UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTER ENDED JUNE 30, 2010
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 000-51233
 GLADSTONE INVESTMENT CORPORATION
  DELAWARE(State or other jurisdiction of incorporation or organization)
    
    83-0423116(I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (703) 287-5800
 þ o
 o o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




---



##### 



GLADSTONE INVESTMENT CORPORATION
TABLE OF CONTENTS
 PART I.
    
    FINANCIAL INFORMATION:Item 1.
    
    Financial Statements (Unaudited)Condensed Consolidated Statements of Assets and Liabilities as of June 30, 2010 and March 31, 2010
    
    
    3Condensed Consolidated Statements of Operations for the three months ended June 30, 2010 and June 30, 2009
    
    
    4Condensed Consolidated Statements of Changes in Net Assets for the three months ended June 30, 2010 and
June 30, 2009
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2010 and June 30, 2009
    
    
    6Condensed Consolidated Schedules of Investments as of June 30, 2010 and March 31, 2010
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    11Item 2.
    
    Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Overview
    
    
    25Results of Operations
    
    
    29Liquidity and Capital Resources
    
    
    34Item 3.
    
    Quantitative and Qualitative Disclosures About Market Risk
    
    
    43Item 4.
    
    Controls and Procedures
    
    
    43PART II.
    
    OTHER INFORMATION:Item 1.
    
    Legal Proceedings
    
    
    45Item 1A.
    
    Risk Factors
    
    
    45Item 2.
    
    Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    45Item 3.
    
    Defaults Upon Senior Securities
    
    
    45Item 4.
    
    Reserved
    
    
    45Item 5.
    
    Other Information
    
    
    45Item 6.
    
    Exhibits
    
    
    45SIGNATURES
    
    
    
    
    46




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 June 30,
    
    
    March 31,2010
    
    
    2010ASSETSCash and cash equivalents
    
    $
    119,318
    
    
    $
    87,717Investments at fair valueNon-Control/Non-Affiliate investments (Cost of $15,381and $22,674, respectively)
    
    
    14,079
    
    
    
    20,946Control investments (Cost of $122,954and $152,166, respectively)
    
    
    101,574
    
    
    
    148,248Affiliate investments (Cost of $46,501and $52,727, respectively)
    
    
    32,676
    
    
    
    37,664Total investments (Cost of $184,836and $227,567, respectively)
    
    
    148,329
    
    
    
    206,858Interest receivable
    
    
    842
    
    
    
    1,234Due from Custodian
    
    
    17,362
    
    
    
    935Deferred financing fees
    
    
    665
    
    
    
    83Prepaid assets
    
    
    261
    
    
    
    221Other assets
    
    
    4,133
    
    
    
    113TOTAL ASSETS
    
    $
    290,910
    
    
    $
    297,161LIABILITIESBorrowings at fair valueShort-term loan (Cost of $75,000)
    
    $
    75,000
    
    
    $
    75,000Line of credit (Cost of $16,500and $27,800, respectively)
    
    
    16,500
    
    
    
    27,812Total borrowings (Cost of $91,500and $102,800, respectively)
    
    
    91,500
    
    
    
    102,812Accounts payable and accrued expenses
    
    
    401
    
    
    
    206Fee due to Administrator(1)
    
    
    178
    
    
    
    149Fees due to Adviser(1)
    
    
    1,811
    
    
    
    721Other liabilities
    
    
    1,314
    
    
    
    295TOTAL LIABILITIES
    
    
    95,204
    
    
    
    104,183NET ASSETS
    
    $
    195,706
    
    
    $
    192,978ANALYSIS OF NET ASSETS:Common stock, $0.001 par value, 100,000,000 shares authorized, 22,080,133 shares
issued and outstanding at June 30, 2010 and March 31, 2010
    
    $
    22
    
    
    $
    22Capital in excess of par value
    
    
    257,216
    
    
    
    257,206Net unrealized depreciation of investment portfolio
    
    
    (36,507
    )
    
    
    (20,710
    )Net unrealized depreciation of derivatives
    
    
    (69
    )
    
    
    (39
    )Net unrealized appreciation of borrowings
    
    
    
    
    
    
    (12
    )Accumulated net realized investment loss
    
    
    (24,956
    )
    
    
    (43,489
    )TOTAL NET ASSETS
    
    $
    195,706
    
    
    $
    192,978NET ASSETS PER SHARE
    
    $
    8.86
    
    
    $
    8.74
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
 3




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
(UNAUDITED)
 Three Months Ended June 30,2010
    
    
    2009INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate investments
    
    $
    405
    
    
    $
    1,112Control investments
    
    
    3,019
    
    
    
    2,779Affiliate investments
    
    
    1,082
    
    
    
    1,278Cash and cash equivalents
    
    
    1
    
    
    
    Total interest income
    
    
    4,507
    
    
    
    5,169Other income
    
    
    2,741
    
    
    
    Total investment income
    
    
    7,248
    
    
    
    5,169EXPENSESLoan servicing fee(1)
    
    
    824
    
    
    
    1,068Base management fee(1)
    
    
    200
    
    
    
    313Incentive fee(1)
    
    
    1,052
    
    
    
    Administration fee(1)
    
    
    178
    
    
    
    173Interest expense
    
    
    274
    
    
    
    702Amortization of deferred financing fees
    
    
    164
    
    
    
    314Professional fees
    
    
    124
    
    
    
    201Stockholder related costs
    
    
    104
    
    
    
    82Insurance expense
    
    
    72
    
    
    
    57Directors fees
    
    
    50
    
    
    
    51Other expenses
    
    
    118
    
    
    
    64Expenses before credits from Adviser
    
    
    3,160
    
    
    
    3,025Credits to fees from Adviser(1)
    
    
    (119
    )
    
    
    (301
    )Total expenses net of credits to fees
    
    
    3,041
    
    
    
    2,724NET INVESTMENT INCOME
    
    
    4,207
    
    
    
    2,445REALIZED AND UNREALIZED GAIN (LOSS) ON:Realized gain (loss) on sale of investments
    
    
    16,976
    
    
    
    (34,605
    )Realized loss on termination of derivative
    
    
    
    
    
    
    (53
    )Net unrealized appreciation of Non-Control/Non-Affiliate investments
    
    
    426
    
    
    
    36,728Net unrealized depreciation of Control investments
    
    
    (17,461
    )
    
    
    (11,481
    )Net unrealized appreciation (depreciation) of Affiliate investments
    
    
    1,237
    
    
    
    (2,266
    )Net unrealized (depreciation) appreciation of derivatives
    
    
    (29
    )
    
    
    42Net unrealized depreciation of borrowings
    
    
    12
    
    
    
    Net gain (loss) on investments, derivatives and borrowings
    
    
    1,161
    
    
    
    (11,635
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    5,368
    
    
    $
    (9,190
    )NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON
SHARE:Basic and diluted
    
    $
    0.24
    
    
    $
    (0.42
    )WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:Basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
 4




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Three Months Ended June 30,2010
    
    
    2009Operations:Net investment income
    
    $
    4,207
    
    
    $
    2,445Realized gain (loss) on sale of investments
    
    
    16,976
    
    
    
    (34,605
    )Realized loss on termination of derivative
    
    
    
    
    
    
    (53
    )Net unrealized (depreciation) appreciation of investment portfolio
    
    
    (15,798
    )
    
    
    22,981Unrealized (depreciation) appreciation of derivatives
    
    
    (29
    )
    
    
    42Unrealized depreciation of borrowings
    
    
    12
    
    
    
    Net increase (decrease) in net assets from operations
    
    
    5,368
    
    
    
    (9,190
    )Capital transactions:Shelf offering registration costs
    
    
    10
    
    
    
    (32
    )Distributions to stockholders
    
    
    (2,650
    )
    
    
    (2,650
    )Net decrease in net assets from capital transactions
    
    
    (2,640
    )
    
    
    (2,682
    )Total increase (decrease) in net assets
    
    
    2,728
    
    
    
    (11,872
    )Net assets at beginning of period
    
    
    192,978
    
    
    
    214,802Net assets at end of period
    
    $
    195,706
    
    
    $
    202,930
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL 
STATEMENTS.
 5




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Three Months Ended June 30,2010
    
    
    2009CASH FLOWS FROM OPERATING ACTIVITIESNet increase (decrease) in net assets resulting from operations
    
    $
    5,368
    
    
    $
    (9,190
    )Adjustments to reconcile net decrease in net assets resulting from operations to net cash
provided by operating activities:Purchase of investments
    
    
    (1,354
    )
    
    
    (650
    )Principal repayments of investments
    
    
    39,585
    
    
    
    6,725Proceeds from sales of investments
    
    
    21,474
    
    
    
    69,222Net realized (gain) loss on sales of investments
    
    
    (16,976
    )
    
    
    34,605Net realized loss on termination of derivative
    
    
    
    
    
    
    53Net unrealized depreciation (appreciation) of investment portfolio
    
    
    15,798
    
    
    
    (22,981
    )Net unrealized depreciation (appreciation) of derivatives
    
    
    29
    
    
    
    (42
    )Net unrealized depreciation of borrowings
    
    
    (12
    )
    
    
    Net amortization of premiums and discounts
    
    
    2
    
    
    
    Amortization of deferred financing fees
    
    
    164
    
    
    
    314Decrease in interest receivable
    
    
    392
    
    
    
    548(Increase) decrease in due from custodian
    
    
    (16,427
    )
    
    
    1,290Increase in prepaid assets
    
    
    (40
    )
    
    
    (65
    )Increase in other assets
    
    
    (4,008
    )
    
    
    (52
    )Increase (decrease) in accounts payable and accrued expenses
    
    
    198
    
    
    
    (933
    )Increase (decrease) in administration fee payable to Administrator(1)
    
    
    29
    
    
    
    (6
    )Increase in base management fee payable to Adviser(1)
    
    
    65
    
    
    
    126Increase in incentive fee payable to Adviser(1)
    
    
    1,052
    
    
    
    Decrease in loan servicing fee payable to Adviser(1)
    
    
    (27
    )
    
    
    (75
    )Increase in other liabilities
    
    
    1,019
    
    
    
    32Net cash provided by operating activities
    
    
    46,331
    
    
    
    78,921CASH FLOWS FROM FINANCING ACTIVITIESShelf offering registration costs
    
    
    10
    
    
    
    (32
    )Borrowings from line of credit
    
    
    16,000
    
    
    
    24,200Repayments of line of credit
    
    
    (27,300
    )
    
    
    (87,525
    )Proceeds from short-term borrowings
    
    
    75,000
    
    
    
    65,000Repayments on short-term borrowings
    
    
    (75,000
    )
    
    
    Purchase of derivatives
    
    
    (41
    )
    
    
    (40
    )Deferred financing fees
    
    
    (749
    )
    
    
    (533
    )Distributions paid
    
    
    (2,650
    )
    
    
    (2,650
    )Net cash used in financing activities
    
    
    (14,730
    )
    
    
    (1,580
    )NET INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    31,601
    
    
    
    77,341CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    87,717
    
    
    
    7,236CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    119,318
    
    
    $
    84,577NON-CASH ACTIVITIES(2)
    
    $
    515
    
    
    $
    850
 
 (1)
    
    Refer to Note 4Related Party Transactionsfor additional information.(2)
    
    2010: Non- cash activities represent real property distributed to shareholders of
A. Stucki Holding Corp. prior to its sale in June 2010. This property is included in the
Companys Schedule of Investments under Gladstone Neville Corp. at June 30, 2010, and its fair
market value was recognized as other income on the Companys Statement of Operations for the
quarter ended June 30, 2010. 2009: Non-cash activities represent an investment disbursement to Cavert II Holding Corp. on
their revolving line of credit, which proceeds were used to make the next four quarterly
payments due under normal amortization for both their senior term A and senior term B loans in a
non-cash transaction.
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL
STATEMENTS.
 6




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS

JUNE 30, 2010

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS:Senior Syndicated Loans:Survey Sampling, LLC
    
    Service 
telecommunications-based sampling
    
    Senior Term Debt (9.5%, Due 5/2011)(3)
    
    $
    2,362
    
    
    $
    1,413Subtotal  Syndicated Loans
    
    
    
    
    
    
    2,362
    
    
    
    1,413Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design 
greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(3)
    
    
    3,043
    
    
    
    2,895B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    6,596
    
    
    
    6,588Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    3,080
    
    
    
    3,076Common Stock Warrants(4)
    
    
    300
    
    
    
    1079,976
    
    
    
    9,771Total Non-Control/Non-Affiliate Investments (represents 9.5% of total investments at fair value)
    
    $
    15,381
    
    
    $
    14,079CONTROL INVESTMENTS:Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and
pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due
3/2012)(5)
    
    $
    14,500
    
    
    $
    13,630Senior Subordinated Term Debt (12.5%, Due
12/2011)(5)
    
    
    415
    
    
    
    390Preferred Stock(4)
    
    
    6,984
    
    
    
    Common Stock(4)
    
    
    1,045
    
    
    
    Common Stock Warrants(4)
    
    
    24
    
    
    
    22,968
    
    
    
    14,020ASH Holdings Corp.
    
    Retail and Service  school
buses and parts
    
    Revolving Credit Facility, $496 available
(non-accrual, Due 3/2013)(4) (5)
    
    
    1,476
    
    
    
    406Senior Subordinated Term Debt (non-accrual, Due
3/2013)(4) (5)
    
    
    6,123
    
    
    
    1,688Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    4
    
    
    
    Guaranty ($250)10,103
    
    
    
    2,094Cavert II Holdings Corp.
    
    Manufacturing  bailing wire
    
    Senior Term Debt (10.0%, Due
10/2012)(6)
    
    
    2,700
    
    
    
    2,700Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671Preferred Stock(4)
    
    
    4,110
    
    
    
    5,054Common Stock(4)
    
    
    69
    
    
    
    4,07611,550
    
    
    
    16,501Chase II Holdings Corp.
    
    Manufacturing  traffic doors
    
    Senior Term Debt (8.8%, Due 3/2011)
    
    
    7,425
    
    
    
    7,425Senior Term Debt (12.0%, Due 3/2011)(6)
    
    
    7,480
    
    
    
    7,480Senior Subordinated Term Debt (13.0%, Due 3/2013)
    
    
    6,168
    
    
    
    6,168Preferred Stock(4)
    
    
    6,961
    
    
    
    8,000Common Stock(4)
    
    
    61
    
    
    
    28,095
    
    
    
    29,073Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.6%, Due
11/2014)(5)
    
    
    7,000
    
    
    
    6,860Preferred Stock(4)
    
    
    3,725
    
    
    
    Guaranty ($3,751)10,725
    
    
    
    6,860
 7




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
JUNE 30, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    Fair ValueCONTROL INVESTMENTS(Continued):Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due
8/2013)(5)
    
    $
    17,520
    
    
    $
    17,213Preferred Stock(4)
    
    
    4,112
    
    
    
    Common Stock(4)
    
    
    48
    
    
    
    21,680
    
    
    
    17,213Gladstone Neville Corp.(8)
    
    Real Estate  investments
    
    Common Stock(4)
    
    
    610
    
    
    
    610610
    
    
    
    610Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and
pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due
3/2011)(5)
    
    
    1,032
    
    
    
    1,010Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,325Senior Term Debt (7.4%, Due 3/2014)(5)
(6)
    
    
    7,227
    
    
    
    6,956Common Stock(4)
    
    
    500
    
    
    
    Common Stock Warrants(4)
    
    
    277
    
    
    
    11,411
    
    
    
    10,291Tread Corp.(7)
    
    Manufacturing  storage and
transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due
5/2013)(5)
    
    
    5,000
    
    
    
    4,912Preferred Stock(4)
    
    
    808
    
    
    
    Common Stock(4)
    
    
    1
    
    
    
    Preferred Stock & Debt Warrants(4)
    
    
    3
    
    
    
    5,812
    
    
    
    4,912Total Control Investments (represents 68.5% of total investments at fair value)
    
    
    
    $
    122,954
    
    
    $
    101,574AFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet
metal work
    
    Revolving Credit Facility, $600 available (10.0%, Due
10/2010)(5)
    
    $
    900
    
    
    $
    897Senior Term Debt (10.0%, Due
10/2012)(5)
    
    
    3,863
    
    
    
    3,848Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    9,030
    
    
    
    8,939Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    2
    
    
    
    16,295
    
    
    
    13,684Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $0 available (4.4%, Due
12/2010)(5)
    
    
    1,850
    
    
    
    1,124Senior Term Debt (9.3%, Due 12/2011)(5)
    
    
    6,227
    
    
    
    3,783Senior Term Debt (10.5%, Due 12/2011)(5)
(6)
    
    
    7,300
    
    
    
    4,435Preferred Stock(4)
    
    
    1,750
    
    
    
    Common Stock(4)
    
    
    1,682
    
    
    
    18,809
    
    
    
    9,342Quench Holdings Corp.
    
    Service  sales, installation and
service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due
8/2013)(5)
    
    
    8,000
    
    
    
    6,080Preferred Stock(4)
    
    
    2,950
    
    
    
    3,455Common Stock(4)
    
    
    447
    
    
    
    11511,397
    
    
    
    9,650Total Affiliate Investments (represents 22.0% of total investments at fair value)
    
    
    
    $
    46,501
    
    
    $
    32,676TOTAL INVESTMENTS
    
    
    
    $
    184,836
    
    
    $
    148,329
 
 (1)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated
portfolio company.(2)
    
    Percentage represents the weighted average interest rates in effect at June 30,
2010, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near June 30, 2010, offered by the
respective syndication agents trading desk or secondary desk.(4)
    
    Security is non-income producing.(5)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities
Evaluations, Inc. at June 30, 2010.(6)
    
    Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is
liquidated, the holder of the LOT is paid after the other senior debt and before the senior
subordinated debt.(7)
    
    In June 2010, an additional equity investment increased the Companys ownership
percentage above 25%, resulting in the investment being reclassified Control during the quarter
ending June 30, 2010.(8)
    
    In July 2010, Gladstone Neville Corp. changed its name to Neville Limited. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL 
STATEMENTS.
 8




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS
MARCH 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    Fair ValueNON-CONTROL/NON-AFFILIATE INVESTMENTS:Senior Syndicated Loans:Interstate FiberNet, Inc.
    
    Service  provider of voice and
data telecommunications services
    
    Senior Term Debt (4.3%, Due 7/2013)(8)
    
    $
    6,743
    
    
    $
    6,762Survey Sampling, LLC
    
    Service 
telecommunications-based
sampling
    
    Senior Term Debt (9.5%, Due 5/2011)(3)
    
    
    2,385
    
    
    
    1,069Subtotal  Syndicated Loans
    
    
    
    
    
    $
    9,128
    
    
    $
    7,831Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design 
greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(3)
    
    $
    3,043
    
    
    $
    2,895B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    6,613
    
    
    
    6,596Senior Term Debt (10.5%, Due 5/2014)(5)
    
    
    3,590
    
    
    
    3,581Common Stock Warrants(4)
    
    
    300
    
    
    
    4310,503
    
    
    
    10,220Total Non-Control/Non-Affiliate Investments (represents 10.1% of total investments at fair value)

    $
    22,674
    
    
    $
    20,946CONTROL INVESTMENTS:A. Stucki Holding Corp.
    
    Manufacturing  railroad
freight car products
    
    Senior Term Debt (4.7%, Due 3/2012)
    
    $
    9,101
    
    
    $
    9,101Senior Term Debt (7.0%, Due 3/2012)(6)
    
    
    9,900
    
    
    
    9,900Senior Subordinated Term Debt (13.0%, Due 3/2014)
    
    
    9,456
    
    
    
    9,456Preferred Stock
    
    
    4,387
    
    
    
    4,529Common Stock(4)
    
    
    130
    
    
    
    17,39332,974
    
    
    
    50,379Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and
pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    
    14,500
    
    
    
    13,585Preferred Stock(4)
    
    
    6,984
    
    
    
    Common Stock(4)
    
    
    1,045
    
    
    
    Common Stock Warrants(4)
    
    
    24
    
    
    
    22,553
    
    
    
    13,585ASH Holdings Corp.
    
    Retail and Service  school
buses and parts
    
    Revolving Credit Facility, $496 available
(non-accrual, Due 3/2013)(5)
    
    
    1,504
    
    
    
    421Senior Subordinated Term Debt (non-accrual, Due
3/2013)(5)
    
    
    6,250
    
    
    
    1,750Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    4
    
    
    
    Guaranty ($250)10,258
    
    
    
    2,171Cavert II Holdings Corp.
    
    Manufacturing  bailing wire
    
    Senior Term Debt (8.3%, Due 10/2012)(10)
    
    
    2,875
    
    
    
    2,875Senior Term Debt (10.0%, Due 10/2012)(6)
    
    
    2,700
    
    
    
    2,700Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671Preferred Stock(4)
    
    
    4,110
    
    
    
    4,959Common Stock(4)
    
    
    69
    
    
    
    3,52614,425
    
    
    
    18,731Chase II Holdings Corp.
    
    Manufacturing  traffic doors
    
    Senior Term Debt (8.8%, Due 3/2011)
    
    
    7,700
    
    
    
    7,700Senior Term Debt (12.0%, Due 3/2011)(6)
    
    
    7,520
    
    
    
    7,520Senior Subordinated Term Debt (13.0%, Due 3/2013)
    
    
    6,168
    
    
    
    6,168Preferred Stock(4)
    
    
    6,961
    
    
    
    7,713Common Stock(4)
    
    
    61
    
    
    
    28,410
    
    
    
    29,101Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.6%, Due
11/2014)(5)
    
    
    7,000
    
    
    
    6,869Preferred Stock(4)
    
    
    3,725
    
    
    
    Guaranty ($2,000)10,725
    
    
    
    6,869
 9




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
MARCH 31, 2010
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(1)
    
    Industry
    
    Investment(2)
    
    Cost
    
    Fair ValueCONTROL INVESTMENTS(Continued):Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due
8/2013)(5)
    
    $
    17,250
    
    
    $
    17,099Preferred Stock(4)
    
    
    4,112
    
    
    
    Common Stock(4)
    
    
    48
    
    
    
    21,410
    
    
    
    17,099Mathey Investments, Inc.(7)
    
    Manufacturing  pipe-cutting and
pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due
3/2011)(5)
    
    
    1,032
    
    
    
    1,011Senior Term Debt (10.0%, Due 3/2013)(5)
    
    
    2,375
    
    
    
    2,328Senior Term Debt (17.0%, Due 3/2014)(5) (6)
(9)
    
    
    7,227
    
    
    
    6,974Common Stock(4)
    
    
    500
    
    
    
    Common Stock Warrants(4)
    
    
    277
    
    
    
    11,411
    
    
    
    10,313Total Control Investments (represents 71.7% of total investments at fair value)
    
    
    
    $
    152,166
    
    
    $
    148,248AFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet
metal work
    
    Revolving Credit Facility, $600 available (10.0%, Due
10/2010)(5)
    
    $
    900
    
    
    $
    893Senior Term Debt (10.0%, Due
10/2012)(5)
    
    
    4,163
    
    
    
    4,131Senior Term Debt (12.5%, Due 4/2013)(5)
    
    
    9,053
    
    
    
    8,929Preferred Stock(4)
    
    
    2,500
    
    
    
    Common Stock Warrants(4)
    
    
    2
    
    
    
    16,618
    
    
    
    13,953Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $0 available (4.2%, Due
5/2010)(5)
    
    
    2,000
    
    
    
    1,210Senior Term Debt (9.3%, Due 12/2011)(5)
    
    
    6,227
    
    
    
    3,767Senior Term Debt (10.5%, Due 12/2011)(5)
(6)
    
    
    7,300
    
    
    
    4,417Preferred Stock(4)
    
    
    1,750
    
    
    
    Common Stock(4)
    
    
    1,682
    
    
    
    18,959
    
    
    
    9,394Quench Holdings Corp.
    
    Service  sales, installation and
service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due
8/2013)(5)
    
    
    8,000
    
    
    
    6,150Preferred Stock(4)
    
    
    2,950
    
    
    
    3,224Common Stock(4)
    
    
    447
    
    
    
    11,397
    
    
    
    9,374Tread Corp.
    
    Manufacturing  storage and transport
equipment
    
    Senior Subordinated Term Debt (12.5%, Due
5/2013)(5)
    
    
    5,000
    
    
    
    4,943Preferred Stock(4)
    
    
    750
    
    
    
    Common Stock & Debt Warrants(4)
    
    
    3
    
    
    
    5,753
    
    
    
    4,943Total Affiliate Investments (represents 18.2% of total investments at fair value)
    
    
    
    $
    52,727
    
    
    $
    37,664TOTAL INVESTMENTS(11)
    
    
    
    $
    227,567
    
    
    $
    206,858
 
 (1)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated
portfolio company.(2)
    
    Percentage represents the weighted average interest rates in effect at March 31,
2010, and due date represents the contractual maturity date.(3)
    
    Valued based on the indicative bid price on or near March 31, 2010, offered by the
respective syndication agents trading desk or secondary desk.(4)
    
    Security is non-income producing.(5)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities
Evaluations, Inc. at March 31, 2010.(6)
    
    LOT of senior debt, meaning if the portfolio company is liquidated, the holder of
the LOT is paid after the other senior debt and before the senior subordinated debt.(7)
    
    Restructured in December 2009, resulting in the Company owning 100% of Mathey
Investments, Inc. and thus reclassifying it as a Control investment.(8)
    
    Security was paid off, at par, subsequent to March 31, 2010 and was valued based on
the pay off.(9)
    
    Loan was restructured into two separate term loans with face values of $3.7 million
and $3.5 million effective February 2010.(10)
    
    Loan was repaid, in full, subsequent to March 31, 2010.(11)
    
    Aggregate gross unrealized depreciation for federal income tax purposes is $43,465;
aggregate gross unrealized appreciation for federal income tax purposes is $22,756. Net unrealized
depreciation is $20,709 based on a tax cost of $227,567. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL 
STATEMENTS.
 10




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 June 30, 2010
 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA OR UNLESS OTHERWISE INDICATED)
 Note 1. Organization
    Note 2. Summary of Significant Accounting Policies
 Unaudited Interim Financial Statements and Basis of Presentation
   Reclassifications
  Investment Valuation Policy
   11




---



##### 



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




---



##### 




    
    the issuers ability to make payments;
    
    the earnings of the issuer;
    
    recent sales to third parties of similar securities;
    
    the comparison to publicly traded securities; and
    
    DCF or other pertinent factors.
  (3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:The Company values Non-Public Debt Securities that are
purchased together with equity or equity-like securities from the same portfolio company, or
issuer, for which the Company does not control or cannot gain control as of the measurement
date, using a hypothetical secondary market as the Companys principal market. In accordance
with ASC 820, the Company determines its fair value of these debt securities of non-control
investments assuming the sale of an individual debt security using the in-exchange premise of
value. As such, the Company estimates the fair value of the debt component using estimates of
value provided by SPSE and its own assumptions in the absence of observable market data,
including synthetic credit ratings, estimated remaining life, current market yield and
interest rate spreads of similar securities as of the measurement date. Subsequent to June 30,
2009, for equity or equity-like securities of investments for which the Company does not
control or cannot gain control as of the measurement date, the Company estimates the fair
value of the equity using the in-exchange premise of value based on factors such as the
overall value of the issuer, the relative fair value of other units of account including debt,
or other relative value approaches. Consideration is also given to capital structure and other
contractual obligations that may impact the fair value of the equity. Further, the Company may
utilize comparable values of similar companies, recent investments and indices with similar
structures and risk characteristics or its own assumptions in the absence of other observable
market data and may also employ DCF valuation techniques.
   Interest and Dividend Income Recognition
   13




---



##### 



Recent Accounting Pronouncements
  Note 3. Investments
  
    
    Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets;
    
    Level 2 inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets, and
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
financial instrument. Level 2 inputs are in those markets for
which there are few transactions, the prices are not current,
little public information exists or instances where prices vary
substantially over time or among brokered market makers; and
    
    Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value measurement. Unobservable inputs are
those inputs that reflect the Companys own assumptions that
market participants would use to price the asset or liability
based upon the best available information.
   14




---



##### 



As of June 30, 2010Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesNon-Control/Non-Affiliate investmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    13,972
    
    
    $
    13,972Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    107
    
    
    
    107Total Non-Control/Non-Affiliate investments
    
    
    
    
    
    
    
    
    
    
    14,079
    
    
    
    14,079Control investmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    27,895
    
    
    
    27,895Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    55,938
    
    
    
    55,938Preferred equity
    
    
    
    
    
    
    
    
    
    
    13,055
    
    
    
    13,055Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    4,686
    
    
    
    4,686Total Control investments
    
    
    
    
    
    
    
    
    
    
    101,574
    
    
    
    101,574Affiliate investmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    23,026
    
    
    
    23,026Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    6,080
    
    
    
    6,080Preferred equity
    
    
    
    
    
    
    
    
    
    
    3,455
    
    
    
    3,455Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    115
    
    
    
    115Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    32,676
    
    
    
    32,676Total investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    148,329
    
    
    $
    148,329Cash Equivalents
    
    

    85,000
    
    
    
    
    
    
    
    
    
    
    
    85,000Total Investments and Cash Equivalents
    
    $
    85,000
    
    
    $
    
    
    
    $
    148,329
    
    
    $
    233,329
 Changes in Level 3 Fair Value Measurements of Investments
  Fair value measurements using unobservable data inputs (Level 3)
 Period ended June 30, 2010:
 Non-Control/Non-Affiliate
    
    
    Control
    
    
    AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended June 30, 2010:Fair value as of March 31, 2010
    
    $
    20,946
    
    
    $
    148,248
    
    
    $
    37,664
    
    
    $
    206,858Total realized gains(1)
    
    
    19
    
    
    
    16,957
    
    
    
    
    
    
    
    16,976Total unrealized gains (losses)(1)
    
    
    426
    
    
    
    (17,461
    )
    
    
    1,237
    
    
    
    (15,798
    )Issuances/Originations
    
    
    
    
    
    
    1,354
    
    
    
    
    
    
    
    1,354Sales
    
    
    
    
    
    
    (21,474
    )
    
    
    
    
    
    
    (21,474
    )Settlements/Repayments
    
    
    (7,312
    )
    
    
    (31,803
    )
    
    
    (472
    )
    
    
    (39,587
    )Transfers
    
    
    
    
    
    
    5,753
    
    
    
    (5,753
    )
    
    
    Fair value as of June 30, 2010
    
    $
    14,079
    
    
    $
    101,574
    
    
    $
    32,676
    
    
    $
    148,329
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended June 30, 2010:Fair value as of March 31, 2010
    
    $
    94,359
    
    
    $
    71,112
    
    
    $
    20,425
    
    
    $
    20,962
    
    
    $
    206,858Total realized gains(1)
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    16,957
    
    
    
    16,976
    )Total unrealized gains (losses)(1)
    
    
    491
    
    
    
    (168
    )
    
    
    411
    
    
    
    (16,532
    )
    
    
    (15,798
    )Issuances/Originations
    
    
    
    
    
    
    685
    
    
    
    58
    
    
    
    611
    
    
    
    1,354Sales
    
    
    
    
    
    
    
    
    
    
    (4,387
    )
    
    
    (17,087
    )
    
    
    (21,474
    )Settlements/Repayments
    
    
    (29,976
    )
    
    
    (9,611
    )
    
    
    
    
    
    
    
    
    
    
    (39,587
    )Transfers
    
    
    
    
    
    
    
    
    
    
    3
    
    
    
    (3
    )
    
    
    Fair value as of June 30, 2010
    
    $
    64,893
    
    
    $
    62,018
    
    
    $
    16,510
    
    
    $
    4,908
    
    
    $
    148,329
 15




---



##### 



Period ended June 30, 2009:
 Non-Control/Non-Affiliate
    
    
    Control
    
    
    AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended June 30, 2009:Fair value as of March 31, 2009
    
    $
    94,740
    
    
    $
    166,163
    
    
    $
    53,027
    
    
    $
    313,930Total realized losses(1)
    
    
    (34,605
    )
    
    
    
    
    
    
    
    
    
    
    (34,605
    )Total unrealized gains (losses)(1)
    
    
    36,728
    
    
    
    (11,481
    )
    
    
    (2,266
    )
    
    
    22,981Issuances/Originations
    
    
    150
    
    
    
    850
    
    
    
    500
    
    
    
    1,500Sales
    
    
    (69,222
    )
    
    
    
    
    
    
    
    
    
    
    (69,222
    )Settlements/Repayments
    
    
    (830
    )
    
    
    (6,023
    )
    
    
    (722
    )
    
    
    (7,575
    )Fair value as of June 30, 2009
    
    $
    26,961
    
    
    $
    149,509
    
    
    $
    50,539
    
    
    $
    227,009
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended June 30, 2009:Fair value as of March 31, 2009
    
    $
    179,676
    
    
    $
    72,062
    
    
    $
    40,042
    
    
    $
    22,150
    
    
    $
    313,930Total realized losses(1)
    
    
    (34,605
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (34,605
    )Total unrealized gains (losses)(1)
    
    
    37,717
    
    
    
    361
    
    
    
    (7,537
    )
    
    
    (7,560
    )
    
    
    22,981Issuances/Originations
    
    
    1,500
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,500Sales
    
    
    (69,222
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (69,222
    )Settlements/Repayments
    
    
    (6,475
    )
    
    
    (1,100
    )
    
    
    
    
    
    
    
    
    
    
    (7,575
    )Fair value as of June 30, 2009
    
    $
    108,591
    
    
    $
    71,323
    
    
    $
    32,505
    
    
    $
    14,590
    
    
    $
    227,009
 
 (1)
    
    Included in the realized and unrealized gain (loss)  section on the accompanying
condensed consolidated statement of operations for the quarter ended June 30, 2010 and
2009. Non-Proprietary Investment Activity
   Proprietary Investment Activity
  
    
    In June 2010, the Company sold its equity investment and received full repayment of its
debt investment in A. Stucki in connection with the sale of 100% of the outstanding capital
stock of A. Stucki. The net cash proceeds to the Company from the sale of its equity in A.
Stucki were $21.7 million, resulting in a realized gain of $17.0 million. In connection
with the equity sale, the company accrued and received cash dividend proceeds of $0.2
million from its preferred stock investment in A. Stucki. At the same time, the Company
received $30.6 million in repayment of its principal, accrued interest and success fees on
the loans to A. Stucki. Additionally, immediately prior to the sale of A. Stucki, the
Company received a special distribution of property with a fair value of $0.5 million,
which was recorded as dividend income and is reflected as a new Control investment,
Gladstone Neville Corp., on the Companys condensed consolidated schedule of investments as
of June 30, 2010.
 16




---



##### 




    
    In June 2010, the Company disbursed $59 to Tread Corporation (Tread) in the form of
preferred and common equity. The Companys investment in Tread was reclassified from an
Affiliate to a Control investment during the quarter ended June 30, 2010.
    
    In June 2010, the Company entered into agreements with Noble Logistics, Inc. (Noble)
to extend the maturity date of its revolving line of credit to December 2010, and
restructured the senior LOT note. These were non-cash transactions.
    
    In May 2010, the Company increased its senior subordinated term note to Galaxy Tool
Holding Corp. (Galaxy) by $270.
    
    In May 2010, the Company invested $415 in Acme Cryogenics, Inc.  in the form of
senior subordinated term debt.
    
    In May 2010, Cavert II Holding Corp.
(Cavert), made full repayment of its senior term A debt owed
to the Company resulting in the receipt of approximately $2.9 million in cash proceeds.
 Investment Concentrations
  June 30, 2010
    
    
    March 31, 2010Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueSenior Term Debt
    
    $
    72,489
    
    
    $
    64,893
    
    
    $
    102,446
    
    
    $
    94,359Senior Subordinated Term Debt
    
    
    70,873
    
    
    
    62,018
    
    
    
    79,799
    
    
    
    71,112Preferred Equity
    
    
    36,402
    
    
    
    16,510
    
    
    
    40,728
    
    
    
    20,425Common Equity/Equivalents
    
    
    5,072
    
    
    
    4,908
    
    
    
    4,594
    
    
    
    20,962Total Investments
    
    $
    184,836
    
    
    $
    148,329
    
    
    $
    227,567
    
    
    $
    206,858
  June 30, 2010
    
    
    March 31, 2010Percentage of
    
    
    
    
    
    
    Percentage ofTotal
    
    
    
    
    
    
    TotalFair Value
    
    
    Investments
    
    
    Fair Value
    
    
    InvestmentDiversified/Conglomerate Manufacturing
    
    $
    42,757
    
    
    
    28.8
    %
    
    $
    43,054
    
    
    
    20.8
    %Aerospace and Defense
    
    
    17,213
    
    
    
    11.6
    
    
    
    17,099
    
    
    
    8.3Containers, Packaging and Glass
    
    
    16,501
    
    
    
    11.1
    
    
    
    18,731
    
    
    
    9.1Chemicals, Plastics and Rubber
    
    
    14,020
    
    
    
    9.5
    
    
    
    13,585
    
    
    
    6.6Buildings and Real Estate
    
    
    10,381
    
    
    
    7.0
    
    
    
    10,220
    
    
    
    4.9Machinery
    
    
    10,291
    
    
    
    6.9
    
    
    
    60,692
    
    
    
    29.3Healthcare, Education and Childcare
    
    
    9,650
    
    
    
    6.5
    
    
    
    9,374
    
    
    
    4.5Cargo Transport
    
    
    9,342
    
    
    
    6.3
    
    
    
    9,394
    
    
    
    4.5Automobile
    
    
    8,954
    
    
    
    6.0
    
    
    
    9,040
    
    
    
    4.4Oil and Gas
    
    
    4,912
    
    
    
    3.3
    
    
    
    4,943
    
    
    
    2.4Printing and Publishing
    
    
    2,895
    
    
    
    2.0
    
    
    
    2,895
    
    
    
    1.4Telecommunications
    
    
    1,413
    
    
    
    1.0
    
    
    
    7,831
    
    
    
    3.8Total Investments
    
    $
    148,329
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  June 30, 2010
    
    
    March 31, 2010Percent of
    
    
    
    
    
    
    Percent ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsMidwest
    
    $
    68,814
    
    
    
    46.4
    %
    
    $
    68,802
    
    
    
    33.3
    %Mid-Atlantic
    
    
    38,963
    
    
    
    26.3
    
    
    
    88,501
    
    
    
    42.8Southeast
    
    
    16,501
    
    
    
    11.1
    
    
    
    25,493
    
    
    
    12.3West
    
    
    15,778
    
    
    
    10.6
    
    
    
    16,124
    
    
    
    7.8Northeast
    
    
    8,273
    
    
    
    5.6
    
    
    
    7,938
    
    
    
    3.8Total Investments
    
    $
    148,329
    
    
    
    100.0
    %
    
    $
    206,858
    
    
    
    100.0
    %
  17




---



##### 



Investment Principal Repayments
  AmountFor the remaining nine months
ending March 31:
    
    2011
    
    $
    20,720For the fiscal year ending March 31:
    
    2012
    
    
    31,7892013
    
    
    20,3852014
    
    
    46,6312015
    
    
    20,9422016
    
    
    Thereafter
    
    
    3,043Total contractual repayments
    
    $
    143,510Investments in equity securities
    
    
    41,474Adjustments to cost basis on debt securities
    
    
    (148
    )Total
cost basis of investments held at June 30, 2010:
    
    $
    184,836
 Note 4. Related Party Transactions
 Investment Advisory and Management Agreement
   Three Months Ended June 30,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    204,800
    
    
    $
    276,200Multiplied by pro-rated annual base management fee of 2.0%
    
    
    0.5
    %
    
    
    0.5
    %Unadjusted base management fee
    
    
    1,024
    
    
    
    1,381Reduction for loan servicing fees(2)
    
    
    (824
    )
    
    
    (1,068
    )Base management fee(2)
    
    $
    200
    
    
    $
    313Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    (15
    )
    
    
    (183
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (104
    )
    
    
    (118
    )Credit to base management fee from Adviser(2)
    
    
    (119
    )
    
    
    (301
    )Net base management fee
    
    $
    81
    
    
    $
    12Incentive fee(2)
    
    $
    1,052
    
    
    $
    
 
 (1)
    
    Average total assets subject to the base management fee is defined as total
assets, including investments made with proceeds of borrowings, less any uninvested cash or
cash equivalents resulting from borrowings, valued at the end of the four most recently
completed quarters and appropriately adjusted for any share issuances or repurchases during
the current year.(2)
    
    Reflected as a line item on the condensed consolidated statement of operations
located elsewhere in this report. Base Management Fee
 18




---



##### 




    
    Loan Servicing FeesThe Adviser also services the loans held by Business Investment, in return for which
it receives a 2.0% annual fee based on the monthly aggregate outstanding balance of
loans pledged under the Companys line of credit. Since the Company owns these loans,
all loan servicing fees paid to the Adviser are treated as reductions directly against
the 2.0% base management fee under the Advisory Agreement. For the three months ended
June 30, 2010 and 2009, the Company recorded loan servicing fees due to the Adviser of
$0.8 million and $1.1 million, respectively, all of which were deducted against the
2.0% base management fee in order to derive the base management fee line item in the
accompanying condensed consolidated statements of operations.
    
    Senior Syndicated Loan Fee WaiverThe Companys Board of Directors accepted an unconditional and irrevocable voluntary
waiver from the Adviser to reduce the annual 2.0% base management fee on senior
syndicated loan participations to 0.5%, to the extent that proceeds resulting from
borrowings were used to purchase such syndicated loan participations, for the three
months ended June 30, 2010 and 2009. For the three months ended June 30, 2010 and
2009, the Company recorded waivers related to investments in senior syndicated loan
participations of $15 and $183, respectively, all of which were credited against the
2.0% base management fee.
    
    Portfolio Company FeesUnder the Advisory Agreement, the Adviser has also provided, and continues to provide,
managerial assistance and other services to the Companys portfolio companies and may
receive fees for services other than managerial assistance. 50% of certain of these
fees are credited against the base management fee that the Company would otherwise be
required to pay to the Adviser. For the three months ended June 30, 2010 and 2009,
the Company recorded credits for fees received by the Adviser from portfolio companies
of $104 and $118, respectively, all of which were credited against the 2.0% base
management fee.
 Incentive Fee
  
    
    no incentive fee in any calendar quarter in which its pre-incentive fee
net investment income does not exceed the hurdle rate (7.0% annualized);
    
    100% of the Companys pre-incentive fee net investment income with
respect to that portion of such pre-incentive fee net investment income, if any,
that exceeds the hurdle rate but is less than 2.1875% in any calendar quarter (8.75%
annualized); and
    
    20% of the amount of the Companys pre-incentive fee net investment
income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
  19




---



##### 



Administration Agreement
  Related Party Fees Due
  As of June 30,
    
    
    As of March 31,2010
    
    
    2010Unpaid base management fee due to Adviser
    
    $
    81
    
    
    $
    16Unpaid loan servicing fee due to Adviser
    
    
    193
    
    
    
    219Unpaid incentive fee due to Adviser
    
    
    1,537
    
    
    
    486Total Fees due to Adviser
    
    $
    1,811
    
    
    $
    721Unpaid administration fee due to Administrator
    
    $
    178
    
    
    $
    149Total related party fees due
    
    $
    1,989
    
    
    $
    870
 Note 5. Borrowings
 Line of Credit
    20




---



##### 



Short-Term Loan
  Fair Value
  As of June 30, 2010Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesCredit Facility
    
    $
    
    
    
    $
    
    
    
    $
    16,500
    
    
    $
    16,500Short-Term Loan
    
    
    
    
    
    
    
    
    
    
    75,000
    
    
    
    75,000Total
    
    $
    
    
    
    $
    
    
    
    $
    91,500
    
    
    $
    91,500
 Total Fair ValueReported in CondensedCredit
    
    
    Short-Term
    
    
    Consolidated Statement ofFacility
    
    
    Loan
    
    
    Assets and LiabilitiesThree months ended June 30, 2010:Fair value at March 31, 2010
    
    $
    27,812
    
    
    $
    75,000
    
    
    $
    102,812Borrowings
    
    
    16,000
    
    
    
    75,000
    
    
    
    91,000Repayments
    
    
    (27,300
    )
    
    
    (75,000
    )
    
    
    (102,300
    )Net unrealized depreciation of Credit Facility(1)
    
    
    (12
    )
    
    
    
    
    
    
    (12
    )Fair value at June 30, 2010
    
    $
    16,500
    
    
    $
    75,000
    
    
    $
    91,500
 Total Fair ValueReported in CondensedCredit
    
    
    Short-Term
    
    
    Consolidated Statement ofFacility
    
    
    Loan
    
    
    Assets and LiabilitiesThree months ended June 30, 2009:Fair value at March 31, 2009(2)
    
    $
    110,265
    
    
    $
    
    
    
    $
    110,265Borrowings
    
    
    24,200
    
    
    
    65,000
    
    
    
    89,200Repayments
    
    
    (87,525
    )
    
    
    
    
    
    
    (87,525
    )Net unrealized depreciation of Credit Facility
    
    
    
    
    
    
    
    
    
    
    Fair value at June 30, 2009(2)
    
    $
    46,940
    
    
    $
    65,000
    
    
    $
    111,940
 
 (1)
    
    Unrealized depreciation of $12 is reported on the accompanying
condensed consolidated statements of operations for the three months ended June 30,
2010.(2)
    
    ASC 825 was not adopted until the second quarter of fiscal year
2010; therefore, the Credit Facility is shown at its principal balance outstanding at
March 31 and June 30, 2009 in the table above. 21




---



##### 



Note 6. Interest Rate Cap Agreements
    Note 7. Common Stock
  Registration Statement
 .
 Note 8. Net Increase (Decrease) in Net Assets Resulting from Operations per Share
  Three Months Ended June 30,2010
    
    
    2009Numerator for basic and diluted net increase
(decrease) in net assets resulting from operations per
share
    
    $
    5,368
    
    
    $
    (9,190
    )Denominator for basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133Basic and diluted net increase (decrease) in net
assets per share resulting from operations
    
    $
    0.24
    
    
    $
    (0.42
    )
 Note 9. Distributions
  22




---



##### 



DistributionDeclaration Date
    
    Record Date
    
    Payment Date
    
    per ShareApril 7, 2010
    
    April 22, 2010
    
    April 30, 2010
    
    $
    0.04April 7, 2010
    
    May 20, 2010
    
    May 28, 2010
    
    
    0.04April 7, 2010
    
    June 22, 2010
    
    June 30, 2010
    
    
    0.04Three Months Ended June 30, 2010:
    
    $
    0.12
 DistributionDeclaration Date
    
    Record Date
    
    Payment Date
    
    per ShareApril 16, 2009
    
    April 27, 2009
    
    May 8, 2009
    
    $
    0.04April 16, 2009
    
    May 20, 2009
    
    May 29, 2009
    
    
    0.04April 16, 2009
    
    June 22, 2009
    
    June 30, 2009
    
    
    0.04Three Months Ended June 30, 2009:
    
    $
    0.12
  Note 10. Commitments and Contingencies
     Note 11. Financial Highlights
 Three Months Ended June 30,2010
    
    
    2009Per Share Data (1)Net asset value at beginning of period
    
    $
    8.74
    
    
    $
    9.73Income from investment operationsNet investment income(2)
    
    
    0.19
    
    
    
    0.11Realized gain (loss) on sale of investments(2)
    
    
    0.77
    
    
    
    (1.57
    )Net unrealized (depreciation) appreciation of investments(2)
    
    
    (0.72
    )
    
    
    1.04Total from investment operations
    
    
    0.24
    
    
    
    (0.42
    )Distributions from:Net investment income
    
    
    (0.12
    )
    
    
    (0.12
    )Total distributions(3)
    
    
    (0.12
    )
    
    
    (0.12
    )
 23




---



##### 



Three Months Ended June 30,2010
    
    
    2009Net asset value at end of period
    
    $
    8.86
    
    
    $
    9.19Per share market value at beginning of period
    
    $
    6.01
    
    
    $
    3.82Per share market value at end of period
    
    
    5.83
    
    
    
    4.83Total
return(4)
    
    
    (0.99
    )%
    
    
    35.24
    %Shares outstanding at end of period
    
    
    22,080,133
    
    
    
    22,080,133Statement of Assets and Liabilities Data:Net assets at end of period
    
    $
    195,706
    
    
    $
    202,930Average net
assets(5)
    
    
    193,094
    
    
    
    210,188Senior Securities Data:Total borrowings
    
    $
    91,500
    
    
    $
    111,940Asset
coverage ratio(6)
    
    
    301
    %
    
    
    280
    %Average
coverage per unit(7)
    
    $
    3,006
    
    
    $
    2,798Ratios/Supplemental Data:Ratio of
expenses to average net
assets(8), (9)
    
    
    6.55
    %
    
    
    5.76
    %Ratio of net
expenses to average net
assets(8), (10)
    
    
    6.30
    %
    
    
    5.18
    %Ratio of net
investment income to average net assets(8)
    
    
    8.71
    %
    
    
    4.65
    %
 
 (1)
    
    Based on actual shares outstanding at the end of the corresponding period.(2)
    
    Based on weighted average basic per share data.(3)
    
    Distributions are determined based on taxable income calculated in accordance with income tax regulations which may differ from amounts determined under
accounting principles generally accepted in the United States of America.(4)
    
    Total return equals the change in the market value of the Companys common stock from the beginning of the period, taking into account dividends
reinvested in accordance with the terms of the Companys dividend reinvestment plan.(5)
    
    Calculated using the average of the balance of net assets at the end of each month of the reporting period.(6)
    
    As a business development company, the Company is generally required to maintain an asset coverage ratio of at least 200% of total consolidated assets,
less all liabilities and indebtedness not represented by senior
securities, to total borrowings and guaranty commitments.(7)
    
    Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.(8)
    
    Amounts are annualized.(9)
    
    Ratio of expenses to average net assets is computed using expenses before credits from the Adviser.(10)
    
    Ratio of net expenses to average net assets is computed using total expenses net of credits to the management fee. Note 12. Subsequent Events
 Short-Term Loan
  Distributions
  Record Date
    
    Payment Date
    
    
    Distribution per ShareJuly 22, 2010
    
    July 30, 2010
    
    $
    0.04August 23, 2010
    
    August 31, 2010
    
    
    0.04September 22, 2010
    
    September 30, 2010
    
    
    0.04
 24




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollar amounts in thousands, except per share data unless otherwise indicated).
 All statements contained herein, other than historical facts, may constitute forward-looking
statements. These statements may relate to, among other things, future events or our future
performance or financial condition. In some cases, you can identify forward-looking statements by
terminology such as may, might, believe, will, provided, anticipate, future, could,
growth, plan, intend, expect, should, would, if, seek, possible, potential,
likely, estimate or the negative of such terms or comparable terminology. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by such
forward-looking statements. We caution readers not to place undue reliance on any such
forward-looking statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise,
after the date of this Form 10-Q
 The following analysis of our financial condition and results of operations should be read in
conjunction with our condensed consolidated financial statements and the notes thereto contained
elsewhere in this report and in our annual report on Form 10-K for the fiscal year ended March 31,
2010.
 
 OVERVIEW
 General
  Business Environment
     25




---



##### 



26




---



##### 



Investment Highlights
  Recent Developments
 Renewal of Credit Facility with Branch Bank and Trust Company
  27




---



##### 



Short-Term Loan
  Investment Activity
  
    
    As discussed previously, in June 2010, we sold our equity investment and received full
repayment of our debt investment in A. Stucki in connection with the sale of 100% of the
outstanding capital stock of A. Stucki. The net cash proceeds to us from the sale of our
equity in A. Stucki were $21.7 million, resulting in a realized gain of $17.0 million. In
connection with the equity sale, we accrued and received dividend cash proceeds of $0.2
million from our preferred stock investment in A. Stucki. At the same time, we received
$30.6 million in payment of our principal, accrued interest and success fees on the loans
to A. Stucki. Additionally, immediately prior to the sale of A. Stucki, we received a
special distribution of property with a fair value of $0.5 million, which was recorded as
dividend income and is reflected as a new control investment, Gladstone Neville Corp., on
our condensed consolidated schedule of investments as of June 30, 2010.
    
    In June 2010, we disbursed $59 to Tread Corporation (Tread) in the form of preferred
and common equity. Our investment in Tread was reclassified from an Affiliate to a Control
investment during the quarter ended June 30, 2010.
    
    In June 2010, we entered into agreements with Noble Logistics, Inc. (Noble) to extend
the maturity date of its revolving line of credit to December 2010, and restructured the
senior LOT note. These were non-cash transactions.
    
    In May 2010, we increased our senior subordinated term note to Galaxy Tool Holding Corp.
(Galaxy) by $270.
    
    In May 2010, we invested $415 in Acme Cryogenics, Inc.  in the form of senior
subordinated term debt.
    
    In May 2010, Cavert II Holding Corp. (Cavert), made full repayment of its senior term A debt owed
to us resulting in the receipt of approximately $2.9 million in cash proceeds.
    
    In April 2010, Interstate FiberNet, Inc. made full repayment of its senior term debt
owed to us resulting in the receipt of approximately $6.7 million in cash proceeds. The
remaining non-proprietary loans in our investment portfolio had a fair value of
approximately $4.3 million, or 2.9% of our total investments at June 30, 2010.
 28




---



##### 



RESULTS OF OPERATIONS
 Comparison of the Three Months Ended June 30, 2010 to the Three Months Ended June 30, 2009
 A comparison of our operating results for the three months ended June 30, 2010 and 2009 is
below:
 For the three months ended June 30,2010
    
    
    2009
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    4,507
    
    
    $
    5,169
    
    
    $
    (662
    )
    
    
    (12.8
    )%Other income
    
    
    2,741
    
    
    
    
    
    
    
    2,741
    
    
    NMTotal investment income
    
    
    7,248
    
    
    
    5,169
    
    
    
    2,079
    
    
    
    40.2EXPENSESLoan servicing fee
    
    
    824
    
    
    
    1,068
    
    
    
    (244
    )
    
    
    (22.8
    )Base management fee
    
    
    200
    
    
    
    313
    
    
    
    (113
    )
    
    
    (36.1
    )Incentive fee
    
    
    1,052
    
    
    
    
    
    
    
    1,052
    
    
    NMAdministration fee
    
    
    178
    
    
    
    173
    
    
    
    5
    
    
    
    2.9Interest expense
    
    
    274
    
    
    
    702
    
    
    
    (428
    )
    
    
    (61.0
    )Amortization of deferred financing fees
    
    
    164
    
    
    
    314
    
    
    
    (150
    )
    
    
    (47.8
    )Other
    
    
    468
    
    
    
    455
    
    
    
    13
    
    
    
    2.9Expenses before credits from Adviser
    
    
    3,160
    
    
    
    3,025
    
    
    
    135
    
    
    
    4.5Credits to fees
    
    
    (119
    )
    
    
    (301
    )
    
    
    182
    
    
    
    (60.5
    )Total expenses net of credits to fee
    
    
    3,041
    
    
    
    2,724
    
    
    
    317
    
    
    
    11.6NET INVESTMENT INCOME
    
    
    4,207
    
    
    
    2,445
    
    
    
    1,762
    
    
    
    72.1REALIZED AND UNREALIZED GAIN (LOSS) ON:Net realized gain (loss) on investments
    
    
    16,976
    
    
    
    (34,605
    )
    
    
    51,581
    
    
    NMNet realized loss on other
    
    
    
    
    
    
    (53
    )
    
    
    53
    
    
    
    (100.0
    )Net unrealized (depreciation) appreciation on investments
    
    
    (15,798
    )
    
    
    22,981
    
    
    
    (38,779
    )
    
    NMNet unrealized (depreciation) appreciation on other
    
    
    (17
    )
    
    
    42
    
    
    
    (59
    )
    
    NMNet gain (loss) on investments and other
    
    
    1,161
    
    
    
    (11,635
    )
    
    
    12,796
    
    
    NMNET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM
OPERATIONS
    
    $
    5,368
    
    
    $
    (9,190
    )
    
    $
    14,558
    
    
    NM
 NM = Not Meaningful
 Investment Income
    29




---



##### 



As of June 30, 2010
    
    
    Three Months Ended June 30, 2010Company
    
    Fair Value
    
    
    % of Portfolio
    
    
    Revenues
    
    
    % of Total RevenuesA. Stucki Holding Corp.(1)
    
    $
    
    
    
    
    
    %
    
    $
    3,287
    
    
    
    45.3
    %Chase II Holdings Corp.
    
    
    29,073
    
    
    
    19.6
    
    
    
    596
    
    
    
    8.2Galaxy Tool Holding Corp.
    
    
    17,213
    
    
    
    11.6
    
    
    
    592
    
    
    
    8.2Cavert II Holding Corp.
    
    
    16,501
    
    
    
    11.1
    
    
    
    245
    
    
    
    3.4Acme Cryogenics, Inc.
    
    
    14,020
    
    
    
    9.5
    
    
    
    428
    
    
    
    5.9Subtotalfive largest investments
    
    
    76,807
    
    
    
    51.8
    
    
    
    5,148
    
    
    
    71.0Other portfolio companies
    
    
    71,522
    
    
    
    48.2
    
    
    
    2,100
    
    
    
    29.0Total investment portfolio
    
    $
    148,329
    
    
    
    100.0
    %
    
    $
    7,248
    
    
    
    100.0
    %
 
 (1)
    
    A. Stucki was sold on June 29, 2010. As of June 30, 2009
    
    
    Three Months Ended June 30, 2009Company
    
    Fair Value
    
    
    % of Portfolio
    
    
    Revenues
    
    
    % of Total RevenuesA. Stucki Holding Corp.
    
    $
    43,191
    
    
    
    19.0
    %
    
    $
    577
    
    
    
    11.2
    %Chase II Holdings Corp.
    
    
    38,346
    
    
    
    16.9
    
    
    
    663
    
    
    
    12.8Acme Cryogenics, Inc.
    
    
    22,241
    
    
    
    9.8
    
    
    
    421
    
    
    
    8.2Galaxy Tool Holding Corp.
    
    
    18,851
    
    
    
    8.3
    
    
    
    589
    
    
    
    11.4Cavert II Holding Corp.
    
    
    17,899
    
    
    
    7.9
    
    
    
    327
    
    
    
    6.3Subtotalfive largest
investments
    
    
    140,528
    
    
    
    61.9
    
    
    
    2,577
    
    
    
    49.9Other portfolio companies
    
    
    86,481
    
    
    
    38.1
    
    
    
    2,592
    
    
    
    50.1Total investment portfolio
    
    $
    227,009
    
    
    
    100.0
    %
    
    $
    5,169
    
    
    
    100.0
    %
  Operating Expenses
   Investment
Advisory and Management Agreement
 30




---



##### 



Three Months Ended June 30,2010
    
    
    2009Average total assets subject to base management fee(1)
    
    $
    204,800
    
    
    $
    276,200Multiplied by pro-rated annual base management fee of 2.0%
    
    
    0.5
    %
    
    
    0.5
    %Unadjusted base management fee
    
    
    1,024
    
    
    
    1,381Reduction for loan servicing fees(2)
    
    
    (824
    )
    
    
    (1,068
    )Base management fee(2)
    
    $
    200
    
    
    $
    313Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to
0.5%
    
    
    (15
    )
    
    
    (183
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (104
    )
    
    
    (118
    )Credit to
base management fee from Adviser(2)
    
    
    (119
    )
    
    
    (301
    )Net base management fee
    
    $
    81
    
    
    $
    12Incentive fee(2)
    
    $
    1,052
    
    
    $
    
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting
from borrowings, valued at the end of the four most recently completed quarters and appropriately adjusted for any share issuances or repurchases during the current year.(2)
    
    Reflected as a line item on the condensed consolidated statement of operations located elsewhere in this report.   Realized and Unrealized Gain (Loss) on Investments
 Realized Gains (Losses)
  Unrealized (Depreciation) Appreciation
  31




---



##### 



Three Months Ended June 30, 2010Net UnrealizedInvestment
    
    AppreciationPortfolio Company
    
    Classification
    
    (Depreciation)Cavert II Holdings Corp.
    
    Control
    
    $
    645Survey Sampling, LLC
    
    Non-Control / Non-Affiliate
    
    
    367Chase II Holdings Corp.
    
    Control
    
    
    287Quench Holdings Corp.
    
    Affiliate
    
    
    276Galaxy Tool Holding Corp.
    
    Control
    
    
    (156
    )A. Stucki Holding Corp.
    
    Control
    
    
    (17,405
    )(1)Other (<$100)
    
    
    
    
    188Total:
    
    
    
    $
    (15,798
    )
 
 (1)
    
    Reflects the reversal of the unrealized
appreciation in connection with the $17.0 million realized
gain on the sale of A. Stucki.   Three Months Ended June 30, 2009Net UnrealizedInvestment
    
    AppreciationPortfolio Company
    
    Classification
    
    (Depreciation)Aggregate Non-Proprietary Investments
    
    Non-Control / Non-Affiliate
    
    $
    36,591
    (1)Acme Cryogenics, Inc.
    
    Control
    
    
    820ASH Holdings Corp.
    
    Control
    
    
    443Cavert II Holdings Corp.
    
    Control
    
    
    330B-Dry, LLC
    
    Non-Control / Non-Affiliate
    
    
    138Tread Corp.
    
    Affiliate
    
    
    (220
    )Mathey Investments, Inc.
    
    Affiliate
    
    
    (631
    )(2)Quench Holdings Corp.
    
    Affiliate
    
    
    (651
    )Danco Acquisition Corp.
    
    Affiliate
    
    
    (841
    )Chase II Holdings Corp.
    
    Control
    
    
    (2,219
    )A. Stucki Holding Corp.
    
    Control
    
    
    (3,546
    )Galaxy Tool Holding Corp.
    
    Control
    
    
    (3,586
    )Country Club Enterprises, LLC
    
    Control
    
    
    (3,725
    )Other (<$100)
    
    
    
    
    78Total:
    
    
    
    $
    22,981
 
 (1)
    
    Includes the reversal of approximately $34.4
million of previously-recorded unrealized depreciation
relating to Syndicated Loan Sales during the quarter ended
June 30, 2009, as well as the net unrealized appreciation
experienced during the quarter on non-proprietary investments
held at June 30, 2009.(2)
    
    Investment was reclassified from an Affiliate
investment to a Control investment in the third quarter of
the fiscal year ended March 31, 2010.   32




---



##### 



Net Increase (Decrease) in Net Assets Resulting from Operations
  33




---



##### 



LIQUIDITY AND CAPITAL RESOURCES (dollar amounts in thousands, except per share amounts or unless
otherwise indicated)
 Operating Activities
   Quarter Ended June 30,2010
    
    
    2009Beginning investment portfolio, at fair value
    
    $
    206,858
    
    
    $
    313,930New investments
    
    
    95
    
    
    
    Disbursements to existing investments
    
    
    744
    
    
    
    650Scheduled principal repayments
    
    
    (836
    )
    
    
    (2,004
    )Unscheduled principal repayments
    
    
    (38,749
    )
    
    
    (4,721
    )Amortization of premiums and discounts
    
    
    (2
    )
    
    
    Proceeds from sales
    
    
    (21,474
    )
    
    
    (69,222
    )Net realized gain (loss)
    
    
    16,976
    
    
    
    (34,605
    )Net unrealized (depreciation) appreciation(1)
    
    
    (15,798
    )
    
    
    22,981Other non-cash activity, net
    
    
    515
    
    
    
    Ending investment portfolio, at fair value
    
    $
    148,329
    
    
    $
    227,009
 
 (1)
    
    Includes the reversal of unrealized (appreciation) depreciation due to investment exits for the quarters
ended June 30, 2010 and 2009 of ($17.4) and $34.4 million, respectively.  AmountFor the remaining nine months
ending March 31:
    
    2011
    
    $
    20,720For the fiscal year ending March 31:
    
    2012
    
    
    31,7892013
    
    
    20,3852014
    
    
    46,6312015
    
    
    20,9422016
    
    
    Thereafter
    
    
    3,043Total contractual repayments
    
    $
    143,510Investments in equity securities
    
    
    41,474Adjustments to cost basis on debt securities
    
    
    (148
    )Total cost basis of investments held at June 30, 2010:
    
    $
    184,836
  Financing Activities
 34




---



##### 



Distributions
  Section 19(a) Disclosure
 Section 19(a) Disclosure
   Payment Date
    
    Ordinary Income
    
    
    Return of Capital(1)
    
    
    Total DistributionApril 30, 2010
    
    $
    0.040
    
    
    $
    0.000
    
    
    $
    0.040May 28, 2010
    
    
    0.047
    
    
    
    (0.007
    )
    
    
    0.040June 30, 2010
    
    
    0.046
    
    
    
    (0.006
    )
    
    
    0.040
  Payment Date
    
    Ordinary Income
    
    
    Return of Capital(1)
    
    
    Total DistributionApril 30, 2010
    
    $
    0.042
    
    
    $
    (0.002
    )
    
    $
    0.040May 28, 2010
    
    
    0.047
    
    
    
    (0.007
    )
    
    
    0.040June 30, 2010
    
    
    0.102
    
    
    
    (0.062
    )
    
    
    0.040
  Payment Date
    
    Ordinary Income
    
    
    Return of Capital(1)
    
    
    Total DistributionJuly 30, 2010
    
    $
    0.035
    
    
    $
    0.005
    
    
    $
    0.040August 31, 2010
    
    
    0.036
    
    
    
    0.004
    
    
    
    0.040September 30, 2010
    
    
    0.041
    
    
    
    (0.001
    )
    
    
    0.040
 
 (1)
    
    A positive number under Return of Capital indicates a return of capital was
estimated whereas a negative number indicates that a surplus of income above the distribution
was estimated. Issuance of Equity
 35




---



##### 



Future Capital Resources
  Revolving Credit Facility
       36




---



##### 



Short-Term Note
  Contractual Obligations and Off-Balance Sheet Arrangements
    37




---



##### 



As of June 30,
    
    
    As of March 31,2010
    
    
    2010Unused lines of credit
    
    $
    1,963
    
    
    $
    1,814Guarantees
    
    
    4,001
    
    
    
    2,250
  Payments Due by PeriodContractual Obligations(1)
    
    Less than 1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    After 5 Years
    
    
    TotalBorrowings:Short-term loan(2)
    
    $
    75,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    75,000Credit
Facility(2)(3)
    
    
    
    
    
    
    16,500
    
    
    
    
    
    
    
    
    
    
    
    16,500Total borrowings
    
    $
    75,000
    
    
    $
    16,500
    
    
    $
    
    
    
    $
    
    
    
    $
    91,500
 
 (1)
    
    Excludes the unused commitments to extend credit to our customers of $2.0
million, as discussed above.(2)
    
    On July 2, 2010, we repaid the entire short-term loan
and Credit Facility.(3)
    
    Borrowings under the Credit Facility are listed, at fair value, based on the
contractual maturity due to the revolving nature of the facility. Critical Accounting Policies
  Investment Valuation
  General Valuation Policy:
  
    
    Level 1inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
    
    Level 2inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets, and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument. Level 2 inputs are in those markets for which there are few transactions, the
prices are not current, little public information exists or instances where prices vary
substantially over time or among brokered market makers; and
    
    Level 3inputs to the valuation methodology are unobservable and significant
to the fair value measurement. Unobservable inputs are those inputs that reflect our own
assumptions that market participants would use to price the asset or liability based upon
the best available information.
 Investments
 38




---



##### 




    
    Publicly-traded securities;
    
    Securities for which a limited market exists; and
    
    Securities for which no market exists.
 Valuation Methods:
 Publicly-traded securities:
 Securities for which a limited market exists:
   Securities for which no market exists:
 (1)
    
    Portfolio investments comprised solely of debt securities:Debt securities that are not
publicly traded on an established securities market, or for which a limited market does not
exist (Non-Public Debt Securities), and that are issued by portfolio companies where we have
no equity, or equity-like securities, are fair valued in accordance with the terms of the
policy, which utilizes opinions of value submitted to us by Standard and Poors Securities
Evaluations, Inc (SPSE). We may also submit paid-in-kind (PIK) interest to SPSE for their
evaluation when it is determined that PIK interest is likely to be received.In the case of Non-Public Debt Securities, we have engaged SPSE to submit opinions of value for
our debt securities that are issued by portfolio companies in which we own no equity, or
equity-like securities. SPSEs opinions of value are based on the
 39




---



##### 



SPSE opinions of the value of our debt securities that are issued by portfolio companies in
which we do not own equity, or equity-like securities, are submitted to our Board of Directors
along with our Advisers supplemental assessment and recommendation regarding valuation of each
of these investments. Our Adviser generally accepts the opinion of value given by SPSE; however,
in certain limited circumstances, such as when our Adviser may learn new information regarding
an investment between the time of submission to SPSE and the date of our Board of Directors
assessment, our Advisers conclusions as to value may differ from the opinion of value delivered
by SPSE. Our Board of Directors then reviews whether our Adviser has followed its established
procedures for determinations of fair value, and votes to accept or reject the recommended
valuation of our investment portfolio. Our Adviser and our management recommended, and our Board
of Directors voted to accept, the opinions of value delivered by SPSE on the loans in our
portfolio as denoted on the Schedule of Investments included in our accompanying condensed
consolidated financial statements.Because there is a delay between when we close an investment and when the investment can be
evaluated by SPSE, new loans are not valued immediately by SPSE; rather, management makes its
own determination about the value of these investments in accordance with our valuation policy
using the methods described herein.(2)
    
    Portfolio investments in controlled companies comprised of a bundle of investments, which can
include debt and equity securities:The fair value of these investments is determined based on
the total enterprise value (TEV) of the portfolio company, or issuer, utilizing a liquidity
waterfall approach under ASC 820. For Non-Public Debt Securities and equity or equity-like
securities (e.g. preferred equity, equity, or other equity-like securities) that are purchased
together as part of a package, where we have control or could gain control through an option
or warrant security, both the debt and equity securities of the portfolio investment would
exit in the mergers and acquisitions market as the principal market, generally through a sale
or recapitalization of the portfolio company. In accordance with ASC 820, we apply the in-use
premise of value which assumes the debt and equity securities are sold together. Under this
liquidity waterfall approach, we continue to use the enterprise value methodology utilizing a
liquidity waterfall approach to determine the fair value of these investments under ASC 820 if
we have the ability to initiate a sale of a portfolio company as of the measurement date.
Under this approach, we first calculate the TEV of the issuer by incorporating some or all of
the following factors:
 
    
    the issuers ability to make payments;
    
    the earnings of the issuer;
    
    recent sales to third parties of similar securities;
    
    the comparison to publicly traded securities; and
    
    DCF or other pertinent factors.
 In gathering the sales to third parties of similar securities, we may gather and analyze
industry statistics and use outside experts. Once we have estimated the TEV of the issuer, we
subtract the value of all the debt securities of the issuer, which are valued at the contractual
principal balance. Fair values of these debt securities are discounted for any shortfall of TEV
over the total debt outstanding for the issuer. Once the values for all outstanding senior
securities (which include the debt securities) have been subtracted from the TEV of the issuer,
the remaining amount, if any, is used to determine the value of the issuers equity or equity
like securities. If, in our Advisers judgment, the liquidity waterfall approach does not
accurately reflect the value of the debt component, our Adviser may recommend that we use a
valuation by SPSE, or if that is unavailable, a DCF valuation technique.(3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:We value Non-Public Debt Securities that are purchased
together with equity or equity-like securities from the same portfolio company, or issuer, for
which we do not control or cannot gain control as of the measurement date, using a
 40




---



##### 



Valuation Considerations:
 
    
    the nature and realizable value of the collateral;
    
    the portfolio companys earnings and cash flows and its ability to make payments on its obligations;
    
    the markets in which the portfolio company does business;
    
    the comparison to publicly traded companies; and
    
    DCF and other relevant factors.
  Credit Information:
 Loan Grading and Risk Rating:
  41




---



##### 



Companys
    
    First
    
    SecondSystem
    
    NRSRO
    
    NRSRO
    
    Gladstone Investments Description(a)>10
    
    Baa2
    
    BBB
    
    Probability of Default (PD) during the next ten years is 4% and the
Expected Loss (EL) is 1% or less10
    
    Baa3
    
    BBB-
    
    PD is 5% and the EL is 1% to 2%9
    
    Ba1
    
    BB+
    
    PD is 10% and the EL is 2% to 3%8
    
    Ba2
    
    BB
    
    PD is 16% and the EL is 3% to 4%7
    
    Ba3
    
    BB-
    
    PD is 17.8% and the EL is 4% to 5%6
    
    B1
    
    B+
    
    PD is 22% and the EL is 5% to 6.5%5
    
    B2
    
    B
    
    PD is 25% and the EL is 6.5% to 8%4
    
    B3
    
    B-
    
    PD is 27% and the EL is 8% to 10%3
    
    Caa1
    
    CCC+
    
    PD is 30% and the EL is 10% to 13.3%2
    
    Caa2
    
    CCC
    
    PD is 35% and the EL is 13.3% to 16.7%1
    
    Caa3
    
    CC
    
    PD is 65% and the EL is 16.7% to 20%0
    
    N/A
    
    D
    
    PD is 85% or there is a payment default and the EL is greater than 20%
 
 (a)
    
    The default rates set forth are for a ten year term debt security. If a debt
security is less than ten years, then the probability of default is adjusted to a lower
percentage for the shorter period, which may move the security higher on our risk rating scale   As of June 30,
    
    As of March 31,Rating
    
    2010
    
    2010Highest
    
    
    10.0
    
    
    
    9.0Average
    
    
    5.4
    
    
    
    5.3Weighted Average
    
    
    6.0
    
    
    
    5.9Lowest
    
    
    2.0
    
    
    
    2.0
  Tax Status
 Federal Income Taxes
   Revenue Recognition
 Interest and Dividend Income Recognition
 42




---



##### 



Recent Accounting Pronouncements
  
 ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  2.9
    %
    Variable rates56.0
    
    Variable rates with a floor41.1
    
    Fixed rates100.0
    %
    Total
   
 ITEM 4. CONTROLS AND PROCEDURES.
   43




---



##### 



44




---



##### 



PART IIOTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  We may not be able to replace lost income due to the reduction in the size of our portfolio and as a result, we may have to reduce our distributions to stockholders.
  
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. RESERVED
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
  45




---



##### 



SIGNATURE
  GLADSTONE INVESTMENT CORPORATIONBy:
    /s/ David WatsonDavid WatsonChief Financial Officer  46




---



##### 



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit a.2 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-123699),
filed May 13, 2005.3.2
    
    Amended and Restated Bylaws, incorporated by reference to Exhibit b.2 to Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.3.3
    
    First Amendment to Amended and Restated Bylaws, incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K (File No. 814-00704), filed on July 10, 2007.4.1
    
    Specimen Stock Certificate, incorporated by reference to Exhibit 99.1 to Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.10.1
    
    Third Amended and Restated Credit Agreement, dated as of April 13, 2010, by and among Gladstone
Business Investment LLC, as Borrower, Gladstone Management Corporation, as Servicer, the Committed
Lenders named therein, the Managing Agents named therein, and Branch Banking and Trust Company, as
Administrative Agent, incorporated by reference to Exhibit 10.1 to the Companys Current Report on
Form 8-K (File No. 814-00704), filed April 15, 2010.11
    
    Computation of Per Share Earnings (included in the notes to the unaudited condensed consolidated
financial statements contained in this report).31.1
    
    Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
  47