised of 73.1% in
debt securities and 26.9% in equity securities, at cost. We focus on investing in lower middle market private businesses (which we generally define as
companies with annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $3 million to $20 million) (Lower Middle Market) in the U.S. that meet certain criteria, including: the sustainability of
the business free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the portfolio company, reasonable capitalization of the portfolio
company, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples, and the potential to realize appreciation and gain liquidity in our equity position, if any. We anticipate that liquidity in our equity
position will be achieved through a merger or acquisition of the portfolio company, a public offering of the portfolio companys stock, or, to a lesser extent, by exercising our right to require the portfolio company to repurchase our warrants,
though there can be no assurance that we will always have these rights. We invest in portfolio companies that need funds for growth capital, to finance acquisitions, including management buyouts, recapitalize or, to a lesser extent, refinance their
existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. We invest by ourselves or jointly with other funds and/or
management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us an exemptive order (the Co-Investment Order) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including 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 the Adviser, or any combination of the foregoing, subject to the
conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Capital pursuant to the Co-Investment Order. We believe the Co-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies. If we are
participating in an investment with one or more co-investors, whether or not an affiliate of ours, our investment is likely to be smaller than if we were investing alone. Our shares of common stock, 6.25% Series D Cumulative Term Preferred Stock (Series D Term Preferred Stock) and 6.375% Series E Cumulative Term
Preferred Stock (Series E Term Preferred Stock) are traded on the Nasdaq Global Select Market (Nasdaq) under the trading symbols GAIN, GAINM, and GAINL, respectively.  46




---

##### Table of Contents

Business Portfolio Activity While the business environment
remains competitive, we continue to see new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and independent sponsor-led
buyouts of Lower Middle Market companies in the U.S. During the six months ended September 30, 2020, we invested in one new portfolio company and did not exit any portfolio companies. As of September 30, 2020, our portfolio was comprised
of 29 companies. From our initial public offering in June 2005 through September 30, 2020, we made investments in 53 companies, excluding investments in syndicated loans, for a total of approximately $1.4 billion, before giving effect to
principal repayments and divestitures. The majority of the 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 payment has been received. Due to the
contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of September 30, 2020, we had unrecognized, contractual
success fees of $45.0 million, or $1.35 per common share. Consistent with accounting principles generally accepted in the U.S. (GAAP), we have not recognized success fee receivables and related income in our accompanying
Consolidated Financial Statements until earned. From inception through September 30, 2020, we completed sales of 22 portfolio companies that
we acquired under our buyout strategy (which excludes investments in syndicated loans). In the aggregate, these sales have generated $223.5 million in net realized gains and $30.3 million in other income upon exit, for a total increase to
our net assets of $253.8 million. We believe, in aggregate, these transactions were equity-oriented investment successes and exemplify 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. The 22 liquidity events have offset any realized losses since inception, which were primarily incurred during the 2008-2009 recession in connection with the sale of performing syndicated loans
at a realized loss to pay off a former lender. These successful exits, in part, enabled us to increase the monthly distribution by 75.0% from March 2011 through September 30, 2020, and allowed us to declare and pay 11 supplemental
distributions. Capital Raising Efforts We
have been able to meet our capital needs through extensions of and increases to the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (the Credit Facility), and by accessing the capital markets in the form
of public offerings of common and preferred stock. We have successfully extended the Credit Facilitys revolving period multiple times, most recently to August 2021, and currently have a total commitment amount of $180.0 million (with a
potential total commitment of $300.0 million through additional commitments from new or existing lenders). During the six months ended September 30, 2020, we sold 155,560 shares of our common stock under our common stock at-the-market program (the Common Stock ATM Program) for gross proceeds of approximately $1.8 million and 258,610 shares of our Series E Term Preferred Stock
under our preferred stock at-the-market program (the Series E ATM Program) for gross proceeds of approximately $6.3 million. During the year ended
March 31, 2020, we sold 227,004 shares of our common stock under the Common Stock ATM Program for gross proceeds of approximately $3.1 million. Refer to Liquidity and Capital Resources  Revolving Line of Credit for
further discussion of the Credit Facility and to Liquidity and Capital Resources  Equity  Common Stock and Liquidity and Capital Resources  Equity  Term Preferred Stock for further
discussion of our common stock, including our at-the-market programs, and mandatorily redeemable preferred stock. Although we have been able to access the capital markets historically, market conditions, including the impact of
COVID-19, may continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of common equity. On September 30, 2020, the closing market
price of our common stock was $9.10 per share, representing a 16.2% discount to our net asset value (NAV) of $10.86 per share as of September 30, 2020. When our common stock trades below NAV, our ability to issue additional equity
is constrained by provisions of the 1940 Act, which generally prohibits 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 2020 Annual Meeting of Stockholders held on August 20, 2020, our stockholders approved a proposal
authorizing us, with the subsequent approval of our board of directors (Board of Directors), to issue and sell shares of our common stock at a price below our then-current NAV per share, provided 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. This August 2020 stockholder authorization is in effect for one year from the date of stockholder approval. We sought and
obtained stockholder approval concerning similar proposals at each Annual Meeting of Stockholders since 2008, and with our Board of Directors subsequent approval, we issued shares of our common stock in three offerings at a price below the
then-current NAV per share, once in May 2017, once in March 2015, and once in October 2012. Certain sales under the previous Common Stock ATM Program in March and April of 2018 were also below the then-current estimated NAV per share. The resulting
proceeds, in part, have allowed us to (i) grow our portfolio by making new investments, (ii) generate additional income through these new investments, (iii) ensure continued compliance with regulatory tests and (iv) 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.  47




---

##### Table of Contents

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 asset coverage (as defined in Sections 18 and 61 of the 1940 Act), of at least 150% on each of our senior securities representing indebtedness and our senior securities that are stock (such as
our two series of term preferred stock currently outstanding). On April 10, 2018, our Board of Directors, including a required majority
(as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our asset coverage requirements for senior securities changed
from 200% to 150%, effective as of April 10, 2019, one year after the date of the Board of Directors approval. Notwithstanding the modified asset coverage requirement under the 1940 Act described above, we are separately subject to a
minimum asset coverage requirement of 200% with respect to our Series D Term Preferred Stock. As of September 30, 2020, our asset coverage ratio on
our senior securities representing indebtedness was 502.1% and our asset coverage on our senior securities that are stock was 235.9%. Investment
Highlights Investment Activity During
the six months ended September 30, 2020, the following significant transactions occurred:  

In July 2020, we invested $46.9 million in Mason West, LLC (Mason West) through a combination of
secured first lien debt and preferred equity. Mason West, headquartered in Placentia, California, is a provider of engineered seismic restraint and vibration isolation solutions. In September 2020, Mason West repaid $7.0 million of secured
first lien debt and redeemed $3.1 million of preferred equity.  

In September 2020, we invested an additional $8.0 million into PSI Molded Plastics, Inc. (PSI
Molded) in the form of preferred equity and also amended certain terms of our existing debt. Recent Developments ATM Activity Subsequent to
September 30, 2020 and through October 23, 2020, we sold 61,536 shares of our Series E Term Preferred Stock under the Series E ATM Program with Virtu Americas LLC with an aggregate liquidation preference of $1.5 million. The
weighted-average gross price per share net of discounts was $24.29 and resulted in gross proceeds of approximately $1.5 million. After deducting commissions and offering costs borne by us, net proceeds totaled approximately $1.5 million. Distributions and Dividends In October 2020,
our Board of Directors declared the following monthly distributions to common stockholders and monthly dividends to holders of our Series D Term Preferred Stock and Series E Term Preferred Stock:  Record Date

Payment Date

Distribution perCommon Share


Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare ofSeries E TermPreferred StockOctober 23, 2020

October 30, 2020

$
0.07


$
0.13020833


$
0.13281250November 20, 2020

November 30, 2020


0.07



0.13020833



0.13281250December 23, 2020

December 31, 2020


0.07



0.13020833



0.13281250Total for the Quarter:

$
0.21


$
0.39062499


$
0.39843750  48




---

##### Table of Contents

LIBOR Transition In general, our investments in debt securities have a term of five years, accrue interest at variable rates (based on the
one-month London Interbank Offered Rate (LIBOR)) and, to a lesser extent, at fixed rates. LIBOR is currently anticipated to be phased out during late 2021. LIBOR may transition to a new standard
rate, the Secured Overnight Financing Rate (SOFR), which will incorporate certain overnight repo market data collected from multiple data sets. To attain an equivalent one-month rate, we currently
intend to adjust the SOFR to minimize the difference between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are currently monitoring the transition and cannot assure you whether SOFR will
become a standard rate for variable rate debt. We expect we will need to continue to renegotiate certain loan documents with our portfolio companies that utilize LIBOR as a factor in determining the interest rate to replace LIBOR with the new
standard that is established. Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations. COVID-19 Impact We continue to closely monitor and work with our portfolio companies to navigate the significant challenges created by the continuing COVID-19 pandemic and are focused on ensuring the safety of the Advisers and Administrators personnel and of the employees of our portfolio companies, while also managing our ongoing business activities.
While we are closely monitoring all of our portfolio companies, our portfolio continues to be diverse from a geographic and industry perspective. Through proactive measures and continued diligence, the management teams of our portfolio companies
continue to demonstrate their ability to respond effectively and efficiently to the challenges posed by COVID-19 and related orders imposed by state and local governments, including paused or reversed
reopening orders. We believe we have sufficient levels of liquidity to support our existing portfolio companies, as necessary, and selectively deploy capital in new investment opportunities.  49




---

##### Table of Contents

RESULTS OF OPERATIONS Comparison of the Three Months Ended September 30, 2020 to the Three Months Ended September 30, 2019  For the Three Months Ended September 30,2020


2019


$ Change


% ChangeINVESTMENT INCOMEInterest income

$
11,840


$
14,143


$
(2,303
)


(16.3
)%Dividend and success fee income






2,493



(2,493
)


(100.0
)Total investment income


11,840



16,636



(4,796
)


(28.8
)EXPENSESBase management fee


2,989



3,144



(155
)


(4.9
)Loan servicing fee


1,747



1,593



154



9.7Incentive fee


452



1,600



(1,148
)


(71.8
)Administration fee


390



423



(33
)


(7.8
)Interest and dividend expense


3,213



3,297



(84
)


(2.5
)Amortization of deferred financing costs and discounts


466



373



93



24.9Other


1,032



1,824



(792
)


(43.4
)Expenses before credits from Adviser


10,289



12,254



(1,965
)


(16.0
)Credits to fees from Adviser


(2,817
)


(2,201
)


(616
)


28.0Total expenses, net of credits to fees


7,472



10,053



(2,581
)


(25.7
)NET INVESTMENT INCOME


4,368



6,583



(2,215
)


(33.6
)REALIZED AND UNREALIZED GAIN (LOSS)Net realized gain on investments


621



21,144



(20,523
)


(97.1
)Net unrealized appreciation (depreciation) of investments


1,641



(16,854
)


18,495



(109.7
)Net unrealized depreciation of other






131



(131
)


(100.0
)Net realized and unrealized gain


2,262



4,421



(2,159
)


(48.8
)NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
6,630


$
11,004


$
(4,374
)


(39.7
)%BASIC AND DILUTED PER COMMON SHARE:Net investment income

$
0.13


$
0.20


$
(0.07
)


(35.0
)%Net increase in net assets resulting from operations

$
0.20


$
0.34


$
(0.14
)


(41.2
)% NM = Not Meaningful Investment Income Total investment income decreased
28.8% for the three months ended September 30, 2020, as compared to the prior year period. The decrease was due to a decrease in dividend and success fee income as well as a decrease in interest income. Interest income from our investments in debt securities decreased 16.3% for the three months ended September 30, 2020, as compared to the prior year
period. During the three months ended September 30, 2019, we received $2.1 million of past due interest upon the exit of our investment in Alloy Die Casting Co (ADC). Generally, 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 September 30, 2020 was $388.7 million, compared to $374.1 million for the prior year period. This increase was primarily due to the origination of $65.1 million of new debt investments and
$39.7 million of follow-on debt investments to existing portfolio companies, partially offset by $48.0 million of pay-offs, restructurings, or write-offs of
debt investments and $47.9 million of loans placed on non-accrual status after June 30, 2019, and their respective impact on the weighted-average principal balance when considering timing of new
investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable. The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts
recorded as dividend and success fee income, was 12.1% for the three months ended September 30, 2020, compared to 15.0% for the prior year period. The weighted-average yield may vary from period to period, based on the current stated interest
rate on interest-bearing investments.  50




---

##### Table of Contents

As of September 30, 2020, our loans to B+T Group Acquisition, Inc. (B+T), Horizon
Facilities Services, Inc. (Horizon), The Mountain Corporation (The Mountain), PSI Molded, and SOG Specialty Knives & Tools, LLC (SOG) were on non-accrual status,
with an aggregate debt cost basis of $94.9 million. As of September 30, 2019, certain of our loans to Meridian Rack & Pinion, Inc. (Meridian), The Mountain, PSI Molded, and SOG were on
non-accrual status, with an aggregate debt cost basis of $56.4 million. Dividend and success fee income for
the three months ended September 30, 2020 decreased 100% from the prior year period. During the three months ended September 30, 2020, we did not earn any dividend and success fee income. During the three months ended September 30,
2019, dividend and success fee income consisted primarily of $0.6 million of dividend income and $1.9 million of success fee income. As of
September 30, 2020 and March 31, 2020, no single investment represented greater than 10% of the total investment portfolio at fair value. Expenses Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 25.7% during the three months ended September 30, 2020, as compared to the prior year period, primarily due to a decrease in
the incentive fee and other expenses and an increase in credits to fees from the Adviser. In accordance with GAAP, we recorded a capital gains-based
incentive fee of $0.5 million during the three months ended September 30, 2020, compared to a capital gains-based incentive fee of $0.9 million during the three months ended September 30, 2019. The capital gains-based incentive
fee was a result of the net impact of net realized gains (losses) and net unrealized appreciation (depreciation) on investments during the respective periods. The income-based incentive fee decreased by $0.7 million for the three months ended
September 30, 2020, as compared to the prior year period, primarily due to a decrease in pre-incentive fee net investment income, which did not exceed the hurdle rate for the three months ended
September 30, 2020. The base management fee, loan servicing fee, incentive fee, and their related
non-contractual, unconditional, and irrevocable credits are computed quarterly, as described under Transactions with the Adviserin Note 4  Related Party Transactions in the
accompanying Notes to Consolidated Financial Statements and are summarized in the following table:  Three Months EndedSeptember 30,2020


2019Average total assets subject to base management fee(A)

$
597,800


$
628,790Multiplied by prorated annual base management fee of 2.0%


0.5
%


0.5
%Base management fee(B)


2,989



3,144Credits to fees from
Adviserother(B)


(1,070
)


(608
)Net base management fee

$
1,919


$
2,536Loan servicing fee(B)


1,747



1,593Credits to base management feeloan servicing fee(B)


(1,747
)


(1,593
)Net loan servicing fee

$



$
Incentive fee  income-based

$



$
742Incentive fee  capital
gains-based(C)


452



858Total incentive fee(B)

$
452


$
1,600Credits to fees from
Adviserother(B)






Net total incentive fee

$
452


$
1,600  A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share
issuances or repurchases during the periods. (B)
Reflected as a line item on our Consolidated Statement of Operations. (C)
The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect
amounts contractually due under the terms of the Advisory Agreement. Other expenses decreased 43.4% during the three months ended
September 30, 2020, as compared to the prior year period, primarily due to a decrease in tax expense and professional fees.  51




---

##### Table of Contents

Realized and Unrealized Gain (Loss) Net Realized Gain (Loss) on Investments During the three
months ended September 30, 2020, we recorded net realized gains on investments of $0.6 million related to previous exits. During the three months ended September 30, 2019, we recorded net realized gains on investments of
$21.1 million, primarily related to a $20.4 million realized gain from the exit of ADC. Net Unrealized Appreciation (Depreciation) of
Investments During the three months ended September 30, 2020, we recorded net unrealized appreciation of investments of $1.6 million. The
realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2020 were as follows:  Three Months Ended September 30, 2020Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


NetGain(Loss)Pioneer Square Brands, Inc.

$



$
11,867


$



$
11,867Ginsey Home Solutions, Inc.






2,414







2,414Frontier Packaging, Inc.






2,150







2,150SOG Specialty Knives & Tools, LLC






1,982







1,982ImageWorks Display and Marketing Group, Inc.






1,451







1,451Counsel Press, Inc.






(1,239
)






(1,239
)Edge Adhesives Holdings, Inc.






(1,269
)






(1,269
)D.P.M.S., Inc.






(2,253
)






(2,253
)PSI Molded Plastics, Inc.






(4,592
)






(4,592
)Brunswick Bowling Products, Inc.






(8,606
)






(8,606
)Other, net (<$1.0 million, net)


621



(264
)






357Total

$
621


$
1,641


$



$
2,262 The primary driver of net unrealized appreciation of investments of $1.6 million for the three months ended
September 30, 2020 was an increase in performance of certain of our portfolio companies, which was partially offset by decreased performance of certain of our other portfolio companies and a decrease in comparable multiples used to estimate the
fair value of some of our portfolio companies. In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the
markets in which they operate, including government restrictions on the portfolio companies ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and
general economic outlook.  52




---

##### Table of Contents

During the three months ended September 30, 2019, we recorded net unrealized depreciation of
investments of $16.9 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2019 were as follows:  Three Months Ended September 30, 2019Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


NetGain(Loss)Alloy Die Casting Co.

$
20,355


$



$
(12,634
)

$
7,721Nth Degree, Inc.






7,328







7,328Counsel Press, Inc.






3,766







3,766D.P.M.S., Inc.






2,730







2,730ImageWorks Display and Marketing Group, Inc.






2,602







2,602Old World Christmas, Inc.






2,004







2,004Galaxy Tool Holding Corporation






1,532







1,532Schylling, Inc.






1,269







1,269SBS Industries Holdings, Inc.






(1,232
)






(1,232
)SOG Specialty Knives and Tools, LLC






(1,443
)






(1,443
)PSI Molded Plastics, Inc.






(2,416
)






(2,416
)Ginsey Home Solutions, Inc.






(2,718
)






(2,718
)Pioneer Square Brands, Inc.






(3,163
)






(3,163
)Meridian Rack & Pinion, Inc.






(4,570
)






(4,570
)J.R. Hobbs Co.Atlanta, LLC






(9,530
)






(9,530
)Other, net (<$1.0 million, net)


789



(248
)


(131
)


410Total

$
21,144


$
(4,089
)

$
(12,765
)

$
4,290 The primary drivers of net unrealized depreciation of $16.9 million for the three months ended September 30, 2019
were the reversal of previously recorded unrealized appreciation of our investment in ADC upon its exit, a decline in performance of certain of our other portfolio companies, and a decrease in comparable multiples used to estimate the fair value of
certain of our portfolio companies, which were partially offset by increased performance of certain of our portfolio companies. Across our entire
investment portfolio, we recorded $2.3 million of net unrealized appreciation on our debt positions and $0.7 million of net unrealized depreciation on our equity positions for the three months ended September 30, 2020. As of
September 30, 2020, the fair value of our investment portfolio was less than the cost basis by $46.9 million, as compared to June 30, 2020, when the fair value of our investment portfolio was less than the cost basis by
$48.5 million, representing net unrealized appreciation of $1.6 million for the three months ended September 30, 2020. Our entire portfolio had a fair value of 92.8% of cost as of September 30, 2020. Net Unrealized (Appreciation) Depreciation on Other During the three months ended September 30, 2020, we did not record any unrealized appreciation or depreciation of other. During the three months ended
September 30, 2019, we recorded net unrealized depreciation of other of $0.1 million related to the Credit Facility recorded at fair value.  53




---

##### Table of Contents

Comparison of the Six Months Ended September 30, 2020 to the Six Months Ended September 30,
2019  For the Six Months Ended September 30,2020


2019


$ Change


% ChangeINVESTMENT INCOMEInterest income

$
22,365


$
26,018


$
(3,653
)


(14.0
)%Dividend and success fee income


182



7,928



(7,746
)


(97.7
)Total investment income


22,547



33,946



(11,399
)


(33.6
)EXPENSESBase management fee


5,845



6,315



(470
)


(7.4
)Loan servicing fee


3,456



3,345



111



3.3Incentive fee


(302
)


3,169



(3,471
)


(109.5
)Administration fee


836



737



99



13.4Interest and dividend expense


6,232



6,446



(214
)


(3.3
)Amortization of deferred financing costs and discounts


840



746



94



12.6Other


2,360



2,925



(565
)


(19.3
)Expenses before credits from Adviser


19,267



23,683



(4,416
)


(18.6
)Credits to fees from Adviser


(5,261
)


(5,175
)


(86
)


1.7Total expenses, net of credits to fees


14,006



18,508



(4,502
)


(24.3
)NET INVESTMENT INCOME


8,541



15,438



(6,897
)


(44.7
)REALIZED AND UNREALIZED GAIN (LOSS)Net realized gain on investments


1,374



21,677



(20,303
)


(93.7
)Net unrealized depreciation of investments


(3,246
)


(19,901
)


16,655



(83.7
)Net unrealized appreciation of other






(164
)


164



(100.0
)Net realized and unrealized (loss) gain


(1,872
)


1,612



(3,484
)


NMNET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
6,669


$
17,050


$
(10,381
)


(60.9
)%BASIC AND DILUTED PER COMMON SHARE:Net investment income

$
0.26


$
0.47


$
(0.21
)


(44.7
)Net increase in net assets resulting from operations

$
0.20


$
0.52


$
(0.32
)


(61.5
)% NM = Not Meaningful Investment Income Total investment income decreased
33.6% for the six months ended September 30, 2020, as compared to the prior year period. The decrease was due to a decrease in dividend and success fee income, as well as a decrease in interest income. Interest income from our investments in debt securities decreased 14.0% for the six months ended September 30, 2020, as compared to the prior year
period. During the six months ended September 30, 2019, we received $2.1 million of past due interest upon the exit of our investment in ADC. Generally, 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 six months ended
September 30, 2020 was $373.5 million, compared to $369.0 million for the prior year period. This increase was primarily due to the origination of $93.8 million of new debt investments and $51.6 million of follow-on debt investments to existing portfolio companies, partially offset by $81.0 million of pay-offs, restructurings, or write-offs of
debt investments and $47.9 million of loans placed on non-accrual status after March 31, 2019, and their respective impact on the weighted-average principal balance when considering timing
of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable. The weighted-average yield on our interest-bearing investments, excluding cash and cash
equivalents and receipts recorded as dividend, success fee, and other income, was 11.9% for the six months ended September 30, 2020, compared to 14.1% for the prior year period. The weighted-average yield may vary from period to period, based
on the current stated interest rate on interest-bearing investments. As of September 30, 2020, our loans to B+T, Horizon, The Mountain, PSI Molded,
and SOG were on non-accrual status, with an aggregate debt cost basis of $94.9 million. As of September 30, 2019, certain of our loans to Meridian, The Mountain, PSI Molded, and SOG were on non-accrual status, with an aggregate debt cost basis of $56.4 million.  54




---

##### Table of Contents

Dividend and success fee income for the six months ended September 30, 2020 decreased 97.7% from the
prior year period. During the six months ended September 30, 2020, dividend and success fee income consisted primarily of $0.2 million of success fee income. During the six months ended September 30, 2019, dividend and success fee
income consisted primarily of $5.8 million of success fee income and $2.1 million of dividend income. As of September 30, 2020 and
March 31, 2020, no single investment represented greater than 10% of the total investment portfolio at fair value. Expenses Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 24.3%
during the six months ended September 30, 2020, as compared to the prior year period, primarily due to a decrease in the incentive fee, base management fee, other expenses, and interest and dividend expense. In accordance with GAAP, we recorded a $0.3 million reversal of the capital gains-based incentive fee during the six months ended September 30,
2020, compared to a capital gains-based incentive fee of $0.3 million during the six months ended September 30, 2019. The reversal of the capital gains-based incentive fee was a result of the net impact of net realized gains (losses) and
net unrealized appreciation (depreciation) on investments during the respective periods. The income-based incentive fee decreased by $2.8 million for the six months ended September 30, 2020, as compared to the prior year period, primarily
due to a decrease in pre-incentive fee net investment income, which did not exceed the hurdle rate for the six months ended September 30, 2020. The base management fee, loan servicing fee, incentive fee, and their related non-contractual, unconditional, and
irrevocable credits are computed quarterly, as described under Transactions with the Adviserin Note 4  Related Party Transactions in the accompanying Notes to Consolidated Financial Statements and are
summarized in the following table:  Six Months EndedSeptember 30,2020


2019Average total assets subject to base management fee(A)

$
584,500


$
631,500Multiplied by prorated annual base management fee of 2.0%


1.0
%


1.0
%Base management fee(B)


5,845



6,315Credits to fees from
Adviserother(B)


(1,805
)


(1,830
)Net base management fee

$
4,040


$
4,485Loan servicing fee(B)


3,456



3,345Credits to base management feeloan servicing fee(B)


(3,456
)


(3,345
)Net loan servicing fee

$



$
Incentive fee  income-based

$



$
2,823Incentive fee  capital
gains-based(C)


(302
)


346Total incentive fee(B)

$
(302
)

$
3,169Credits to fees from
Adviserother(B)






Net total incentive fee

$
(302
)

$
3,169  (A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share
issuances or repurchases during the periods. (B)
Reflected as a line item on our Consolidated Statement of Operations. (C)
The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect
amounts contractually due under the terms of the Advisory Agreement. Interest and dividend expense decreased 3.3% during the six months
ended September 30, 2020, as compared to the prior year period, due to a decrease in the effective interest rate, partially offset by a higher weighted-average balance outstanding on the Credit Facility. The weighted-average balance outstanding
on the Credit Facility during the six months ended September 30, 2020 was $80.5 million, as compared to $49.9 million in the prior year period. The effective interest rate on the Credit Facility, excluding the impact of deferred
financing costs, during the six months ended September 30, 2020 was 4.5%, as compared to 8.4% in the prior year period. The decrease in the effective interest rate on the Credit Facility was primarily a result of a decrease in LIBOR and a
decrease in unused commitment fees on the undrawn portion of the Credit Facility. Refer to Liquidity and Capital Resources  Revolving Line of Credit for further discussion of the Credit Facility.  55




---

##### Table of Contents

Other expenses decreased 19.3% during the six months ended September 30, 2020, as compared to the prior
year period, primarily due to a decrease in tax expense and professional fees. Realized and Unrealized Gain (Loss) Net Realized Gain on Investments During the six months
ended September 30, 2020, we recorded net realized gains on investments of $1.4 million related to previous exits. During the six months ended September 30, 2019, we recorded net realized gains on investments of $21.7 million,
primarily related to a $20.4 million realized gain from the exit of ADC and a $3.2 million realized gain from the exit of Jackrabbit Inc. (Jackrabbit), which were partially offset by a $2.7 million realized loss from the
exit of Tread Corporation (Tread). Net Unrealized Appreciation (Depreciation) of Investments During the six months ended September 30, 2020, we recorded net unrealized depreciation of investments of $3.2 million. The realized gains (losses)
and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2020 were as follows:  Six Months Ended September 30, 2020Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


Net Gain(Loss)Pioneer Square Brands, Inc.

$



$
16,215


$



$
16,215Ginsey Home Solutions, Inc.






3,670







3,670Frontier Packaging, Inc.






2,534







2,534SOG Specialty Knives and Tools, LLC






2,159







2,159Galaxy Tool Holding Corporation






1,798







1,798Head Country, Inc.






846







846Cambridge Sound Management, Inc.


740











740B+T Group Acquisition, Inc.






(588
)






(588
)Horizon Facilities Services, Inc.






(1,415
)






(1,415
)Bassett Creek Services, Inc.






(1,828
)






(1,828
)Counsel Press, Inc.






(1,980
)






(1,980
)D.P.M.S., Inc.






(2,637
)






(2,637
)Nth Degree, Inc.


113



(3,649
)






(3,536
)PSI Molded Plastics, Inc.






(4,215
)






(4,215
)Brunswick Bowling Products, Inc.






(13,222
)






(13,222
)Other, net (<$1.0 million, net)


521



(934
)






(413
)Total

$
1,374


$
(3,246
)

$



$
(1,872
) The primary drivers of net unrealized depreciation of $3.2 million for the six months ended September 30, 2020 were
a decline in performance of certain portfolio companies, and a decrease in comparable multiples used to estimate the fair value of certain of our portfolio companies, which were partially offset by increased performance of certain of our other
portfolio companies. In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the markets in which they
operate, including government restrictions on the portfolio companies ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.  56




---

##### Table of Contents

During the six months ended September 30, 2019, we recorded net unrealized depreciation of investments
of $19.9 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2019 were as follows:  Six Months Ended September 30, 2019Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


Net Gain(Loss)Alloy Die Casting Co.

$
20,355


$
8,823


$
(12,634
)

$
16,544Nth Degree, Inc.






10,763







10,763Counsel Press, Inc.






5,170







5,170D.P.M.S., Inc.






3,681







3,681ImageWorks Display and Marketing Group, Inc.






1,861







1,861Head Country, Inc.






1,708







1,708Old World Christmas, Inc.






1,202







1,202Tread Corporation


(2,726
)






3,380



654Horizon Facilities Services, Inc.






623







623PSI Molded Plastics, Inc.






(1,135
)






(1,135
)Galaxy Tool Holding Corporation






(1,248
)






(1,248
)Brunswick Bowling Products, Inc.






(1,319
)






(1,319
)Jackrabbit, Inc.


3,198







(4,547
)


(1,349
)SOG Specialty Knives and Tools, LLC






(1,947
)






(1,947
)SBS Industries Holdings, Inc.






(2,030
)






(2,030
)Educators Resource, Inc.






(2,116
)






(2,116
)Pioneer Square Brands, Inc.






(2,786
)






(2,786
)Ginsey Home Solutions, Inc.






(3,555
)






(3,555
)Meridian Rack & Pinion, Inc.






(5,536
)






(5,536
)J.R. Hobbs Co.Atlanta, LLC






(17,822
)






(17,822
)Other, net (<$1.0 million, net)


850



(305
)


(132
)


413Total

$
21,677


$
(5,968
)

$
(13,933
)

$
1,776 The primary drivers of net unrealized depreciation of $19.9 million for the six months ended September 30, 2019 were
a decline in performance of certain portfolio companies, the reversal of previously recorded unrealized appreciation of our investments in ADC and Jackrabbit upon their exit, and a decrease in comparable multiples used to estimate the fair value of
certain of our portfolio companies, which were partially offset by the reversal of previously recorded unrealized depreciation of our investment in Tread upon its exit and increased performance of certain of our other portfolio companies. Across our entire investment portfolio, we recorded net unrealized depreciation of $0.8 million and $2.4 million on our debt and on our equity
positions, respectively, for the six months ended September 30, 2020. As of September 30, 2020, the fair value of our investment portfolio was less than the cost basis by $46.9 million, as compared to March 31, 2020, when the
fair value of our investment portfolio was less than the cost basis by $43.7 million, representing net unrealized depreciation of $3.2 million for the six months ended September 30, 2020. Our entire portfolio had a fair value of 92.8%
of cost as of September 30, 2020. Net Unrealized (Appreciation) Depreciation on Other During the six months ended September 30, 2020, we did not record any unrealized appreciation or depreciation of other. During the six months ended
September 30, 2019, we recorded net unrealized appreciation of other of $0.2 million related to the Credit Facility recorded at fair value.  57




---

##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES Operating Activities Net cash used in operating
activities for the six months ended September 30, 2020 was $59.4 million, as compared to net cash provided by operating activities of $24.0 million for the six months ended September 30, 2019. This change was primarily due to
decreases in principal repayments of investments and net proceeds from the sale of investments. Purchases of investments were $57.4 million during
the six months ended September 30, 2020, compared to $71.4 million during the six months ended September 30, 2019. Principal repayments and net proceeds from the sale of investments totaled $2.1 million during the six months
ended September 30, 2020, compared to $88.5 million during the six months ended September 30, 2019. As of September 30, 2020, we had
equity investments in or loans to 29 portfolio companies with an aggregate cost basis of $655.9 million. As of September 30, 2019, we had equity investments in or loans to 29 portfolio companies with an aggregate cost basis of
$593.8 million. The following table summarizes our total portfolio investment activity during the six months ended September 30, 2020 and 2019:  Six Months EndedSeptember 30,2020


2019Beginning investment portfolio, at fair value

$
565,924


$
624,172New investments


46,902



43,180Disbursements to existing portfolio companies


10,480



28,200Unscheduled principal repayments


(8,000
)


(53,926
)Net proceeds from sales of investments


(3,107
)


(34,413
)Net realized gain on investments






21,015Net unrealized depreciation of investments


(3,246
)


(5,967
)Reversal of net unrealized appreciation of investments






(13,934
)Amortization of premiums, discounts, and acquisition costs, net


9



9Ending investment portfolio, at fair value

$
608,962


$
608,336 The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year,
assuming no voluntary prepayments, as of September 30, 2020:  AmountFor the remaining six months ending March 31:

2021

$
20,240For the fiscal years ending March 31:

2022


58,8942023

106,1502024

93,0552025

175,432Thereafter


25,250Total contractual repayments

$
479,021Adjustments to cost basis of debt investments


(39
)Investments in equity securities


176,884Total cost basis of investments held as of September 30, 2020:

$
655,866 Financing Activities Net cash provided by financing activities for the six months ended September 30, 2020 was $57.9 million, which consisted primarily of
$67.4 million of net borrowings under the Credit Facility, $6.3 million of gross proceeds from the issuance of mandatorily redeemable preferred stock under the Series E ATM Program, and $1.7 million of gross proceeds from the issuance
of common stock under the Common Stock ATM Program, partially offset by $16.9 million in distributions to common stockholders. Net cash used in
financing activities for the six months ended September 30, 2019 was $23.7 million, which consisted primarily of $17.3 million in distributions to common stockholders and $6.2 million of net repayments on the Credit Facility.  58




---

##### Table of Contents

Distributions and Dividends to Stockholders Common Stock Distributions To qualify to be taxed
as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders, we are required, among other requirements, to distribute to our stockholders on an annual basis at least 90% of our taxable ordinary income
plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income), determined without regard to the dividends paid deduction. Additionally, the Credit Facility generally restricts
the amount of distributions to stockholders that we can pay out to be no greater than the sum of certain amounts, including our net investment income, plus net capital gains, plus amounts elected by the Company to be considered as having been paid
during the prior fiscal year in accordance with Section 855(a) of the Code. In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.07 per common share for each of the six months
from April through September 2020, and a supplemental distribution of 0.09 per common share in June 2020. For the fiscal year ended March 31, 2020,
Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $17.9 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year. In addition, for the fiscal year ended March 31, 2020, net capital gains exceeded distributions declared and paid, and, in accordance with
Section 855(a) of the Code, we elected to treat $5.3 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year. For the year ended March 31,
2020, we recorded $6.5 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and increased Accumulated net
realized gain in excess of distributions and Underdistributed (overdistributed) net investment income. For the six months ended September 30, 2020, we recorded $0.6 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed net investment income. Preferred Stock Dividends Our Board of Directors
declared and we paid monthly cash dividends of (i) $0.13020833 per share to holders of our Series D Term Preferred Stock for each of the six months from April through September 2020 and (ii) $0.1328125 per share to holders of our Series E Term
Preferred Stock for each of the six months from April through September 2020. In accordance with GAAP, we treat these monthly dividends as an operating expense. Dividend Reinvestment Plan Our common
stockholders who hold their shares through our transfer agent, Computershare, Inc. (Computershare), have the option to participate in a dividend reinvestment plan offered by Computershare, as the plan agent. This is an opt in
dividend reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock. Common stockholders who do not make such election will receive their
distributions in cash. Any distributions reinvested under the plan will be taxable to a common stockholder to the same extent, and with the same character, as if the common stockholder had received the distribution in cash. The common stockholder
generally will have an adjusted basis in the additional common shares purchased through the plan equal to the dollar amount that would have been received if the U.S. stockholder had received the dividend or distribution in cash. The additional
common shares will have a new holding period commencing on the day following the date on which the shares are credited to the common stockholders account. Computershare purchases shares in the open market in connection with the obligations
under the plan. The Computershare dividend reinvestment plan is not open to holders of our preferred stock. Equity Registration Statement On June 14, 2019, we
filed a registration statement on Form N-2 (File No. 333-232124), which the SEC declared effective on July 24, 2019. The registration statement permits us to
issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt
securities, including through concurrent, separate offerings of such securities.As of September 30, 2020, we had the ability to issue up to $288.6 million in securities under the registration statement.  59




---

##### Table of Contents

Common Stock In December 2019, we entered into equity distribution agreements with Wedbush Securities, Inc. (Wedbush), Cantor Fitzgerald & Co., and
Ladenburg Thalmann & Co., Inc. (each, a Common Stock ATM Sales Agent), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Common Stock ATM Sales Agents, up to an
aggregate offering price of $35.0 million in the Common Stock ATM Program. As of September 30, 2020, we had remaining capacity to sell up to $30.1 million of common stock under the Common Stock ATM Program. During the three months ended June 30, 2020, we sold 155,560 shares of our common stock under the Common Stock ATM Program with Wedbush at a
weighted-average gross price of $11.39 per share and raised approximately $1.8 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $11.17 and resulted in total net
proceeds of approximately $1.7 million. These sales were above our then current estimated NAV per share. We did not sell any shares of our common stock under the Common Stock ATM Program during the three months ended September 30, 2020. During the year ended March 31, 2020, we sold 227,004 shares of our common stock under the Common Stock ATM Program with Wedbush at a
weighted-average gross price of $13.80 per share and raised approximately $3.1 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $13.55 and resulted in
total net proceeds of approximately $3.1 million. These sales were above our then current estimated NAV per share. We anticipate issuing equity
securities to obtain additional capital in the future. However, we cannot determine the timing or 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, 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 and meeting other stated requirements. On September 30,
2020, the closing market price of our common stock was $9.10 per share, representing a 16.2% discount to our NAV per share of $10.86 as of September 30, 2020. At our 2020 Annual Meeting of Stockholders held on August 20, 2020, our stockholders approved a proposal authorizing us with the subsequent approval of
our Board of Directors, 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 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. Term Preferred Stock In August 2018, we completed a public offering of 2,990,000 shares of our Series E Term Preferred Stock at a public offering price of $25.00 per share. Gross
proceeds totaled $74.8 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were $72.1 million. Total underwriting discounts and offering costs related to this offering were $2.7 million,
which have been recorded as discounts to the liquidation value on our Consolidated Statements of Assets and Liabilities and are being amortized over the period ending August 31, 2025, the mandatory redemption date. Our Series E Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed dividend equal to 6.375% per year,
payable monthly (which equates to $5.2 million per year as of September 30, 2020). We are required to redeem all outstanding shares of our Series E Term Preferred Stock on August 31, 2025, 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 E Term Preferred Stock, and (2) if we fail to maintain asset coverage as required by Sections 18 and 61 of the 1940 Act (which
is currently 150%) and are unable to correct such failure within a specific amount of time, we are required to redeem a portion of our outstanding Series E Term Preferred Stock or otherwise cure the asset coverage redemption trigger (we may also
redeem additional securities to cause asset coverage to be up to 200%). We may also voluntarily redeem all or a portion of our Series E Term Preferred Stock at our sole option at the redemption price at any time. In August 2018, we used the proceeds from the issuance of our Series E Term Preferred Stock, along with borrowings under the Credit Facility, to voluntarily
redeem all outstanding shares of our 6.750% Series B Cumulative Term Preferred Stock (our Series B Term Preferred Stock) and our 6.500% Series C Cumulative Term Preferred Stock (our Series C Term Preferred Stock), each of
which had a liquidation preference of $25.00 per share. In connection with the voluntary redemption of our Series B Term Preferred Stock and our Series C Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.7 million, which
was recorded in Realized loss on other in our Consolidated Statements of Operations and which was primarily comprised of unamortized deferred issuance costs at the time of redemption.  60




---

##### Table of Contents

In May 2020, we entered into sales agreements with Wedbush and Virtu Americas LLC (Virtu) (each
a Series E ATM Sales Agent), under which we have the ability to issue and sell shares of our Series E Term Preferred Stock, from time to time, through the Series E ATM Sales Agents, up to $50.0 million aggregate liquidation
preference in the Series E ATM Program. As of September 30, 2020, we had remaining capacity to sell up to $43.5 million of our Series E Term Preferred Stock under the Series E ATM Program. During the six months ended September 30, 2020, we sold 258,610 shares of our Series E Term Preferred Stock under the Series E ATM Program with Wedbush
and Virtu with an aggregate liquidation preference of $6.5 million. The weighted-average gross price per share net of discounts was $24.29 and resulted in gross proceeds of approximately $6.3 million. After deducting commissions and
offering costs borne by us, net proceeds totaled approximately $6.2 million. In September 2016, we completed a public offering of 2,300,000 shares
of our Series D Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $57.5 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were $55.4 million. Total
underwriting discounts and offering costs related to this offering were $2.1 million, which have been recorded as discounts to the liquidation value on our Consolidated Statements of Assets and Liabilities and are being amortized over
the period ending September 30, 2023, the mandatory redemption date. Our Series D Term Preferred Stock is not convertible into our common stock or
any other security. Our Series D Term Preferred Stock provides for a fixed dividend equal to 6.25% per year, payable monthly (which equates to $3.6 million per year). We are required to redeem all outstanding shares of our Series D Term
Preferred Stock on September 30, 2023, 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 D Term Preferred Stock, and (2) if we
fail to maintain asset coverage of at least 200% and are unable to correct such failure within a specific amount of time, we are required to redeem a portion of our outstanding Series D Term Preferred Stock or otherwise cure the asset coverage
redemption trigger (and we may also redeem additional securities to cause the asset coverage to be 240%). We may also voluntarily redeem all or a portion of our Series D Term Preferred Stock at our sole option at the redemption price at any time. Each series of our mandatorily redeemable 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 the mandatorily redeemable preferred stock have been paid in full. The Series D Term Preferred Stock and Series E Term Preferred Stock are
considered liabilities in accordance with GAAP and, as such, affect our asset coverage, exposing us to additional leverage risks. The asset coverage on our senior securities that are stock (our Series D Term Preferred Stock and Series E Term
Preferred Stock) as of September 30, 2020 was 235.9%, calculated pursuant to Sections 18 and 61 of the 1940 Act. Revolving Line of Credit On August 22, 2018, we, through our wholly-owned subsidiary, Gladstone Business Investment, LLC (Business Investment), entered
into Amendment No. 4 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended, with KeyBank National Association (KeyBank) as administrative agent, lead arranger,
managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to August 22, 2021, and if not renewed or extended by such date, all principal and interest will be due and payable
on August 22, 2023 (two years after the revolving period end date). Additionally, the Credit Facility commitment amount was increased from $165.0 million to $200.0 million and, subject to certain terms and conditions, can be expanded
to a total facility amount of $300.0 million through additional commitments from existing or new lenders. We incurred fees of approximately $1.6 million in connection with this amendment. On August 10, 2020, we, through Business Investment, entered into Amendment No. 5 to the Credit Facility. Among other things, Amendment No. 5
amends the Credit Facility to (i) add LIBOR replacement language; (ii) implement a 0.5% LIBOR floor; (iii) reduce the facility size from $200.0 million to $180.0 million, which may be expanded to $300.0 million through
additional commitments; and (iv) provide certain other changes to existing terms and covenants. In addition, Amendment No. 5 provides for certain temporary changes during the COVID-19 Relief Period
(which began on August 10, 2020 and ends on March 31, 2021, and which may be extended, subject to certain conditions) including: (i) amending the definition of Effective Advance Rate, provided that during such period the
overall effective advance rate does not exceed 55%; and (ii) removing or changing certain Excess Concentration Limits (as defined in the Credit Facility).  61




---

##### Table of Contents

Advances under the Credit Facility generally bear interest at 30-day
LIBOR, subject to a floor of 0.5%, plus 2.85% per annum until August 21, 2021, with the margin then increasing to 3.10% for the period from August 22, 2021 to August 21, 2022, and increasing further to 3.35% thereafter. The Credit
Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused
commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount. Interest is payable monthly during the term of the Credit Facility. Available borrowings are subject to various constraints and applicable advance rates,
which are generally based on the size, characteristics, and quality of the collateral pledged by Business Investment. The Credit Facility also requires that any interest and principal payments on pledged loans be remitted directly by the borrower
into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once a month. Among other
things, the 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. The Credit Facility also generally seeks to restrict distributions to stockholders to the sum of (i) our net investment income,
(ii) net capital gains, and (iii) amounts deemed by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code. Loans eligible to be pledged as collateral are subject to
certain limitations, including, among other things, restrictions on geographic concentrations, industry concentrations, loan size, payment frequency and status, average life, portfolio company leverage, and lien property. The Credit Facility also
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. Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term
preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to
$224.4 million as of September 30, 2020, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by
Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of September 30, 2020, and as defined in the performance guaranty of the Credit Facility, we had a net worth of
$495.4 million, asset coverage on our senior securities representing indebtedness of 502.1%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of September 30,
2020, we had availability, after adjustments for various constraints based on collateral quality, of $63.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility. Notes Offering In May 2020, we entered into a
dealer manager agreement (Dealer Manager Agreement) with our affiliated dealer manager, Gladstone Securities, under which we may sell a maximum of $350.0 million aggregate principal amount of our 6.00% notes due 2040 (the
Notes). However, we can only offer for sale up to $200.0 million aggregate principal amount of the Notes pursuant to a prospectus supplement dated May 22, 2020 and a base prospectus dated July 24, 2019 relating to the
registration statement on Form N-2 (File No. 333- 232124) under the Securities Act of 1933, as amended. The Notes will mature on November 1, 2040. We will pay interest on the Notes on the first day of each month, commencing on the first day of the month
following the issuance of such Note. Subject to certain limitations, holders of the Notes will have the option to tender their Notes for redemption at a redemption price of $22.50 per Note until the earlier of the date upon which our Board of
Directors, by resolution, suspends or terminates the optional redemption right of the holders or the date, if any, on which the Notes are listed on Nasdaq Global Select Market or another national securities exchange. In addition, we will repurchase
the Notes, upon request, in the event of the holders death at a redemption price of $25.00 per Note. Except upon the occurrence of certain events that would constitute a change in control of us or to comply with applicable law, we may not
redeem the Notes at our option until the later of (1) the one-year anniversary of the termination of the offering of the Notes and (2) July 1, 2025. After such date, we may, at our sole option,
redeem all or a portion of the Notes at a redemption price of $25.00 per Note. The Notes will be our direct unsecured obligations and rank equal in right of payment with all outstanding and future unsecured, unsubordinated indebtedness issued by us.
As of September 30, 2020, no Notes have been issued.  62




---

##### Table of Contents

OFF-BALANCE SHEET ARRANGEMENTS Unlike PIK income, we generally do not recognize success fees as income until payment has been received. Due to the contingent nature of success fees, there
are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of September 30, 2020 and March 31, 2020, we had unrecognized, contractual off-balance sheet success fee receivables of $45.0 million and $37.6 million (or approximately $1.35 and $1.14 per common share), respectively, on our debt investments. Consistent with GAAP, we have not
recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned. CONTRACTUAL
OBLIGATIONS We have line of credit and delayed draw term loan commitments to certain of our portfolio companies that have not been fully drawn. Since
these line of credit and delayed draw term loan commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term loan commitment amounts do not necessarily represent future cash
requirements. We estimate the fair value of the combined unused line of credit and delayed draw term loan commitments as of September 30, 2020 to be immaterial. As of September 30, 2020, we have also extended a guaranty on behalf of one of our portfolio companies, Country Club Enterprises, LLC (CCE),
whereby we have guaranteed $1.0 million of CCEs obligations. As of September 30, 2020, we have not been required to make payments on this or any previous guaranties, and we consider the credit risks to be remote and the fair value of
this guaranty to be immaterial. The following table shows our contractual obligations as of September 30, 2020, at cost/liquidation preference:  Payments Due by PeriodContractual
Obligations(A)

Total


Less than1 Year


1-3 Years


3-5Years


More than5 YearsCredit Facility(B)

$
116,600


$



$
116,600


$



$
Mandatorily redeemable preferred stock


138,715







57,500



81,215



Secured borrowing


5,096











5,096



Interest payments on obligations(C)


50,167



13,415



26,372



10,380



Total

$
310,578


$
13,415


$
200,472


$
96,691


$
  (A)
Excludes unused line of credit and delayed draw term loan commitments and guaranties to our portfolio companies
in the aggregate principal amount of $6.2 million. (B)
Principal balance of borrowings outstanding under the Credit Facility, based on the maturity date following the
current contractual revolving period end date. (C)
Includes interest payments due on the Credit Facility and secured borrowing and dividend obligations on each
series of our mandatorily redeemable preferred stock. The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of September 30, 2020. Dividend obligations on our mandatorily
redeemable preferred stock assume quarterly declarations and monthly dividend payments through the date of mandatory redemption of each series. 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 (which has been approved by our Board of Directors) as our most critical accounting policy, which is described in Note 2 Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial
Statements included elsewhere in this Quarterly Report. Additionally, refer to Note 3  Investments in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report for additional
information regarding fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures. We have also identified our revenue
recognition policy as a critical accounting policy, which is described in Note 2 Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly
Report.  63




---

##### Table of Contents

Investment Valuation 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. Generally, we,
through the Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to 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 equity securities. For loans that have been rated by a SEC-registered Nationally Recognized Statistical Rating Organization (NRSRO), the Adviser generally
uses the average of two corporate level NRSROs risk ratings for such security. For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the 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 Lower Middle Market companies do not
exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the Lower 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. The following table reflects risk ratings for all loans in our portfolio as of September 30,
2020 and March 31, 2020:  Rating

September 30, 2020

March 31, 2020Highest

9.0

9.0Average

6.2

6.5Weighted-average

6.1

6.9Lowest

3.0

4.0 Tax Status We
intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for U.S. federal income tax purposes. As a RIC, we generally are not subject to U.S. federal income tax on the portion of our taxable income and gains
distributed to our stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain source-of-income and asset diversification
requirements. In addition, in order to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment Company Taxable Income, determined without regard to the dividends paid deduction. Our policy generally is to make
distributions to our stockholders in an amount up to 100% of Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to
stockholders in cash. See Business Liquidity and Capital Resources  Distributions and Dividends to Stockholders. In an effort to limit federal excise taxes, we have to distribute to stockholders, during each calendar year, an amount close to the sum of: (1) 98% of
our ordinary income for the calendar year, (2) 98.2% of our net capital gains (both long-term and short-term), if any, for the one-year period ending on October 31 of the calendar year, and
(3) any income realized, but not distributed, in the preceding period (to the extent that income tax was not imposed on such amounts), less certain reductions, as applicable. Under the RIC Modernization Act, we are permitted to carryforward any
capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. Our capital loss carryforward balance was $0 as of both September 30,
2020 and March 31, 2020. Recent Accounting Pronouncements Refer to Note 2  Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included
elsewhere in this Quarterly Report for a description of recent accounting pronouncements.  64




---

##### Table of Contents

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,
including COVID-19 or other health emergencies; 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 income is dependent upon
the difference between the rates at which we borrow funds, such as under the Credit Facility (which is variable) and our mandatorily redeemable preferred stock (which are fixed), and the rates 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 may 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. We target to have approximately 10% of the loans in our portfolio at fixed rates, with approximately 90% at variable rates or variable rates with a floor
mechanism. As of September 30, 2020 and March 31, 2020, all of our variable-rate loans have rates associated with the current 30-day LIBOR rate and our total debt investment portfolio consisted of
the following breakdown based on the principal balance:  Rates:

September 30, 2020


March 31, 2020Variable rates with a floor


97.6
%


97.5
%Fixed rates


2.4



2.5Total


100.0
%


100
% There have been no material changes in the quantitative and qualitative market risk disclosures during the six months ended
September 30, 2020 from those included in our Annual Report. ITEM 4. CONTROLS AND PROCEDURES. a) Evaluation of Disclosure Controls and Procedures As of
September 30, 2020 (the end of the period covered by this report), we, including our chief executive officer and chief financial officer, evaluated the effectiveness, 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 September 30, 2020 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.  65




---

##### Table of Contents

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, results of operations or cash flows, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources. Further, we are not named as a party to any
proceeding that involves a claim for damages that exceeds 10% of our consolidated current assets.  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 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, 2020, as filed with the SEC on May 12, 2020. The risks described in our Annual Report 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.  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.  66




---

##### Table of Contents

ITEM 6.
EXHIBITS See the exhibit index. EXHIBIT INDEX  Exhibit

Description3.1

Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit A.2 to Pre-Effective Amendment No. 1 to the Registration Statement on FormN-2 (File No.333-123699), filed May 13, 2005.3.1.a

Certificate of Designation of 6.25% Series D Cumulative Term Preferred Stock Due 2023, incorporated by reference to Exhibit 3.5 to the Registration
 Statement on Form 8-A (File No.001-34007), filed September 22, 2016.3.1.b

Certificate of Designation of 6.375% Series E Cumulative Term Preferred Stock Due 2025, incorporated by reference to Exhibit 3.1 to the Current
 Report on Form 8-K (File No.814-00704), filed August 16, 2018.3.1.c

Certificate of Increase of Shares Designated as 6.375% Series E Cumulative Term Preferred Stock due 2025 of Gladstone Investment Corporation incorporated
 by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.814-00704), filed May 21, 2020.3.2

Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No.814-00704), filed May 15, 2020.4.1

Specimen Stock Certificate, incorporated by reference to Exhibit 
d to Pre-Effective Amendment No. 3 to the Registration Statement on FormN-2 (File No.333-123699), filed June 21, 2005.4.2

Specimen 6.25% Series D Cumulative Term Preferred Stock Due 2023 Stock Certificate, incorporated by reference to Exhibit 4.5 to the Registration
 Statement on Form 8-A (File No.001-34007), filed September 22, 2016.4.3

Specimen 6.375% Series E Cumulative Term Preferred Stock Due 2025 Stock Certificate incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K (File No.814-00704), filed August 16, 2018.4.4

Indenture, dated as of May 
22, 2020, between Gladstone Investment Corporation and UMB Bank, National Association, as trustee incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No.814-00704), filed May 22, 2020.4.5

First Supplemental Indenture, dated as of May 
22, 2020, relating to the 6.00% Notes due 2040, between Gladstone Investment Corporation and UMB Bank, National Association, as trustee incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File
No.814-00704), filed May 22, 2020.4.6

Form of 6.00% Notes due 2040 incorporated by reference to Exhibit 4.2 to the Current Report on Form 8-K (File
 No.814-00704), filed May 22, 2020 (contained in the First Supplemental Indenture filed as Exhibit 4.2 thereto).10.1

Amendment No. 5 to Fifth Amended and Restated Credit Agreement, dated as of August 
10, 2020 by and among Gladstone Business Investment, LLC, as Borrower, Gladstone Management Corporation, as Servicer, Keybank National Association, as administrative agent, swingline lender, managing agent and lead arranger and certain other lenders party
 thereto, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No.814-00704), filed August 10, 2020.31.1*

Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.31.2*

Certification of Chief Financial Officer and Treasurer 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 and Treasurer 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.  67




---

##### Table of Contents

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/ Julia RyanJulia RyanChief Financial Officer and Treasurer(principal financial and accounting officer)
 Date: November 3, 2020  68