UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549





FORM 10-Q







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

FOR THE QUARTER ENDED DECEMBER 31, 2012



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

COMMISSION FILE NUMBER: 814-00704





GLADSTONE
INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)







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

1521 WESTBRANCH DRIVE, SUITE 200

MCLEAN, VIRGINIA 22102

(Address of principal executive office)

(703) 287-5800

(Registrants telephone number, including area code)





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

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

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



|                        |  |   |  |                           |  |  
|----------------------- |  | - |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈ |  | Accelerated filer         |  | x
|                        |  |   | 
|Non-accelerated filer   |  |  ̈ |  | Smaller reporting company |  |  ̈

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

Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date. The
number of shares of the issuers Common Stock, $0.001 par value per share, outstanding as of January 25, 2013, was 26,475,958.









---

GLADSTONE INVESTMENT CORPORATION

TABLE OF CONTENTS



|           |  |                                                                                                                 |    |  |    | 
|---------- |  | --------------------------------------------------------------------------------------------------------------- | -- |  | -- | 
|PART I.    |  | FINANCIAL INFORMATION:                                                                                          |    |  |    | 
|           |  |                                                                                                                
|Item 1.    |  | Financial Statements (Unaudited)                                                                                |    |  |    | 
|           |  |                                                                                                                
|           |  | Condensed Consolidated Statements of Assets and Liabilities as of December 31, 2012 and March 31, 2012          |    |  | 3  | 
|           |  | Condensed Consolidated Statements of Operations for the three and nine months ended December 31, 2012 and 2011  |    |  | 4  | 
|           |  | Condensed Consolidated Statements of Changes in Net Assets for the nine months ended December 31, 2012 and 2011 |    |  | 5  | 
|           |  | Condensed Consolidated Statements of Cash Flows for the nine months ended December 31, 2012 and 2011            |    |  | 6  | 
|           |  | Condensed Consolidated Schedules of Investments as of December 31, 2012 and March 31, 2012                      |    |  | 7  | 
|           |  | Notes to Condensed Consolidated Financial Statements                                                            |    |  | 12 | 
|           |  |                                                                                                                
|Item 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                           |    |  | 30 | 
|           |  | Overview                                                                                                        |    |  | 30 | 
|           |  | Results of Operations                                                                                           |    |  | 34 | 
|           |  | Liquidity and Capital Resources                                                                                 |    |  | 44 | 
|           |  |                                                                                                                
|Item 3.    |  | Quantitative and Qualitative Disclosures About Market Risk                                                      |    |  | 53 | 
|           |  |                                                                                                                
|Item 4.    |  | Controls and Procedures                                                                                         |    |  | 53 | 
|           |  |                                                                                                                
|PART II.   |  | OTHER INFORMATION:                                                                                              |    |  |    | 
|           |  |                                                                                                                
|Item 1.    |  | Legal Proceedings                                                                                               |    |  | 53 | 
|           |  |                                                                                                                
|Item 1A.   |  | Risk Factors                                                                                                    |    |  | 53 | 
|           |  |                                                                                                                
|Item 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                                     |    |  | 54 | 
|           |  |                                                                                                                
|Item 3.    |  | Defaults Upon Senior Securities                                                                                 |    |  | 54 | 
|           |  |                                                                                                                
|Item 4.    |  | Mine Safety Disclosures                                                                                         |    |  | 54 | 
|           |  |                                                                                                                
|Item 5.    |  | Other Information                                                                                               |    |  | 54 | 
|           |  |                                                                                                                
|Item 6.    |  | Exhibits                                                                                                        |    |  | 54 | 
|           | 
|SIGNATURES |  |                                                                                                                 | 55 | 



2



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GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)



|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------- | ------- | - | ------------- | - | ------- | -
|                                                                                                                                                                                                                 |  | December 31,2012 |         |   | March 31,2012 |  
|ASSETS                                                                                                                                                                                                           |  |                  |         |   |               |   |         |  
|Investments at fair value                                                                                                                                                                                        |  |                  |         |   |               |   |         |  
|Control investments (Cost of $258,596 and $186,743, respectively)                                                                                                                                                |  | $                | 226,287 |   |               | $ | 157,544 |  
|Affiliate investments (Cost of $54,679 and $70,015, respectively)                                                                                                                                                |  |                  | 38,986  |   |               |   | 58,831  |  
|Non-Control/Non-Affiliate investments (Cost of $10,283 and $9,637, respectively)                                                                                                                                 |  |                  | 7,987   |   |               |   | 9,277   |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|Total investments at fair value (Cost of $323,558 and $266,395, respectively)                                                                                                                                    |  |                  | 273,260 |   |               |   | 225,652 |  
|Cash and cash equivalents                                                                                                                                                                                        |  |                  | 56,328  |   |               |   | 91,546  |  
|Restricted cash                                                                                                                                                                                                  |  |                  | 631     |   |               |   | 1,928   |  
|Interest receivable                                                                                                                                                                                              |  |                  | 1,019   |   |               |   | 1,250   |  
|Due from custodian                                                                                                                                                                                               |  |                  | 11,329  |   |               |   | 1,527   |  
|Deferred financing costs                                                                                                                                                                                         |  |                  | 2,444   |   |               |   | 2,792   |  
|Other assets                                                                                                                                                                                                     |  |                  | 861     |   |               |   | 602     |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|TOTAL ASSETS                                                                                                                                                                                                     |  | $                | 345,872 |   |               | $ | 325,297 |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|LIABILITIES                                                                                                                                                                                                      |  |                  |         |   |               |   |         |  
|Borrowings:                                                                                                                                                                                                      |  |                  |         |   |               |   |         |  
|Short-term loan at fair value (Cost of $44,512 and $76,005, respectively)                                                                                                                                        |  | $                | 44,512  |   |               | $ | 76,005  |  
|Line of credit at fair value (Cost of $24,500and $0, respectively)                                                                                                                                               |  |                  | 25,104  |   |               |   |        |  
|Secured borrowing (Cost of $5,000and $0, respectively)                                                                                                                                                           |  |                  | 5,000   |   |               |   |        |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|Total borrowings (Cost of $74,012 and $76,005, respectively)                                                                                                                                                     |  |                  | 74,616  |   |               |   | 76,005  |  
|Mandatorily redeemable preferred stock, $0.001 par value per share, $25 liquidation preference per share; 1,610,000 shares
authorized, 1,600,000 shares issued and outstanding at December 31 and March 31, 2012 |  |                  | 40,000  |   |               |   | 40,000  |  
|Accounts payable and accrued expenses                                                                                                                                                                            |  |                  | 535     |   |               |   | 506     |  
|Fees due to Adviser(A)                                                                                                                                                                                           |  |                  | 1,074   |   |               |   | 496     |  
|Fee due to Administrator(A)                                                                                                                                                                                      |  |                  | 191     |   |               |   | 218     |  
|Other liabilities                                                                                                                                                                                                |  |                  | 386     |   |               |   | 856     |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|TOTAL LIABILITIES                                                                                                                                                                                                |  |                  | 116,802 |   |               |   | 118,081 |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|Commitments and contingencies(B)                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|NET ASSETS                                                                                                                                                                                                       |  | $                | 229,070 |   |               | $ | 207,216 |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|ANALYSIS OF NET ASSETS                                                                                                                                                                                           |  |                  |         |   |               |   |         |  
|Common stock, $0.001 par value per share, 100,000,000 shares authorized and 26,475,958 and 22,080,133 shares issued
and outstanding at December 31 and March 31, 2012, respectively                              |  | $                | 26      |   |               | $ | 22      |  
|Capital in excess of par value                                                                                                                                                                                   |  |                  | 288,224 |   |               |   | 257,131 |  
|Cumulative net unrealized depreciation of investments                                                                                                                                                            |  |                  | (50,298 | ) |               |   | (40,743 | )
|Cumulative net unrealized depreciation of other                                                                                                                                                                  |  |                  | (631    | ) |               |   | (68     | )
|Net investment income in excess of distributions                                                                                                                                                                 |  |                  | 321     |   |               |   | 321     |  
|Accumulated net realized loss                                                                                                                                                                                    |  |                  | (8,572  | ) |               |   | (9,447  | )
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|TOTAL NET ASSETS                                                                                                                                                                                                 |  | $                | 229,070 |   |               | $ | 207,216 |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  
|NET ASSET VALUE PER COMMON SHARE AT END OF PERIOD                                                                                                                                                                |  | $                | 8.65    |   |               | $ | 9.38    |  
|                                                                                                                                                                                                                 |  |                  |         |   |               |   |         |  



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

|(B) | Refer to Note 11Commitments and Contingencies for 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 EndedDecember 31, |            |   | Nine Months EndedDecember 31, |  
|                                                                      |  | 2012                           |            |   | 2011                          |   |            | 2012 |  |   | 2011       |  
|INVESTMENT INCOME                                                     |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Interest income                                                       |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Control investments                                                   |  | $                              | 4,681      |   |                               | $ | 3,515      |      |  | $ | 12,659     |   |  | $ | 9,075      |  
|Affiliate investments                                                 |  |                                | 1,456      |   |                               |   | 1,226      |      |  |   | 4,800      |   |  |   | 3,958      |  
|Non-Control/Non-Affiliate investments                                 |  |                                | 344        |   |                               |   | 343        |      |  |   | 990        |   |  |   | 1,148      |  
|Cash and cash equivalents                                             |  |                                | 1          |   |                               |   | 1          |      |  |   | 4          |   |  |   | 7          |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total interest income                                                 |  |                                | 6,482      |   |                               |   | 5,085      |      |  |   | 18,453     |   |  |   | 14,188     |  
|Other income                                                          |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Control investments                                                   |  |                                | 702        |   |                               |   | 25         |      |  |   | 1,208      |   |  |   | 1,201      |  
|Affiliate investments                                                 |  |                                |           |   |                               |   |           |      |  |   | 401        |   |  |   |           |  
|Non-Control/Non-Affiliate investments                                 |  |                                |           |   |                               |   | 59         |      |  |   |           |   |  |   | 77         |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total other income                                                    |  |                                | 702        |   |                               |   | 84         |      |  |   | 1,609      |   |  |   | 1,278      |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total investment income                                               |  |                                | 7,184      |   |                               |   | 5,169      |      |  |   | 20,062     |   |  |   | 15,466     |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|EXPENSES                                                              |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Base management fee(A)                                                |  |                                | 1,440      |   |                               |   | 1,140      |      |  |   | 3,939      |   |  |   | 3,212      |  
|Incentive fee(A)                                                      |  |                                | 589        |   |                               |   |           |      |  |   | 1,130      |   |  |   | 19         |  
|Administration fee(A)                                                 |  |                                | 191        |   |                               |   | 182        |      |  |   | 564        |   |  |   | 468        |  
|Interest expense on borrowings                                        |  |                                | 289        |   |                               |   | 185        |      |  |   | 865        |   |  |   | 550        |  
|Dividend expense on mandatorily redeemable preferred stock            |  |                                | 712        |   |                               |   |           |      |  |   | 2,137      |   |  |   |           |  
|Amortization of deferred financing fees                               |  |                                | 194        |   |                               |   | 106        |      |  |   | 597        |   |  |   | 321        |  
|Professional fees                                                     |  |                                | 29         |   |                               |   | 139        |      |  |   | 400        |   |  |   | 453        |  
|Other general and administrative expenses                             |  |                                | 277        |   |                               |   | 320        |      |  |   | 978        |   |  |   | 1,262      |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Expenses before credits from Adviser                                  |  |                                | 3,721      |   |                               |   | 2,072      |      |  |   | 10,610     |   |  |   | 6,285      |  
|Credits to fees from Adviser(A)                                       |  |                                | (489       | ) |                               |   | (345       | )    |  |   | (1,189     | ) |  |   | (1,071     | )
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total expenses net of credits                                         |  |                                | 3,232      |   |                               |   | 1,727      |      |  |   | 9,421      |   |  |   | 5,214      |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|NET INVESTMENT INCOME                                                 |  |                                | 3,952      |   |                               |   | 3,442      |      |  |   | 10,641     |   |  |   | 10,252     |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|REALIZED AND UNREALIZED GAIN (LOSS)                                   |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net realized gain (loss):                                             |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Control investments                                                   |  |                                | 96         |   |                               |   | (105       | )    |  |   | 848        |   |  |   | 5,087      |  
|Non-Control/Non-Affiliate investments                                 |  |                                |           |   |                               |   |           |      |  |   |           |   |  |   | 4          |  
|Other                                                                 |  |                                |           |   |                               |   |           |      |  |   | (41        | ) |  |   | (40        | )
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total net realized gain (loss)                                        |  |                                | 96         |   |                               |   | (105       | )    |  |   | 807        |   |  |   | 5,051      |  
|Net unrealized appreciation (depreciation):                           |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Control investments                                                   |  |                                | 4,244      |   |                               |   | 3,433      |      |  |   | (3,110     | ) |  |   | 4,368      |  
|Affiliate investments                                                 |  |                                | (2,935     | ) |                               |   | (1,708     | )    |  |   | (4,508     | ) |  |   | 2,033      |  
|Non-Control/Non-Affiliate investments                                 |  |                                | (1,263     | ) |                               |   | 44         |      |  |   | (1,937     | ) |  |   | 652        |  
|Other                                                                 |  |                                | 605        |   |                               |   | 389        |      |  |   | (563       | ) |  |   | 21         |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Total net unrealized appreciation (depreciation)                      |  |                                | 651        |   |                               |   | 2,158      |      |  |   | (10,118    | ) |  |   | 7,074      |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Net realized and unrealized gain (loss)                               |  |                                | 747        |   |                               |   | 2,053      |      |  |   | (9,311     | ) |  |   | 12,125     |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS                  |  | $                              | 4,699      |   |                               | $ | 5,495      |      |  | $ | 1,330      |   |  | $ | 22,377     |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                                                     |  | $                              | 0.18       |   |                               | $ | 0.25       |      |  | $ | 0.06       |   |  | $ | 1.01       |  
|                                                                      |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:                  |  |                                |            |   |                               |   |            |      |  |   |            |   |  |   |            |  
|Basic and diluted                                                     |  |                                | 26,147,157 |   |                               |   | 22,080,133 |      |  |   | 23,440,737 |   |  |   | 22,080,133 |  



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

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



4



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GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)



|                                                          |  |                                |         |   |      |   |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                          |  | Nine Months Ended December 31, |        
|                                                          |  | 2012                           |         |   | 2011 |  
|Operations:                                               |  |                                |         |   |      |   |         |  
|Net investment income                                     |  | $                              | 10,641  |   |      | $ | 10,252  |  
|Net realized gain on investments                          |  |                                | 848     |   |      |   | 5,091   |  
|Net realized loss on other                                |  |                                | (41     | ) |      |   | (40     | )
|Net unrealized (depreciation) appreciation of investments |  |                                | (9,555  | ) |      |   | 7,053   |  
|Net unrealized (appreciation) depreciation of other       |  |                                | (563    | ) |      |   | 21      |  
|                                                          |  |                                |         |   |      |   |         |  
|Net increase in net assets from operations                |  |                                | 1,330   |   |      |   | 22,377  |  
|Equity capital activity:                                  |  |                                |         |   |      |   |         |  
|Issuance of common stock, net of expenses                 |  |                                | 31,100  |   |      |   |        |  
|Distributions to common stockholders                      |  |                                | (10,576 | ) |      |   | (9,605  | )
|                                                          |  |                                |         |   |      |   |         |  
|Net equity capital activity                               |  |                                | 20,524  |   |      |   | (9,605  | )
|Total increase in net assets                              |  |                                | 21,854  |   |      |   | 12,772  |  
|Net assets at beginning of period                         |  |                                | 207,216 |   |      |   | 198,829 |  
|                                                          |  |                                |         |   |      |   |         |  
|Net assets at end of period                               |  | $                              | 229,070 |   |      | $ | 211,601 |  
|                                                          |  |                                |         |   |      |   |         |  

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



5



---

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)



|                                                                                                                        |  |                                |          |   |      |   |          |  
|----------------------------------------------------------------------------------------------------------------------- |  | ------------------------------ | -------- | - | ---- | - | -------- | -
|                                                                                                                        |  | Nine Months Ended December 31, |         
|                                                                                                                        |  | 2012                           |          |   | 2011 |  
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                    |  |                                |          |   |      |   |          |  
|Net increase in net assets resulting from operations                                                                    |  | $                              | 1,330    |   |      | $ | 22,377   |  
|Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating
activities: |  |                                |          |   |      |   |          |  
|Purchase of investments                                                                                                 |  |                                | (80,639  | ) |      |   | (86,327  | )
|Principal repayments of investments                                                                                     |  |                                | 21,137   |   |      |   | 16,953   |  
|Proceeds from the sale of investments                                                                                   |  |                                | 3,187    |   |      |   | 8,032    |  
|Net realized gain on investments                                                                                        |  |                                | (848     | ) |      |   | (5,091   | )
|Net realized loss on other                                                                                              |  |                                | 41       |   |      |   | 40       |  
|Net unrealized depreciation (appreciation) of investments                                                               |  |                                | 9,555    |   |      |   | (7,053   | )
|Net unrealized appreciation (depreciation) of other                                                                     |  |                                | 563      |   |      |   | (21      | )
|Amortization of deferred financing costs                                                                                |  |                                | 597      |   |      |   | 321      |  
|Decrease in restricted cash                                                                                             |  |                                | 1,297    |   |      |   | 2,539    |  
|Decrease (increase) in interest receivable                                                                              |  |                                | 231      |   |      |   | (405     | )
|(Increase) decrease in due from custodian                                                                               |  |                                | (9,802   | ) |      |   | 137      |  
|(Increase) decrease in other assets                                                                                     |  |                                | (260     | ) |      |   | 183      |  
|Increase in accounts payable and accrued expenses                                                                       |  |                                | 132      |   |      |   | 290      |  
|Increase (decrease) in fees due to Adviser(A)                                                                           |  |                                | 578      |   |      |   | (312     | )
|(Decrease) Increase in administration fee payable to Administrator(A)                                                   |  |                                | (27      | ) |      |   | 12       |  
|Decrease in other liabilities                                                                                           |  |                                | (470     | ) |      |   | (551     | )
|                                                                                                                        |  |                                |          |   |      |   |          |  
|Net cash used in operating activities                                                                                   |  |                                | (53,398  | ) |      |   | (48,876  | )
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                    |  |                                |          |   |      |   |          |  
|Proceeds from issuance of common stock, net of expenses                                                                 |  |                                | 31,100   |   |      |   |         |  
|Proceeds from borrowings                                                                                                |  |                                | 312,047  |   |      |   | 231,202  |  
|Repayments on borrowings                                                                                                |  |                                | (314,040 | ) |      |   | (165,901 | )
|Purchase of derivatives                                                                                                 |  |                                |         |   |      |   | (29      | )
|Deferred financing costs                                                                                                |  |                                | (351     | ) |      |   | (901     | )
|Distributions paid to common stockholders                                                                               |  |                                | (10,576  | ) |      |   | (9,605   | )
|                                                                                                                        |  |                                |          |   |      |   |          |  
|Net cash provided by financing activities                                                                               |  |                                | 18,180   |   |      |   | 54,766   |  
|                                                                                                                        |  |                                |          |   |      |   |          |  
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                                    |  |                                | (35,218  | ) |      |   | 5,890    |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD                                                                          |  |                                | 91,546   |   |      |   | 80,580   |  
|                                                                                                                        |  |                                |          |   |      |   |          |  
|CASH AND CASH EQUIVALENTS, END OF PERIOD                                                                                |  | $                              | 56,328   |   |      | $ | 86,470   |  
|                                                                                                                        |  |                                |          |   |      |   |          |  



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

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



6



---

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2012

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|------------------------------ |  | --------------------------------------------------------------------- |  | ------------------------------------------------------------------- |  | --------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                     |  | Industry                                                              |  | Investment(B)                                                       |  | Principal |        |  | Cost |   |        | Fair Value | 
|CONTROL INVESTMENTS:           |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |           
|Acme Cryogenics, Inc.          |  | Chemicals, Plastics, and Rubber                                       |  | Senior Subordinated Term Debt (11.5%, Due 3/2015)                   |  | $         | 14,500 |  |      | $ | 14,500 |            |  | $ | 14,500 | 
|                               |  |                                                                       |  | Preferred Stock (898,814 shares)(C)(F)                              |  |           |        |  |      |   | 6,984  |            |  |   | 11,047 | 
|                               |  |                                                                       |  | Common Stock (418,072 shares)(C)(F)                                 |  |           |        |  |      |   | 1,045  |            |  |   | 1,780  | 
|                               |  |                                                                       |  | Common Stock Warrants (452,683 shares)(C)(F)                        |  |           |        |  |      |   | 25     |            |  |   | 560    | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 22,554 |            |  |   | 27,887 | 
|ASH Holdings Corp.             |  | Automobile                                                            |  | Revolving Credit Facility, $350 available (3.0%, Due 3/2013)(G)     |  |           | 7,150  |  |      |   | 7,093  |            |  |   |       | 
|                               |  |                                                                       |  | Senior Subordinated Term Debt (2.0%, Due 3/2013)(G)                 |  |           | 6,250  |  |      |   | 6,050  |            |  |   |       | 
|                               |  |                                                                       |  | Preferred Stock (4,644 shares)(C)(F)                                |  |           |        |  |      |   | 2,500  |            |  |   |       | 
|                               |  |                                                                       |  | Common Stock (1 share)(C)(F)                                        |  |           |        |  |      |   |       |            |  |   |       | 
|                               |  |                                                                       |  | Common Stock Warrants (73,599 shares)(C)(F)                         |  |           |        |  |      |   | 4      |            |  |   |       | 
|                               |  |                                                                       |  | Guarantee ($500)                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 15,647 |            |  |   |       | 
|Country Club Enterprises, LLC  |  | Automobile                                                            |  | Senior Subordinated Term Debt (18.6%, Due 11/2014)                  |  |           | 4,000  |  |      |   | 4,000  |            |  |   | 4,000  | 
|                               |  |                                                                       |  | Preferred Stock (7,304,792 shares)(C)(F)                            |  |           |        |  |      |   | 7,725  |            |  |   | 4,662  | 
|                               |  |                                                                       |  | Guarantee ($2,000)                                                  |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  | Guarantee ($1,049)                                                  |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 11,725 |            |  |   | 8,662  | 
|Danco Acquisition Corp.(I)     |  | Diversified/Conglomerate Manufacturing                                |  | Revolving Credit Facility, $0 available (10.0%, Due 4/2013)(D)      |  |           | 2,250  |  |      |   | 2,250  |            |  |   | 675    | 
|                               |  |                                                                       |  | Senior Term Debt (10.0%, Due 4/2013)(D)                             |  |           | 2,575  |  |      |   | 2,575  |            |  |   | 772    | 
|                               |  |                                                                       |  | Senior Term Debt (6.3%, Due 4/2013)(D)                              |  |           | 8,796  |  |      |   | 8,796  |            |  |   | 2,639  | 
|                               |  |                                                                       |  | Senior Term Debt (5.0%, Due 8/2015)(D)                              |  |           | 700    |  |      |   | 700    |            |  |   | 210    | 
|                               |  |                                                                       |  | Senior Term Debt (5.0%, Due 8/2015)(D)(E)                           |  |           | 350    |  |      |   | 350    |            |  |   | 105    | 
|                               |  |                                                                       |  | Senior Term Debt (5.0%, Due 8/2015)(D) (E)                          |  |           | 100    |  |      |   | 100    |            |  |   | 30     | 
|                               |  |                                                                       |  | Preferred Stock (25 shares)(C)(F)                                   |  |           |        |  |      |   | 2,500  |            |  |   |       | 
|                               |  |                                                                       |  | Common Stock Warrants (1,170 shares)(C)(F)                          |  |           |        |  |      |   | 2      |            |  |   |       | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 17,273 |            |  |   | 4,431  | 
|Drew Foam Companies, inc.      |  | Chemicals, Plastics and Rubber                                        |  | Senior Term Debt (13.5%, Due 8/2017)                                |  |           | 10,913 |  |      |   | 10,913 |            |  |   | 10,913 | 
|                               |  |                                                                       |  | Preferred Stock (34,045 shares)(C)(F)                               |  |           |        |  |      |   | 3,375  |            |  |   | 3,445  | 
|                               |  |                                                                       |  | Common Stock (5,372 shares)(C)(F)                                   |  |           |        |  |      |   | 63     |            |  |   | 1,916  | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 14,351 |            |  |   | 16,274 | 
|Frontier Packaging, inc.       |  | Containers, Packaging, and Glass                                      |  | Revolving Credit Facility, $1,500 available (10.0%, Due 12/2013)(H) |  |           | 1,000  |  |      |   | 1,000  |            |  |   | 1,000  | 
|                               |  |                                                                       |  | Senior Term Debt (12.0%, Due 12/2017)(H)                            |  |           | 12,500 |  |      |   | 12,500 |            |  |   | 12,500 | 
|                               |  |                                                                       |  | Preferred Stock (1,373 shares)(C)(F)(H)                             |  |           |        |  |      |   | 1,373  |            |  |   | 1,373  | 
|                               |  |                                                                       |  | Common Stock (152 shares)(C)(F)(H)                                  |  |           |        |  |      |   | 152    |            |  |   | 152    | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 15,025 |            |  |   | 15,025 | 
|Galaxy Tool Holding Corp.      |  | Aerospace and Defense                                                 |  | Senior Subordinated Term Debt (13.5%, Due 8/2013)                   |  |           | 3,220  |  |      |   | 3,220  |            |  |   | 3,220  | 
|                               |  |                                                                       |  | Preferred Stock (4,111,907 shares)(C)(F)                            |  |           |        |  |      |   | 19,658 |            |  |   | 10,725 | 
|                               |  |                                                                       |  | Common Stock (48,093 shares)(C)(F)                                  |  |           |        |  |      |   | 48     |            |  |   |       | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 22,926 |            |  |   | 13,945 | 
|Ginsey Holdings, Inc.          |  | Home and Office Furnishings, Housewares and Durable Consumer Products |  | Senior Subordinated Term Debt (13.5%, Due 1/2018)(J)                |  |           | 13,050 |  |      |   | 13,050 |            |  |   | 13,050 | 
|                               |  |                                                                       |  | Preferred Stock (18,898 shares)(C)(F)                               |  |           |        |  |      |   | 9,394  |            |  |   | 9,768  | 
|                               |  |                                                                       |  | Common Stock (63,747 shares)(C)(F)                                  |  |           |        |  |      |   | 8      |            |  |   | 417    | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 22,452 |            |  |   | 23,235 | 
|Mathey Investments, Inc.       |  | Machinery                                                             |  | Senior Term Debt (10.0%, Due 3/2014)                                |  |           | 1,375  |  |      |   | 1,375  |            |  |   | 1,375  | 
|                               |  |                                                                       |  | Senior Term Debt (12.0%, Due 3/2014)                                |  |           | 3,727  |  |      |   | 3,727  |            |  |   | 3,727  | 
|                               |  |                                                                       |  | Senior Term Debt (12.5%, Due 3/2014)(E)                             |  |           | 3,500  |  |      |   | 3,500  |            |  |   | 3,500  | 
|                               |  |                                                                       |  | Common Stock (29,102 shares)(C)(F)                                  |  |           |        |  |      |   | 777    |            |  |   | 7,937  | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 9,379  |            |  |   | 16,539 | 
|Mitchell Rubber Products, Inc. |  | Chemicals, Plastics and Rubber                                        |  | Subordinated Term Debt (13.0%, Due 10/2016)(D)                      |  |           | 13,560 |  |      |   | 13,560 |            |  |   | 13,543 | 
|                               |  |                                                                       |  | Preferred Stock (27,900 shares)(C)(F)                               |  |           |        |  |      |   | 2,790  |            |  |   | 2,457  | 
|                               |  |                                                                       |  | Common Stock (27,900 shares)(C)(F)                                  |  |           |        |  |      |   | 28     |            |  |   |       | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 16,378 |            |  |   | 16,000 | 
|Precision Southeast, Inc.      |  | Diversified/Conglomerate Manufacturing                                |  | Senior Term Debt (14.0%, Due 12/2015)                               |  |           | 7,775  |  |      |   | 7,775  |            |  |   | 7,775  | 
|                               |  |                                                                       |  | Preferred Stock (19,091 shares)(C)(F)                               |  |           |        |  |      |   | 1,909  |            |  |   | 2,228  | 
|                               |  |                                                                       |  | Common Stock (90,909 shares)(C)(F)                                  |  |           |        |  |      |   | 91     |            |  |   | 1,417  | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   |        |            |  |   |        | 
|                               |  |                                                                       |  |                                                                     |  |           |        |  |      |   | 9,775  |            |  |   | 11,420 | 



7



---

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2012

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|--------------------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | --------------------------------------------------------------------- |  | --------- | ------- |  | ---- | - | ------- | ---------- |  | - | ------ | 
|Company(A)                                                                        |  | Industry                                                              |  | Investment(B)                                                         |  | Principal |         |  | Cost |   |         | Fair Value | 
|CONTROL INVESTMENTS (Continued):                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |           
|SBS, Industries, LLC                                                              |  | Machinery                                                             |  | Senior Term Debt (14.0%, Due 8/2016)                                  |  | $         | 11,355  |  |      | $ | 11,355  |            |  | $ | 11,355 | 
|                                                                                  |  |                                                                       |  | Preferred Stock (19,935 shares)(C)(F)                                 |  |           |         |  |      |   | 1,994   |            |  |   | 2,211  | 
|                                                                                  |  |                                                                       |  | Common Stock (221,500 shares)(C)(F)                                   |  |           |         |  |      |   | 221     |            |  |   | 4,962  | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 13,570  |            |  |   | 18,528 | 
|SOG Specialty K&T, LLC                                                            |  | Leisure, Amusement, Motion Pictures, Entertainment                    |  | Senior Term Debt (13.3%, Due 8/2016)                                  |  |           | 6,200   |  |      |   | 6,200   |            |  |   | 6,200  | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (14.8%, Due 8/2016)                                  |  |           | 12,199  |  |      |   | 12,199  |            |  |   | 12,199 | 
|                                                                                  |  |                                                                       |  | Preferred Stock (9,749 shares)(C)(F)                                  |  |           |         |  |      |   | 9,749   |            |  |   | 11,966 | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 28,148  |            |  |   | 30,365 | 
|Tread Corp.                                                                       |  | Oil and Gas                                                           |  | Revolving Credit Facility, $1,453 available (12.5%, Due 6/2013)(D)(G) |  |           | 1,296   |  |      |   | 1,296   |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Senior Subordinated Term Debt (12.5%, Due 5/2013)(D)(G)               |  |           | 5,000   |  |      |   | 5,000   |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Senior Subordinated Term Debt (12.5%, Due 5/2013)(D)(G)               |  |           | 2,750   |  |      |   | 2,750   |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Senior Subordinated Term Debt (12.5%, Due 2/2015)(D)(G)               |  |           | 1,000   |  |      |   | 1,000   |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Senior Subordinated Term Debt (12.5%, Due On Demand)(D)(G)            |  |           | 510     |  |      |   | 510     |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Preferred Stock (3,332,765 shares)(C)(F)                              |  |           |         |  |      |   | 3,333   |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Common Stock (7,716,320 shares)(C)(F)                                 |  |           |         |  |      |   | 501     |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Common Stock Warrants (2,372,727 shares)(C)(F)                        |  |           |         |  |      |   | 3       |            |  |   |       | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 14,393  |            |  |   |       | 
|Venyu Solutions, Inc.                                                             |  | Electronics                                                           |  | Senior Subordinated Term Debt (11.3%, Due 10/2015)                    |  |           | 7,000   |  |      |   | 7,000   |            |  |   | 7,000  | 
|                                                                                  |  |                                                                       |  | Senior Subordinated Term Debt (14.0%, Due 10/2015)                    |  |           | 12,000  |  |      |   | 12,000  |            |  |   | 12,000 | 
|                                                                                  |  |                                                                       |  | Preferred Stock (5,400 shares)(C)(F)                                  |  |           |         |  |      |   | 6,000   |            |  |   | 4,976  | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 25,000  |            |  |   | 23,976 | 
|Total Control Investments (represents 82.8% of total investments at fair value)   |  |                                                                       |  |                                                                       |  | $         | 258,596 |  |      | $ | 226,287 |           
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|AFFILIATE INVESTMENTS:                                                            |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |           
|Cavert II Holding Corp.                                                           |  | Containers, Packaging and Glass                                       |  | Senior Subordinated Term Debt (11.8%, Due 4/2016)(D)                  |  | $         | 4,700   |  |      | $ | 4,700   |            |  | $ | 4,806  | 
|                                                                                  |  |                                                                       |  | Subordinated Term Debt (13.0%, Due 4/2016)(D)                         |  |           | 4,671   |  |      |   | 4,671   |            |  |   | 4,787  | 
|                                                                                  |  |                                                                       |  | Preferred Stock (18,446 shares)(C)(F)                                 |  |           |         |  |      |   | 1,844   |            |  |   | 2,752  | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 11,215  |            |  |   | 12,345 | 
|Channel Technologies Group, LLC                                                   |  | Diversified/Conglomerate Manufacturing                                |  | Revolving Credit Facility, $500 available (7.0%, Due 2/2013)(D)       |  |           | 750     |  |      |   | 750     |            |  |   | 748    | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (8.3%, Due 12/2014)(D)                               |  |           | 5,706   |  |      |   | 5,706   |            |  |   | 5,692  | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (12.3%, Due 12/2016)(D)                              |  |           | 10,750  |  |      |   | 10,750  |            |  |   | 10,723 | 
|                                                                                  |  |                                                                       |  | Preferred Stock (1,599 shares)(C)(F)                                  |  |           |         |  |      |   | 1,599   |            |  |   | 352    | 
|                                                                                  |  |                                                                       |  | Common Stock (1,598,616 shares)(C)(F)                                 |  |           |         |  |      |   |        |            |  |   |       | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 18,805  |            |  |   | 17,515 | 
|Noble Logistics, Inc.                                                             |  | Cargo Transport                                                       |  | Revolving Credit Facility, $0 available (10.5%, Due 1/2013)(D)        |  |           | 800     |  |      |   | 800     |            |  |   | 400    | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (11.0%, Due 1/2013)(D)                               |  |           | 7,227   |  |      |   | 7,227   |            |  |   | 3,614  | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (10.5%, Due 1/2013)(D)                               |  |           | 3,650   |  |      |   | 3,650   |            |  |   | 1,825  | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (10.5%, Due 1/2013)(D)(E)                            |  |           | 3,650   |  |      |   | 3,650   |            |  |   | 1,825  | 
|                                                                                  |  |                                                                       |  | Preferred Stock (1,075,000 shares)(C)(F)                              |  |           |         |  |      |   | 1,750   |            |  |   |       | 
|                                                                                  |  |                                                                       |  | Common Stock (1,682,444 shares)(C)(F)                                 |  |           |         |  |      |   | 1,683   |            |  |   |       | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 18,760  |            |  |   | 7,664  | 
|Packerland Whey Products, Inc.                                                    |  | Beverage, Food and Tobacco                                            |  | Subordinated Term Debt (13.8%, Due 6/2018)(D)(K)                      |  |           | 2       |  |      |   | 2       |            |  |   | 2      | 
|                                                                                  |  |                                                                       |  | Preferred Stock (248 shares)(C)(F)                                    |  |           |         |  |      |   | 2,479   |            |  |   | 505    | 
|                                                                                  |  |                                                                       |  | Common Stock (247 shares)(C)(F)                                       |  |           |         |  |      |   | 21      |            |  |   |       | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 2,502   |            |  |   | 507    | 
|Quench Holdings Corp.                                                             |  | Home and Office Furnishings, Housewares and Durable Consumer Products |  | Preferred Stock (388 shares)(C)(F)                                    |  |           |         |  |      |   | 2,950   |            |  |   | 955    | 
|                                                                                  |  |                                                                       |  | Common Stock (35,242 shares)(C)(F)                                    |  |           |         |  |      |   | 447     |            |  |   |       | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 3,397   |            |  |   | 955    | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|Total Affiliate Investments (represents 14.3% of total investments at fair value) |  |                                                                       |  |                                                                       |  | $         | 54,679  |  |      | $ | 38,986  |           
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|NON-CONTROL/NON-AFFILIATE INVESTMENTS:                                            |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |           
|B-Dry, LLC                                                                        |  | Buildings and Real Estate                                             |  | Revolving Credit Facility, $50 available (6.5%, Due 5/2014)(D)        |  | $         | 700     |  |      | $ | 700     |            |  | $ | 560    | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (14.0%, Due 5/2014)(D)                               |  |           | 6,443   |  |      |   | 6,443   |            |  |   | 5,155  | 
|                                                                                  |  |                                                                       |  | Senior Term Debt (14.0%, Due 5/2014)(D)                               |  |           | 2,840   |  |      |   | 2,840   |            |  |   | 2,272  | 
|                                                                                  |  |                                                                       |  | Common Stock Warrants (55 shares)(C)(F)                               |  |           |         |  |      |   | 300     |            |  |   |       | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   | 10,283  |            |  |   | 7,987  | 
|                                                                                  |  |                                                                       |  |                                                                       |  |           |         |  |      |   |         |            |  |   |        | 



8



---

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2012

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                                                                                 |  |  |  |   |         |  |  |   |         |  |  |  |  | 
|------------------------------------------------------------------------------------------------ |  |  |  | - | ------- |  |  | - | ------- |  |  |  |  | 
|Total Non-Control/Non-Affiliate Investments (represents 2.9% of total investments at fair
value) |  |  |  | $ | 10,283  |  |  | $ | 7,987   | 
|                                                                                                 |  |  |  |   |         |  |  |   |         |  |  |  |  | 
|TOTAL INVESTMENTS                                                                                |  |  |  | $ | 323,558 |  |  | $ | 273,260 | 
|                                                                                                 |  |  |  |   |         |  |  |   |         |  |  |  |  | 



|(A) | Certain of the securities listed above are issued by affiliate(s) of the indicated portfolio company.
|--- | -----------------------------------------------------------------------------------------------------

|(B) | Percentages represent the weighted average cash interest rates in effect at December 31, 2012, and due date represents the contractual maturity
date.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

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

|(D) | Fair value based primarily on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. as of December 31,
2012.
|--- | ------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|(H) | New proprietary portfolio investment valued at cost, as it was determined that the price paid during the three months ended December 31, 2012,
best represents fair value as of December 31, 2012.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(I) | In August 2012, we received warrants in connection with our senior term note C debt investment in Danco, which resulted in Danco being reclassified as
a Control investment during the three months ended September 30, 2012.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(J) | $5.0 million of the debt security participated to a third party, but accounted for as collateral for a secured borrowing for in accordance with
accounting principles generally accepted in the U.S. (GAAP).
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(K) | Security was paid off, at par, subsequent to December 31, 2012, and was valued based on the payoff.
|--- | ---------------------------------------------------------------------------------------------------

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



9



---

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS

MARCH 31, 2012

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|------------------------------------------------------------------------------- |  | -------------------------------------------------- | - | ----------------------------------------------------- |  | --------- | ------ | ------- | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                      |  | Industry                                           |   | Investment(B)                                         |  | Principal |        |         | Cost |   |        | Fair Value | 
|CONTROL INVESTMENTS:                                                            |  |                                                    |   |                                                       |  |           |        |         |      |   |        |           
|Acme Cryogenics, Inc.                                                           |  | Chemicals, Plastics, and Rubber                    |   | Senior Subordinated Term Debt (11.5%, Due 3/2015)     |  | $         | 14,500 |         |      | $ | 14,500 |            |  | $ | 14,500 | 
|                                                                                |  |                                                    |   | Preferred Stock (898,814 shares)(C)(F)                |  |           |        |         |      |   | 6,984  |            |  |   | 10,994 | 
|                                                                                |  |                                                    |   | Common Stock (418,072 shares)(C)(F)                   |  |           |        |         |      |   | 1,045  |            |  |   | 2,132  | 
|                                                                                |  |                                                    |   | Common Stock Warrants (452,683 shares)(C)(F)          |  |           |        |         |      |   | 25     |            |  |   | 675    | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 22,554 |            |  |   | 28,301 | 
|ASH Holdings Corp.                                                              |  | Automobile                                         |   | Line of Credit, $570 available (3.0%, Due 3/2013)(G)  |  |           | 6,430  |         |      |   | 6,388  |            |  |   |       | 
|                                                                                |  |                                                    |   | Senior Subordinated Term Debt (2.0%, Due 3/2013)(G)   |  |           | 6,250  |         |      |   | 6,060  |            |  |   |       | 
|                                                                                |  |                                                    |   | Preferred Stock (4,644 shares)(C)(F)                  |  |           |        |         |      |   | 2,500  |            |  |   |       | 
|                                                                                |  |                                                    |   | Common Stock (1 share)(C)(F)                          |  |           |        |         |      |   |       |            |  |   |       | 
|                                                                                |  |                                                    |   | Common Stock Warrants (73,599 shares)(C)(F)           |  |           |        |         |      |   | 4      |            |  |   |       | 
|                                                                                |  |                                                    |   | Guarantee ($750)                                      |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 14,952 |            |  |   |       | 
|Country Club Enterprises, LLC                                                   |  | Automobile                                         |   | Senior Subordinated Term Debt (14.0%, Due 11/2014)(G) |  |           | 4,000  |         |      |   | 4,000  |            |  |   |       | 
|                                                                                |  |                                                    |   | Preferred Stock (7,304,792 shares)(C)(F)              |  |           |        |         |      |   | 7,725  |            |  |   |       | 
|                                                                                |  |                                                    |   | Guarantee ($2,000)                                    |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   | Guarantee ($1,998)                                    |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 11,725 |            |  |   |       | 
|Galaxy Tool Holding Corp.                                                       |  | Aerospace and Defense                              |   | Senior Subordinated Term Debt (13.5%, Due 8/2013)     |  |           | 5,220  |         |      |   | 5,220  |            |  |   | 5,220  | 
|                                                                                |  |                                                    |   | Preferred Stock (4,111,907 shares)(C)(F)              |  |           |        |         |      |   | 19,658 |            |  |   | 1,493  | 
|                                                                                |  |                                                    |   | Common Stock (48,093 shares)(C)(F)                    |  |           |        |         |      |   | 48     |            |  |   |       | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 24,926 |            |  |   | 6,713  | 
|Mathey Investments, Inc.                                                        |  | Machinery                                          |   | Senior Term Debt (10.0%, Due 3/2013)                  |  |           | 2,375  |         |      |   | 2,375  |            |  |   | 2,375  | 
|                                                                                |  |                                                    |   | Senior Term Debt (12.0%, Due 3/2014)                  |  |           | 3,727  |         |      |   | 3,727  |            |  |   | 3,727  | 
|                                                                                |  |                                                    |   | Senior Term Debt (2.5%, Due 3/2014)(E)                |  |           | 3,500  |         |      |   | 3,500  |            |  |   | 3,500  | 
|                                                                                |  |                                                    |   | Common Stock (29,102 shares)(C)(F)                    |  |           |        |         |      |   | 777    |            |  |   | 4,164  | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 10,379 |            |  |   | 13,766 | 
|Mitchell Rubber Products, Inc.                                                  |  | Chemicals, Plastics and Rubber                     |   | Subordinated Term Debt (13.0%, Due 10/2016)(D)        |  |           | 13,560 |         |      |   | 13,560 |            |  |   | 13,679 | 
|                                                                                |  |                                                    |   | Preferred Stock (27,900 shares)(C)(F)                 |  |           |        |         |      |   | 2,790  |            |  |   | 2,954  | 
|                                                                                |  |                                                    |   | Common Stock (27,900 shares)(C)(F)                    |  |           |        |         |      |   | 28     |            |  |   | 1,858  | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 16,378 |            |  |   | 18,491 | 
|Precision Southeast, Inc.                                                       |  | Diversified/Conglomerate Manufacturing             |   | Line of Credit, $251 available (7.5%, Due 9/2012)     |  |           | 749    |         |      |   | 749    |            |  |   | 749    | 
|                                                                                |  |                                                    |   | Senior Term Debt (14.0%, Due 12/2015)                 |  |           | 7,775  |         |      |   | 7,775  |            |  |   | 7,775  | 
|                                                                                |  |                                                    |   | Preferred Stock (19,091 shares)(C)(F)                 |  |           |        |         |      |   | 1,909  |            |  |   | 1,634  | 
|                                                                                |  |                                                    |   | Common Stock (90,909 shares)(C)(F)                    |  |           |        |         |      |   | 91     |            |  |   |       | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 10,524 |            |  |   | 10,158 | 
|SBS, Industries, LLC                                                            |  | Machinery                                          |   | Senior Term Debt (14.0%, Due 8/2016)                  |  |           | 11,355 |         |      |   | 11,355 |            |  |   | 11,355 | 
|                                                                                |  |                                                    |   | Preferred Stock (19,935 shares)(C)(F)                 |  |           |        |         |      |   | 1,994  |            |  |   | 2,087  | 
|                                                                                |  |                                                    |   | Common Stock (221,500 shares)(C)(F)                   |  |           |        |         |      |   | 221    |            |  |   | 3,563  | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 13,570 |            |  |   | 17,005 | 
|SOG Specialty K&T, LLC                                                          |  | Leisure, Amusement, Motion Pictures, Entertainment |   | Senior Term Debt (13.3%, Due 8/2016)                  |  |           | 6,200  |         |      |   | 6,200  |            |  |   | 6,200  | 
|                                                                                |  |                                                    |   | Senior Term Debt (14.8%, Due 8/2016)                  |  |           | 12,199 |         |      |   | 12,199 |            |  |   | 12,199 | 
|                                                                                |  |                                                    |   | Preferred Stock (9,749 shares)(C)(F)                  |  |           |        |         |      |   | 9,749  |            |  |   | 11,697 | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 28,148 |            |  |   | 30,096 | 
|Tread Corp.                                                                     |  | Oil and Gas                                        |   | Senior Subordinated Term Debt (12.5%, Due 5/2013)     |  |           | 7,750  |         |      |   | 7,750  |            |  |   | 7,750  | 
|                                                                                |  |                                                    |   | Preferred Stock (832,765 shares)(C)(F)                |  |           |        |         |      |   | 833    |            |  |   | 1,080  | 
|                                                                                |  |                                                    |   | Common Stock (129,067 shares)(C)(F)                   |  |           |        |         |      |   | 1      |            |  |   | 96     | 
|                                                                                |  |                                                    |   | Common Stock Warrants (1,247,727 shares)(C)(F)        |  |           |        |         |      |   | 3      |            |  |   | 758    | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 8,587  |            |  |   | 9,684  | 
|Venyu Solutions, Inc.                                                           |  | Electronics                                        |   | Senior Subordinated Term Debt (11.3%, Due 10/2015)    |  |           | 7,000  |         |      |   | 7,000  |            |  |   | 7,000  | 
|                                                                                |  |                                                    |   | Senior Subordinated Term Debt (14.0%, Due 10/2015)    |  |           | 12,000 |         |      |   | 12,000 |            |  |   | 12,000 | 
|                                                                                |  |                                                    |   | Preferred Stock (5,400 shares)(C)(F)                  |  |           |        |         |      |   | 6,000  |            |  |   | 4,330  | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   | 25,000 |            |  |   | 23,330 | 
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 
|Total Control Investments (represents 69.8% of total investments at fair value) |  |                                                    | $ | 186,743                                               |  |           | $      | 157,544 |     
|                                                                                |  |                                                    |   |                                                       |  |           |        |         |      |   |        |            |  |   |        | 



10



---

GLADSTONE INVESTMENT CORPORATION

CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)

MARCH 31, 2012

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)



|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|------------------------------------------------------------------------------------------------ |  | --------------------------------------------------------------------- | - | ------------------------------------------------------ |  | --------- | ------ | ------- | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                                       |  | Industry                                                              |   | Investment(B)                                          |  | Principal |        |         | Cost |   |        | Fair Value | 
|AFFILIATE INVESTMENTS:                                                                           |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|Cavert II Holding Corp.                                                                          |  | Containers, Packaging and Glass                                       |   | Senior Term Debt (10.0%, Due 4/2016)(D)(E)             |  | $         | 1,050  |         |      | $ | 1,050  |            |  | $ | 1,067  | 
|                                                                                                 |  |                                                                       |   | Senior Subordinated Term Debt (11.8%, Due 4/2016)(D)   |  |           | 5,700  |         |      |   | 5,700  |            |  |   | 5,771  | 
|                                                                                                 |  |                                                                       |   | Subordinated Term Debt (13.0%, Due 4/2016)(D)          |  |           | 4,671  |         |      |   | 4,671  |            |  |   | 4,741  | 
|                                                                                                 |  |                                                                       |   | Preferred Stock (18,446 shares)(C)(F)                  |  |           |        |         |      |   | 1,844  |            |  |   | 2,596  | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   | 13,265 |            |  |   | 14,175 | 
|Channel Technologies Group, LLC                                                                  |  | Diversified/Conglomerate Manufacturing                                |   | Line of Credit, $400 available (7.0%, Due 12/2012)(D)  |  |           | 850    |         |      |   | 850    |            |  |   | 843    | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (8.3%, Due 12/2014)(D)                |  |           | 5,926  |         |      |   | 5,926  |            |  |   | 5,875  | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (12.3%, Due 12/2016)(D)               |  |           | 10,750 |         |      |   | 10,750 |            |  |   | 10,642 | 
|                                                                                                 |  |                                                                       |   | Preferred Stock (1,599 shares)(C)(F)                   |  |           |        |         |      |   | 1,599  |            |  |   | 1,631  | 
|                                                                                                 |  |                                                                       |   | Common Stock (1,598,616 shares)(C)(F)                  |  |           |        |         |      |   |       |            |  |   | 75     | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   | 19,125 |            |  |   | 19,066 | 
|Danco Acquisition Corp.                                                                          |  | Diversified/Conglomerate Manufacturing                                |   | Line of Credit, $450 available (10.0%, Due 10/2012)(D) |  |           | 1,800  |         |      |   | 1,800  |            |  |   | 1,350  | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (10.0%, Due 10/2012)(D)               |  |           | 2,575  |         |      |   | 2,575  |            |  |   | 1,931  | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (12.5%, Due 4/2013)(D)(E)             |  |           | 8,891  |         |      |   | 8,891  |            |  |   | 6,669  | 
|                                                                                                 |  |                                                                       |   | Preferred Stock (25 shares)(C)(F)                      |  |           |        |         |      |   | 2,500  |            |  |   |       | 
|                                                                                                 |  |                                                                       |   | Common Stock Warrants (420 shares)(C)(F)               |  |           |        |         |      |   | 3      |            |  |   |       | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   | 15,769 |            |  |   | 9,950  | 
|Noble Logistics, Inc.                                                                            |  | Cargo Transport                                                       |   | Line of Credit, $0 available (10.5%, Due 1/2013)(D)    |  |           | 500    |         |      |   | 500    |            |  |   | 315    | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (11.0%, Due 1/2013)(D)                |  |           | 7,227  |         |      |   | 7,227  |            |  |   | 4,553  | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (10.5%, Due 1/2013)(D)                |  |           | 3,650  |         |      |   | 3,650  |            |  |   | 2,300  | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (10.5%, Due 1/2013)(D)(E)             |  |           | 3,650  |         |      |   | 3,650  |            |  |   | 2,299  | 
|                                                                                                 |  |                                                                       |   | Preferred Stock (1,075,000 shares)(C)(F)               |  |           |        |         |      |   | 1,750  |            |  |   | 3,550  | 
|                                                                                                 |  |                                                                       |   | Common Stock (1,682,444 shares)(C)(F)                  |  |           |        |         |      |   | 1,682  |            |  |   |       | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   | 18,459 |            |  |   | 13,017 | 
|Quench Holdings Corp.                                                                            |  | Home and Office Furnishings, Housewares and Durable Consumer Products |   | Preferred Stock (388 shares)(C)(F)                     |  |           |        |         |      |   | 2,950  |            |  |   | 2,623  | 
|                                                                                                 |  |                                                                       |   | Common Stock (35,242 shares)(C)(F)                     |  |           |        |         |      |   | 447    |            |  |   |       | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   | 3,397  |            |  |   | 2,623  | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|Total Affiliate Investments (represents 26.1% of total investments at fair value)                |  |                                                                       | $ | 70,015                                                 |  |           | $      | 58,831  |     
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|NON-CONTROL/NON-AFFILIATE INVESTMENTS:                                                           |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |           
|B-Dry, LLC                                                                                       |  | Buildings and Real Estate                                             |   | Senior Term Debt (12.3%, Due 5/2014)(D)                |  |           | 6,477  |         |      |   | 6,477  |            |  |   | 6,356  | 
|                                                                                                 |  |                                                                       |   | Senior Term Debt (12.3%, Due 5/2014)(D)                |  |           | 2,860  |         |      |   | 2,860  |            |  |   | 2,806  | 
|                                                                                                 |  |                                                                       |   | Common Stock Warrants (55 shares)(C)(F)                |  |           |        |         |      |   | 300    |            |  |   | 115    | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   | 9,637  |            |  |   | 9,277  | 
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|Total Non-Control/Non-Affiliate Investments (represents 4.1% of total investments at fair
value) |  |                                                                       | $ | 9,637                                                  |  |           | $      | 9,277   |     
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 
|TOTAL INVESTMENTS                                                                                |  |                                                                       | $ | 266,395                                                |  |           | $      | 225,652 |     
|                                                                                                 |  |                                                                       |   |                                                        |  |           |        |         |      |   |        |            |  |   |        | 



|(A) | Certain of the securities listed above are issued by affiliate(s) of the indicated portfolio company.
|--- | -----------------------------------------------------------------------------------------------------

|(B) | Percentages represent the weighted average interest rates in effect at March 31, 2012, and due date represents the contractual maturity date.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------

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

|(D) | Fair value based primarily on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. as of March 31,
2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

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

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

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

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



11



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GLADSTONE INVESTMENT CORPORATION

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2012

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

NOTE 1. ORGANIZATION

Gladstone Investment Corporation (Gladstone Investment) was incorporated under the General Corporation Law of the State of Delaware on February 18, 2005, and completed an initial public
offering on June 22, 2005. The terms the Company, we, our and us all refer to Gladstone Investment and its consolidated subsidiaries. We are a closed-end, non-diversified management investment
company that has elected to be treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In addition, we have elected to be treated for tax purposes as a regulated
investment company (RIC) under the Internal Revenue Code of 1986, as amended (the Code). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States
(U.S.). Debt investments primarily come in the form of three types of loans: senior term loans, senior subordinated loans and junior subordinated debt. Equity investments take the form of preferred or common equity (or warrants or
options to acquire the foregoing), often in connection with buyouts and other recapitalizations. To a much lesser extent, we also invest in senior and subordinated syndicated loans. Our investment objectives are (a) to achieve and grow current
income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders
that grow over time and (b) to provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our
equity investments for capital gains. We aim to maintain a portfolio consisting of approximately 80% debt investment and 20% equity investment, at cost.

Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of ours, was established on August 11, 2006, for the sole purpose of owning our portfolio of
investments in connection with our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment.

We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial
Statements and Basis of Presentation

We prepare our interim financial statements in accordance with GAAP for interim financial information
and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X under the Securities Act of 1933, as amended (the Securities Act). Accordingly, we have omitted certain disclosures accompanying
annual financial statements prepared in accordance with GAAP. The accompanying condensed consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All intercompany balances and transactions have been
eliminated. Under Article 6 of Regulation S-X under the Securities Act, and the authoritative accounting guidance provided by the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for
Investment Companies, we are not permitted to consolidate any portfolio company investments, including those in which we have a controlling interest. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the
fair statement of financial statements for the interim periods have been included. The results of operations for the three and nine months ended December 31, 2012, are not necessarily indicative of results that ultimately may be achieved for
the year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended March 31, 2012, as filed with the
U.S. Securities and Exchange Commission (the SEC) on May 21, 2012.

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

Reclassifications

Certain amounts in
the prior periods financial statements have been reclassified to conform to the presentation for the three and nine months ended December 31, 2012, with no effect to net increase in net assets resulting from operations.



12



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Investment Valuation Policy

We carry our investments at fair value to the extent that market quotations are readily available and reliable and otherwise at fair value as determined in good faith by our board of directors (the
Board of Directors). In determining the fair value of our investments, the Adviser has established an investment valuation policy (the Policy). The Policy has been approved by our Board of Directors, and each quarter our
Board of Directors reviews whether the Adviser has applied the Policy consistently and votes whether to accept the recommended valuation of our investment portfolio. Such determination of fair values may involve subjective judgments and estimates.

The Adviser uses generally accepted valuation techniques to value our portfolio unless it has specific information about the value of an
investment to determine otherwise. From time to time, the Adviser may accept an appraisal of a business in which we hold securities. These appraisals are expensive and occur infrequently, but provide a third-party valuation opinion that may differ
in results, techniques and scope used to value our investments. When the Adviser obtains these specific third-party appraisals, the Adviser uses estimates of value provided by such appraisals and its own assumptions, including estimated remaining
life, current market yield and interest rate spreads of similar securities as of the measurement date, to value our investments.

The Policy,
summarized below, applies to publicly traded securities, securities for which a limited market exists and securities for which no market exists.

Publicly traded securities: The Adviser determines the value of publicly traded securities based on the closing price for the security on the exchange or securities market on which it is listed and
primarily traded on the valuation date. To the extent that we own restricted securities that are not freely tradable, but for which a public market otherwise exists, the Adviser will use the market value of that security adjusted for any decrease in
value resulting from the restrictive feature. As of December 31 and March 31, 2012, we did not have any investments in publicly traded securities.

Securities for which a limited market exists: The Adviser values securities that are not traded on an established secondary securities market, but for which a limited market for the security
exists, such as certain participations in, or assignments of, syndicated loans, at the quoted bid price, which are non-binding. In valuing these assets, the Adviser assesses trading activity in an asset class and evaluates variances in prices and
other market insights to determine if any available quoted prices are reliable. In general, if the Adviser concludes that quotes based on active markets or trading activity may be relied upon, firm bid prices are requested; however, if firm bid
prices are unavailable, the Adviser bases the value of the security upon the indicative bid price (IBP) offered by the respective originating syndication agents trading desk, or secondary desk, on or near the valuation date. To the
extent that the Adviser uses the IBP as a basis for valuing the security, the Adviser may take further steps to consider additional information to validate that price in accordance with the Policy, including but not limited to reviewing a range of
indicative bids to the extent it has ready access to such qualified information.

In the event these limited markets become illiquid such that
market prices are no longer readily available, the Adviser will value our syndicated loans using alternative methods, such as estimated net present values of the future cash flows or discounted cash flows (DCF). The use of a DCF
methodology follows that prescribed by the Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, which provides guidance on the use of a
reporting entitys own assumptions about future cash flows and risk-adjusted discount rates when relevant observable inputs, such as quotes in active markets, are not available. When relevant observable market data does not exist, an
alternative outlined in ASC 820 is the valuation of investments based on DCF. For the purposes of using DCF to provide fair value estimates, the Adviser considers multiple inputs, such as a risk-adjusted discount rate that incorporates adjustments
that market participants would make, both for nonperformance and liquidity risks. As such, the Adviser develops a modified discount rate approach that incorporates risk premiums including, among other things, increased probability of default, higher
loss given default or increased liquidity risk. The DCF valuations applied to the syndicated loans provide an estimate of what the Adviser believes a market participant would pay to purchase a syndicated loan in an active market, thereby
establishing a fair value. The Adviser applies the DCF methodology in illiquid markets until quoted prices are available or are deemed reliable based on trading activity. At December 31 and March 31 2012, we had no syndicated investments.

Securities for which no market exists: The valuation methodology for securities for which no market exists falls into four categories:
(A) portfolio investments comprised solely of debt securities; (B) portfolio investments in controlled companies comprised of a bundle of securities, which can include debt and equity securities; (C) portfolio investments in
non-controlled companies comprised of a bundle of investments, which can include debt and equity securities; and (D) portfolio investments comprised of non-publicly traded, non-control equity securities of other funds.



13



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|(A) | Portfolio investments comprised solely of debt securities:Debt securities that are not publicly traded on an established securities market, or for which a
market does not exist (Non-Public Debt Securities), and that are issued by portfolio companies in which we have no equity or equity-like securities, are fair valued utilizing opinions of value submitted to us by Standard &
Poors Securities Evaluations, Inc. (SPSE). The Adviser may also submit paid-in-kind (PIK) interest to SPSE for its evaluation when it is determined that PIK interest is likely to be received.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(B) | 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 our Non-Public Debt Securities and equity or equity-like securities
(e.g., preferred equity, common equity or other equity-like securities) that are purchased together as part of a package, where we have control or could gain control through an option or warrant security; both the debt and equity securities of the
portfolio investment would exit in the mergers and acquisitions market as the principal market, generally through a sale or recapitalization of the portfolio company. We generally exit the debt and equity securities of an issuer together. Applying
the liquidity waterfall approach to all of the investments of an issuer, the Adviser first calculates 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, the Adviser generally references industry statistics and may use outside experts. TEV is only an estimate of value and may not be the value
received in an actual sale. Once the Adviser has estimated the TEV of the issuer, it will subtract the value of all the debt securities of the issuer, which are valued at the contractual principal balance. Fair values of these debt securities are
discounted for any shortfall of TEV over the total debt outstanding for the issuer. Once the values for all outstanding senior securities, which include all the debt securities, have been subtracted from the TEV of the issuer, the remaining amount,
if any, is used to determine the value of the issuers equity or equity-like securities. If, in the Advisers judgment, the liquidity waterfall approach does not accurately reflect the value of the debt component, the Adviser may recommend
that we use a valuation by SPSE, or, if that is unavailable, a DCF valuation technique.



|(C) | Portfolio investments in non-controlled companies comprised of a bundle of investments, which can include debt and equity securities:The Adviser values
Non-Public Debt Securities that are purchased together with equity or equity-like securities from the same portfolio company, or issuer, for which we do not control or cannot gain control as of the measurement date, using a hypothetical secondary
market as our principal market. In accordance with ASC 820 (as amended by the FASBs Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS), (ASU 2011-04)), the Adviser has defined our unit of account at the investment level (either debt or equity) and as such
determines our fair value of these non-control investments assuming the sale of an individual security using the standalone premise of value. As such, the Adviser 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. For equity or
equity-like securities of investments for which we do not control or cannot gain control as of the measurement date, the Adviser estimates the fair value of the equity 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. Furthermore, the Adviser may utilize
comparable values of similar companies, recent investments and indices with similar structures and risk characteristics or DCF valuation techniques and, in the absence of other observable market data, our own assumptions.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(D) | Portfolio investments comprised of non-publicly traded, non-control equity securities of other funds:The Adviser generally values any uninvested capital of the
non-control fund at par value and values any invested capital at the value provided by the non-control fund. At December 31 and March 31, 2012, we had no non-control equity securities of other funds.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly and materially from the values that would
have been obtained had a ready market for the securities existed. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments
to be different than the valuations currently assigned. There is no single standard for determining fair value in good faith, as fair value depends upon circumstances of each individual case. In general, fair value is the amount that the Adviser
might reasonably expect us to receive upon the current sale of the security in an orderly transaction between market participants at the measurement date.

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



14



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Interest Income Recognition

Interest income, adjusted for amortization of premiums and acquisition costs, the accretion of discounts and the amortization of amendment fees, is recorded on the accrual basis to the extent that such
amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual
status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on
non-accrual loans may be recognized as income or applied to the cost basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid and, in
managements judgment, are likely to remain current, or due to a restructuring such that the interest income is deemed to be collectible. At December 31, 2012, loans to two portfolio companies, ASH Holdings Corp. (ASH) and
Tread Corporation (Tread), were on non-accrual. These non-accrual loans had an aggregate cost basis of $23.7 million, or 10.4% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $0. During the
three months ended December 31, 2012, we placed Tread on non-accrual and took Country Club Enterprises, LLC (CCE) off non-accrual. At March 31, 2012, ASH and CCE were on non-accrual with an aggregate debt cost basis of $16.4
million, or 8.6% of the cost basis of debt investments in our portfolio, and an aggregate fair value of $0.

We did not hold any loans in our
portfolio that contained a PIK provision at December 31, 2012, and no PIK income was recorded during the three and nine months ended December 31, 2012. During the three and nine months ended December 31, 2011, we recorded PIK income
of $0 and $7, respectively. PIK interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain our status as a RIC, this non-cash source of
income must be included in our calculation of distributable income for purposes of complying with our distribution requirements, even though we have not yet collected the cash. The sole loan with a PIK provision was paid off, at par, during the
quarter ended September 30, 2011.

Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company. We recorded $0 and $0.8 million of success fees during the three
and nine months ended December 31, 2012, respectively, representing prepayments received from Mathey Investments, Inc. (Mathey) and Cavert II Holding Corp. (Cavert). During the three and nine months ended December, 31,
2011, we recorded success fees of $0 and $0.4 million, respectively, representing prepayments received from Mathey and Cavert. As of December 31, 2012, we have an off-balance sheet success fee receivable of approximately $12.3 million.

We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we
have the option to collect such amounts in cash. We recorded $0.7 and $0.8 million in dividend income during the three and nine months ended December 31, 2012, on accrued preferred shares of Acme Cryogenics, Inc. (Acme) and
Drew Foam Companies, Inc. (Drew Foam). We recorded $0 and $0.7 million in dividend income during the three and nine months ended December 31, 2011, on accrued preferred shares in connection with the recapitalization of Cavert.

Both success fees and dividends are recorded in Other income in our accompanying Condensed Consolidated Statements of Operations.

Recent Accounting Pronouncements

In May 2011, the FASB issued Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure Requirements in U.S.
GAAP and IFRSs (ASU 2011-04), which results in a consistent definition of fair value and common requirements for measurement of and disclosure about fair value between GAAP and IFRS. ASU 2011-04 is effective for interim and annual
periods beginning after December 15, 2011. The adoption of ASU 2011-04 did not have a significant impact on our financial position or results of operations.

NOTE 3. INVESTMENTS

ASC 820 defines fair value, establishes a framework for measuring
fair value and expands disclosures about assets and liabilities measured at fair value. ASC 820 provides a consistent definition of fair value that focuses on exit price in the principal, or most advantageous, market and prioritizes, within a
measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or
liability as of the measurement date.



| |  |  | 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 or inactive 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
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



15



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| |  |  | Level 3  inputs to the valuation methodology are unobservable and reflect assumptions that market participants would use when
pricing the asset or liability. Level 3 inputs can include the Advisers own assumptions based upon the best available information.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

We transfer investments in and out of Level 1, 2 and 3 securities as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the
valuation for the period. During the three and nine months ended December 31, 2012 and 2011, there were no transfers in or out of Level 1, 2 and 3.

The following table presents the financial assets carried at fair value as of December 31 and March 31, 2012, by caption on our accompanying Condensed Consolidated Statements of Assets and
Liabilitiesand by security type for each of the three applicable levels of hierarchy established by ASC 820 that we used to value our financial assets:



|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|------------------------------------------- |  | ----------------- | ------ |  | -------------- | - | ------- | --------------------------------------------------------------------------------------------------------- |  | - | ------- |  |  | ------- | ------ |  | --------------------------------------------------------------------------------------------------------- | - | ------- |  |  | - | ------- | 
|                                            |  | December 31, 2012 |        |  | March 31, 2012 |  
|                                            |  | Level 1           |        |  | Level 3        |   |         | Total Recurring FairValue
MeasurementReported inCondensedConsolidated Statementsof Assets and Liabilities |  |   | Level 1 |  |  | Level 3 |        |  | Total Recurring FairValue
MeasurementReported inCondensedConsolidated Statementsof Assets and Liabilities |  
|Control Investments                         |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Senior debt                                 |  | $                 |       |  |                | $ | 74,975  |                                                                                                           |  | $ | 74,975  |  |  | $       |       |  |                                                                                                           | $ | 47,880  |  |  | $ | 47,880  | 
|Senior subordinated debt                    |  |                   |       |  |                |   | 67,313  |                                                                                                           |  |   | 67,313  |  |  |         |       |  |                                                                                                           |   | 60,149  |  |  |   | 60,149  | 
|Preferred equity                            |  |                   |       |  |                |   | 64,856  |                                                                                                           |  |   | 64,856  |  |  |         |       |  |                                                                                                           |   | 36,269  |  |  |   | 36,269  | 
|Common equity/equivalents                   |  |                   |       |  |                |   | 19,143  |                                                                                                           |  |   | 19,143  |  |  |         |       |  |                                                                                                           |   | 13,246  |  |  |   | 13,246  | 
|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Total Control investments                   |  |                   |       |  |                |   | 226,287 |                                                                                                           |  |   | 226,287 |  |  |         |       |  |                                                                                                           |   | 157,544 |  |  |   | 157,544 | 
|Affiliate Investments                       |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Senior debt                                 |  |                   |       |  |                |   | 24,827  |                                                                                                           |  |   | 24,827  |  |  |         |       |  |                                                                                                           |   | 37,844  |  |  |   | 37,844  | 
|Senior subordinated debt                    |  |                   |       |  |                |   | 9,595   |                                                                                                           |  |   | 9,595   |  |  |         |       |  |                                                                                                           |   | 10,512  |  |  |   | 10,512  | 
|Preferred equity                            |  |                   |       |  |                |   | 4,564   |                                                                                                           |  |   | 4,564   |  |  |         |       |  |                                                                                                           |   | 10,400  |  |  |   | 10,400  | 
|Common equity/equivalents                   |  |                   |       |  |                |   |        |                                                                                                           |  |   |        |  |  |         |       |  |                                                                                                           |   | 75      |  |  |   | 75      | 
|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Total Affiliate investments                 |  |                   |       |  |                |   | 38,986  |                                                                                                           |  |   | 38,986  |  |  |         |       |  |                                                                                                           |   | 58,831  |  |  |   | 58,831  | 
|Non-Control/Non-Affiliate Investments       |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Senior debt                                 |  |                   |       |  |                |   | 7,987   |                                                                                                           |  |   | 7,987   |  |  |         |       |  |                                                                                                           |   | 9,162   |  |  |   | 9,162   | 
|Common equity/equivalents                   |  |                   |       |  |                |   |        |                                                                                                           |  |   |        |  |  |         |       |  |                                                                                                           |   | 115     |  |  |   | 115     | 
|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Total Non-Control/Non-Affiliate Investments |  |                   |       |  |                |   | 7,987   |                                                                                                           |  |   | 7, 987  |  |  |         |       |  |                                                                                                           |   | 9,277   |  |  |   | 9,277   | 
|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Total Investments at fair value             |  | $                 |       |  |                | $ | 273,260 |                                                                                                           |  | $ | 273,260 |  |  | $       |       |  |                                                                                                           | $ | 225,652 |  |  | $ | 225,652 | 
|Cash Equivalents                            |  |                   | 50,000 |  |                |   |        |                                                                                                           |  |   | 50,000  |  |  |         | 85,000 |  |                                                                                                           |   |        |  |  |   | 85,000  | 
|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 
|Total Investments and Cash Equivalents      |  | $                 | 50,000 |  |                | $ | 273,260 |                                                                                                           |  | $ | 323,260 |  |  | $       | 85,000 |  |                                                                                                           | $ | 225,652 |  |  | $ | 310,652 | 
|                                            |  |                   |        |  |                |   |         |                                                                                                           |  |   |         |  |  |         |        |  |                                                                                                           |   |         |  |  |   |         | 

In accordance with ASU 2011-04, the following table provides quantitative information about our Level 3 fair value
measurements of our investments as of December 31, 2012. In addition to the techniques and inputs noted in the table below, according to our valuation policy, the Adviser may also use other valuation techniques and methodologies when
determining our fair value measurements. The below table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in the
table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations for the particular input.



16



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|                                         |  |                                                                |         |     |                    |                      |       |                   |                 |   |       | 
|---------------------------------------- |  | -------------------------------------------------------------- | ------- | --- | ------------------ | -------------------- | ----- | ----------------- | --------------- | - | ----- | 
|                                         |  | Quantitative Information about Level 3 Fair Value Measurements |        
|Valuation Technique/Methodology          |  | Fair Value as ofDecember 31,2012                               |         |     | Unobservable Input |                      | Range |                   | WeightedAverage |  
|TEV                                      |  | $                                                              | 212,879 | (A) |                    | EBITDA 
multiples(C) |       | 4.0x  8.3x       |                 |   | 5.9x  | 
|                                         |  |                                                                |         |     |                    | EBITDA(C)            |       | ($2,674)  $6,965 |                 | $ | 3,733 | 
|SPSE(B)                                  |  |                                                                | 60,381  |     |                    | EBITDA(C)            |       | ($11)  $5,654    |                 | $ | 2,497 | 
|                                         |  |                                                                |         |     |                    | Risk Ratings(D)      |       | 2.8  6.9         |                 |   | 5.0   | 
|                                         |  |                                                                |         |     |                    |                      |       |                   |                 |   |       | 
|Total Fair Value for Level 3 Investments |  | $                                                              | 273,260 |     |                    |                      |       |                   |                 |   |       | 
|                                         |  |                                                                |         |     |                    |                      |       |                   |                 |   |       | 



|(A) | Includes one new portfolio company investment which was valued at cost, as it was determined that the price paid during the three months ended
December 31, 2012, best represents fair value as of December 31, 2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | SPSE makes an independent assessment of the data our Adviser submits to them (which includes the financial and operational performance, as well as the
Advisers internally assessed risk ratings of the portfolio companies  see footnote (D) below) and its own independent data to form an opinion as to what they consider to be the market values for our securities. With regard to its
work, SPSE has stated that the data submitted to us is proprietary in nature.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | Adjusted earnings before interest expense, taxes, depreciation and amortization (EBITDA) is an unobservable input, which is generally based
on the most recently available trailing twelve month financial statements submitted to the Adviser from the portfolio companies. EBITDA multiples, generally indexed, represent the Advisers estimation of where market participants might price
these investments. For our bundled debt and equity investments, the EBITDA and EBITDA multiples impact the TEV fair value determination and the value of the issuers debt, equity, or equity-like securities are valued in accordance with the
Advisers liquidity waterfall approach.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(D) | As part of the Advisers valuation procedures, it risk rates all of our investments in debt securities. The Adviser uses a proprietary risk rating
system for all other debt securities. The Advisers risk rating system uses a scale of 0 to 10, with 10 being the lowest probability of default. The risk rating system covers both qualitative and quantitative aspects of the portfolio company
business and the securities we hold.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

A portfolio companys EBITDA and EBITDA multiples are the significant
unobservable inputs generally included in the Advisers internally assessed TEV models used to value our proprietary debt and equity investments. Holding all other factors constant, increases (decreases) in the EBITDA and/or the EBITDA
multiples inputs would result in a higher (lower) fair value measurement. Per our valuation policy, the Adviser generally uses an indexed EBITDA multiple. EBITDA and EBITDA multiple inputs do not have to directionally correlate since EBITDA is a
company performance metric and EBITDA multiples can be influenced by market, industry, size and other factors.

Changes in Level 3 Fair
Value Measurements of Investments

The following tables provide the changes in fair value, broken out by security type, during the three
month periods ended December 31, 2012 and 2011 for all investments for which we determine fair value using unobservable (Level 3) factors. When a determination is made to classify a financial instrument within Level 3 of the valuation
hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable
inputs (that is, components that are actively quoted and can be validated to external sources). In these cases, we categorize the fair value measurement in its entirety in the same level of the fair value hierarchy as the lowest level input that is
significant to the entire measurement. Accordingly, the gains and losses in the tables below include changes in fair value, due in part to observable factors that are part of the valuation methodology.



17



---

Fair Value Measurements of Investments Using Significant Unobservable Inputs (Level 3)



|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|----------------------------------------------- |  | ---------- | ------- | - | ---------------------- | - | ------- | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                |  | SeniorDebt |         |   | SeniorSubordinatedDebt |   |         | PreferredEquity |  |   | CommonEquity/Equivalents |   |  | Total |       
|Three months ended December 31, 2012:           |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of September 30, 2012             |  | $          | 97,257  |   |                        | $ | 93,740  |                 |  | $ | 64,300                   |   |  | $     | 11,389 |   |  | $ | 266,686 |  
|Total (losses) gains:                           |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized gains(A)(D)                        |  |            |        |   |                        |   |        |                 |  |   |                         |   |  |       | 96     |   |  |   | 96      |  
|Net unrealized (depreciation) appreciation(B)   |  |            | (3,471  | ) |                        |   | (9,631  | )               |  |   | 5,514                    |   |  |       | 7,634  |   |  |   | 46      |  
|New investments, repayments and settlements(C): |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                        |  |            | 14,650  |   |                        |   | 1,500   |                 |  |   | 1,373                    |   |  |       | 153    |   |  |   | 17,676  |  
|Settlements / Repayments                        |  |            | (647    | ) |                        |   | (8,701  | )               |  |   |                         |   |  |       |       |   |  |   | (9,348  | )
|Sales(D)                                        |  |            |        |   |                        |   |        |                 |  |   | (1,767                   | ) |  |       | (129   | ) |  |   | (1,896  | )
|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2012              |  | $          | 107,789 |   |                        | $ | 76,908  |                 |  | $ | 69,420                   |   |  | $     | 19,143 |   |  | $ | 273,260 |  
|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Nine months ended December 31, 2012:            |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2012                 |  | $          | 94,886  |   |                        | $ | 70,661  |                 |  | $ | 46,669                   |   |  | $     | 13,436 |   |  | $ | 225,652 |  
|Total (losses) gains:                           |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized gains(A)(D)                        |  |            |        |   |                        |   |        |                 |  |   |                         |   |  |       | 848    |   |  |   | 848     |  
|Net unrealized (depreciation) appreciation(B)   |  |            | (11,547 | ) |                        |   | (6,601  | )               |  |   | 3,630                    |   |  |       | 4,963  |   |  |   | (9,555  | )
|New investments, repayments and settlements(C): |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                        |  |            | 33,120  |   |                        |   | 28,315  |                 |  |   | 18,926                   |   |  |       | 278    |   |  |   | 80,639  |  
|Settlements / Repayments                        |  |            | (8,670  | ) |                        |   | (12,467 | )               |  |   |                         |   |  |       |       |   |  |   | (21,137 | )
|Sales(D)                                        |  |            |        |   |                        |   |        |                 |  |   | (2,305                   | ) |  |       | (882   | ) |  |   | (3,187  | )
|Transfers(E)                                    |  |            |        |   |                        |   | (3,000  | )               |  |   | 2,500                    |   |  |       | 500    |   |  |   |        |  
|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2012              |  | $          | 107,789 |   |                        | $ | 76,908  |                 |  | $ | 69,420                   |   |  | $     | 19,143 |   |  | $ | 273,260 |  
|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  



|                                                                                |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ---------- | ------ | - | ---------------------- | - | ------ | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                                                |  | SeniorDebt |        |   | SeniorSubordinatedDebt |   |        | PreferredEquity |  |   | CommonEquity/Equivalents |   |  | Total |       
|Three months ended December 31, 2011:                                           |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of September 30, 2011                                             |  | $          | 85,075 |   |                        | $ | 80,085 |                 |  | $ | 47,452                   |   |  | $     | 5,444  |   |  | $ | 218,056 |  
|Total (losses) gains:                                                           |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized losses(A)(D)                                                       |  |            |       |   |                        |   |       |                 |  |   |                         |   |  |       | (105   | ) |  |   | (105    | )
|Net unrealized (depreciation) appreciation(B)                                   |  |            | (1,521 | ) |                        |   | 2,477  |                 |  |   | (5,606                   | ) |  |       | 6,328  |   |  |   | 1,678   |  
|Reversal of previously-recorded depreciation upon realization(B)                |  |            | 30     |   |                        |   |       |                 |  |   |                         |   |  |       | 61     |   |  |   | 91      |  
|New investments, repayments and settlements(C):                                 |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                                                        |  |            | 17,350 |   |                        |   |       |                 |  |   | 1,599                    |   |  |       |       |   |  |   | 18,949  |  
|Settlements / Repayments                                                        |  |            | (3,393 | ) |                        |   | (8,000 | )               |  |   |                         |   |  |       |       |   |  |   | (11,393 | )
|Sales(D)                                                                        |  |            |       |   |                        |   |       |                 |  |   |                         |   |  |       | (505   | ) |  |   | (505    | )
|Transfers(F)                                                                    |  |            |       |   |                        |   | (4,000 | )               |  |   | 4,000                    |   |  |       |       |   |  |   |        |  
|                                                                                |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2011                                              |  | $          | 97,541 |   |                        | $ | 70,562 |                 |  | $ | 47,445                   |   |  | $     | 11,223 |   |  | $ | 226,771 |  
|                                                                                |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Nine months ended December 31, 2011:                                            |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2011                                                 |  | $          | 58,627 |   |                        | $ | 62,806 |                 |  | $ | 25,398                   |   |  | $     | 6,454  |   |  | $ | 153,285 |  
|Total (losses) gains:                                                           |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized (losses) gains(A)(D)                                               |  |            | (1     | ) |                        |   | 5      |                 |  |   |                         |   |  |       | 5,087  |   |  |   | 5,091   |  
|Net unrealized appreciation (depreciation)(B)                                   |  |            | (734   | ) |                        |   | (1,705 | )               |  |   | 4,868                    |   |  |       | 10,645 |   |  |   | 13,074  |  
|Reversal of previously-recorded depreciation (appreciation) upon realization(B) |  |            | 126    |   |                        |   | (14    | )               |  |   | (686                     | ) |  |       | (5,447 | ) |  |   | (6,021  | )
|New investments, repayments and settlements(C):                                 |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                                                        |  |            | 47,561 |   |                        |   | 22,385 |                 |  |   | 16,131                   |   |  |       | 250    |   |  |   | 86,327  |  
|Settlements / Repayments                                                        |  |            | (8,038 | ) |                        |   | (8,915 | )               |  |   |                         |   |  |       |       |   |  |   | (16,953 | )
|Sales(D)                                                                        |  |            |       |   |                        |   |       |                 |  |   | (2,266                   | ) |  |       | (5,766 | ) |  |   | (8,032  | )
|Transfers(F)                                                                    |  |            |       |   |                        |   | (4,000 | )               |  |   | 4,000                    |   |  |       |       |   |  |   |        |  
|                                                                                |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of December 31, 2011                                              |  | $          | 97,541 |   |                        | $ | 70,562 |                 |  | $ | 47,445                   |   |  | $     | 11,223 |   |  | $ | 226,771 |  
|                                                                                |  |            |        |   |                        |   |        |                 |  |   |                          |   |  |       |        |   |  |   |         |  



18



---

|(A) | Included in Net realized (loss)
gain on our accompanying Condensed Consolidated Statements of Operations for the periods ended December 31, 2012 and 2011.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Included in Net unrealized
appreciation (depreciation) on our accompanying Condensed Consolidated Statements of Operations for the periods ended December 31, 2012 and 2011.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(E) | Transfers represent $3.0 million of
senior subordinated term debt of Tread, at cost as of June 30, 2012, that was converted into preferred and common equity during the quarter ended September 30, 2012.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(F) | Transfers represent $4.0 million of
senior subordinated term debt of CCE, at cost as of September 30, 2011, that was converted to preferred equity during the quarter ended December 31, 2011.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Activity

During the nine months ended December 31, 2012, the following
significant transactions occurred:



| |  |  | In May 2012, we invested $9.5 million in a new Affiliate investment, Packerland Whey Products, Inc. (Packerland), through a combination of
debt and equity. Packerland, headquartered in Luxemburg, Wisconsin, is a processor of raw fluid whey, specializing in the production of protein supplements for dairy and beef cattle. In December 2012, our $7.0 million debt investment was paid off at
par.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In July 2012, we invested $21.3 million in a new Control investment, Drew Foam, through a combination of debt and equity. Drew Foam, headquartered in
Monticello, Arkansas, is an expanded polystyrene foam molder and fabricator for a variety of applications in construction and packaging. In September 2012, $4.0 million of the debt and the line of credit was refinanced with a third-party. In
December 2012, $1.8 million of our equity investment was sold to a third-party at cost.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In July 2012, we invested $22.5 million in a new Control investment, Ginsey Holdings, Inc. (Ginsey), through a combination of debt and
equity. Ginsey, headquartered in Bellmawr, New Jersey, designs and markets a broad line of branded juvenile and adult bath products. In August 2012, we participated out $5.0 million of the debt to a third-party.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2012, we restructured our investment in Tread, converting $3.0 million of senior subordinated debt into preferred and common shares of Tread
in a non-cash transaction.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2012, we invested $16.5 million in a new Control investment, Frontier Packaging, Inc. (Frontier), through a combination of debt
and equity. Frontier, headquartered in Seattle, Washington, is a supplier of a range of time sensitive packaging materials to the Alaskan seafood market, adding value through its expertise in product consolidation and logistics.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Investment Concentrations

As of December 31, 2012, our investment portfolio consisted of investments in 21 portfolio companies located in 15 states across 13 different industries with an aggregate fair value of $273.3
million, of which SOG Specialty K&T, LLC (SOG), Acme Cryogenics, Inc. (Acme), and Venyu Solutions, Inc. (Venyu), collectively, comprised approximately $82.2 million, or 30.1%, of our total investment portfolio
at fair value. The following table outlines our investments by security type at December 31 and March 31, 2012:



|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------- |  | ----------------- | ------- |  | -------------- |  | ----- | ---- |  | - | ---------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                          |  | December 31, 2012 |         |  | March 31, 2012 | 
|                          |  | Cost              |         |  | Fair Value     |  |       | Cost |  |   | Fair Value | 
|Senior debt               |  | $                 | 134,924 |  |                |  | 41.7  | %    |  | $ | 107,789    |  |  |  | 39.5  | % |  | $ | 110,475 |  |  |  | 41.5  | % |  | $ | 94,886  |  |  |  | 42.0  | %
|Senior subordinated debt  |  |                   | 93,310  |  |                |  | 28.8  |      |  |   | 76,908     |  |  |  | 28.1  |   |  |   | 80,461  |  |  |  | 30.2  |   |  |   | 70,661  |  |  |  | 31.3  |  
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total debt                |  |                   | 228,234 |  |                |  | 70.5  |      |  |   | 184,697    |  |  |  | 67.6  |   |  |   | 190,936 |  |  |  | 71.7  |   |  |   | 165,547 |  |  |  | 73.3  |  
|Preferred equity          |  |                   | 89,905  |  |                |  | 27.8  |      |  |   | 69,420     |  |  |  | 25.4  |   |  |   | 71,084  |  |  |  | 26.6  |   |  |   | 46,669  |  |  |  | 20.7  |  
|Common equity/equivalents |  |                   | 5,419   |  |                |  | 1.7   |      |  |   | 19,143     |  |  |  | 7.0   |   |  |   | 4,375   |  |  |  | 1.7   |   |  |   | 13,436  |  |  |  | 6.0   |  
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total equity/equivalents  |  |                   | 95,324  |  |                |  | 29.5  |      |  |   | 88,563     |  |  |  | 32.4  |   |  |   | 75,459  |  |  |  | 28.3  |   |  |   | 60,105  |  |  |  | 26.7  |  
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total investments         |  | $                 | 323,558 |  |                |  | 100.0 | %    |  | $ | 273,260    |  |  |  | 100.0 | % |  | $ | 266,395 |  |  |  | 100.0 | % |  | $ | 225,652 |  |  |  | 100.0 | %
|                          |  |                   |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  



19



---

Investments at fair value consisted of the following industry classifications at December 31 and
March 31, 2012:



|                                                                       |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|---------------------------------------------------------------------- |  | ----------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                                                                       |  | December 31, 2012 |         |  | March 31, 2012                 | 
|                                                                       |  | Fair Value        |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|Chemicals, Plastics, and Rubber                                        |  | $                 | 60,161  |  |                                |  | 22.0  | %          |  | $ | 46,793                         |  |  |  | 20.7  | %
|Machinery                                                              |  |                   | 35,068  |  |                                |  | 12.8  |            |  |   | 30,770                         |  |  |  | 13.6  |  
|Diversified/Conglomerate Manufacturing                                 |  |                   | 33,366  |  |                                |  | 12.2  |            |  |   | 29,017                         |  |  |  | 12.9  |  
|Leisure, Amusement, Motion Pictures, Entertainment                     |  |                   | 30,365  |  |                                |  | 11.1  |            |  |   | 30,096                         |  |  |  | 13.3  |  
|Containers, Packaging, and Glass                                       |  |                   | 27,370  |  |                                |  | 10.0  |            |  |   | 24,332                         |  |  |  | 10.8  |  
|Home and Office Furnishings, Housewares, and Durable Consumer Products |  |                   | 24,190  |  |                                |  | 8.9   |            |  |   | 2,623                          |  |  |  | 1.2   |  
|Electronics                                                            |  |                   | 23,976  |  |                                |  | 8.8   |            |  |   | 23,330                         |  |  |  | 10.3  |  
|Aerospace and Defense                                                  |  |                   | 13,945  |  |                                |  | 5.1   |            |  |   | 6,713                          |  |  |  | 3.0   |  
|Automobile                                                             |  |                   | 8,662   |  |                                |  | 3.2   |            |  |   |                               |  |  |  |      |  
|Buildings and Real Estate                                              |  |                   | 7,986   |  |                                |  | 2.9   |            |  |   | 9,277                          |  |  |  | 4.1   |  
|Cargo Transport                                                        |  |                   | 7,664   |  |                                |  | 2.8   |            |  |   | 13,017                         |  |  |  | 5.8   |  
|Beverage, Food, and Tobacco                                            |  |                   | 507     |  |                                |  | 0.2   |            |  |   |                               |  |  |  |      |  
|Oil and Gas                                                            |  |                   |        |  |                                |  |      |            |  |   | 9,684                          |  |  |  | 4.3   |  
|                                                                       |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments                                                      |  | $                 | 273,260 |  |                                |  | 100.0 | %          |  | $ | 225,652                        |  |  |  | 100.0 | %
|                                                                       |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

The investments, at fair value, were included in the following geographic regions of the U.S. as of December 31 and
March 31, 2012:



|                  |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|----------------- |  | ----------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                  |  | December 31, 2012 |         |  | March 31, 2012                 | 
|                  |  | Fair Value        |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|South             |  | $                 | 114,731 |  |                                |  | 42.0  | %          |  | $ | 128,902                        |  |  |  | 57.1  | %
|West              |  |                   | 83,337  |  |                                |  | 30.5  |            |  |   | 59,112                         |  |  |  | 26.2  |  
|Northeast         |  |                   | 60,740  |  |                                |  | 22.2  |            |  |   | 30,924                         |  |  |  | 13.7  |  
|Midwest           |  |                   | 14,452  |  |                                |  | 5.3   |            |  |   | 6,714                          |  |  |  | 3.0   |  
|                  |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments |  | $                 | 273,260 |  |                                |  | 100.0 | %          |  | $ | 225,652                        |  |  |  | 100.0 | %
|                  |  |                   |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

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

Investment Principal Repayments

The following table summarizes the contractual principal repayments and maturity of our investment portfolio by fiscal year, assuming no voluntary
prepayments, at December 31, 2012:



|                                                |  |                                                            |  |        |         |  
|----------------------------------------------- |  | ---------------------------------------------------------- |  | ------ | ------- | -
|                                                |  |                                                            |  | Amount |        
|For the remaining three months ending March 31: |  | 2013                                                       |  | $      | 29,479  |  
|For the fiscal year ending March 31:            |  | 2014                                                       |  |        | 36,380  |  
|                                                |  | 2015                                                       |  |        | 34,809  |  
|                                                |  | 2016                                                       |  |        | 27,925  |  
|                                                |  | 2017                                                       |  |        | 63,435  |  
|                                                |  | Thereafter                                                 |  |        | 36,462  |  
|                                                |  |                                                            |  |        |         |  
|                                                |  | Total contractual repayments                               |  | $      | 228,490 |  
|                                                |  | Investments in equity securities                           |  |        | 95,324  |  
|                                                |  | Adjustments to cost basis on debt securities               |  |        | (256    | )
|                                                |  |                                                            |  |        |         |  
|                                                |  | Total cost basis of investments held at December 31, 2012: |  | $      | 323,558 |  
|                                                |  |                                                            |  |        |         |  

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies and are included in other assets on our accompanying Condensed Consolidated
Statements of Assets and Liabilities. We maintain an allowance for uncollectible receivables from portfolio companies, which is determined based on historical experience and managements expectations of future losses. We charge the accounts
receivable to the established provision when collection efforts have been exhausted and the receivables are deemed uncollectible. As of December 31 and March 31, 2012, we had gross receivables from portfolio companies of $0.5 million and
$0.3 million, respectively. The allowance for uncollectible receivables was $0 at both December 31 and March 31, 2012.



20



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NOTE 4. RELATED PARTY TRANSACTIONS

Investment Advisory and Management Agreement

We entered into an investment advisory and
management agreement with the Adviser (the Advisory Agreement). The Adviser is controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser certain fees as compensation for its
services, such fees consisting of a base management fee and an incentive fee. On July 10, 2012, our Board of Directors approved the renewal of the Advisory Agreement through August 31, 2013.

The following table summarizes the management fees, incentive fees and associated credits reflected in our accompanying Condensed Consolidated
Statements of Operations:



|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|---------------------------------------------------------------- |  | ------------------------------ | ------- | - | ----------------------------- | - | ------- | ---- |  | - | ------- | - |  | - | ------- | -
|                                                                 |  | Three Months EndedDecember 31, |         |   | Nine Months EndedDecember 31, |  
|                                                                 |  | 2012                           |         |   | 2011                          |   |         | 2012 |  |   | 2011    |  
|Average total assets subject to base management fee              |  | $                              | 288,000 |   |                               | $ | 228,000 |      |  | $ | 262,600 |   |  | $ | 214,133 |  
|Multiplied by prorated annual base management fee of 2%          |  |                                | 0.5     | % |                               |   | 0.5     | %    |  |   | 1.5     | % |  |   | 1.5     | %
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Base management fee(A)                                           |  |                                | 1,440   |   |                               |   | 1,140   |      |  |   | 3,939   |   |  |   | 3,212   |  
|Reduction for loan servicing fees                                |  |                                | (972    | ) |                               |   | (811    | )    |  |   | (2,789  | ) |  |   | (2,204  | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Adjusted base management fee                                     |  | $                              | 468     |   |                               | $ | 329     |      |  | $ | 1,150   |   |  | $ | 1,008   |  
|Credit for fees received by Adviser from the portfolio companies |  |                                | (268    | ) |                               |   | (291    | )    |  |   | (968    | ) |  |   | (1,017  | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net base management fee                                          |  | $                              | 200     |   |                               | $ | 38      |      |  | $ | 182     |   |  | $ | (9      | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Incentive fee(A)                                                 |  |                                | 589     |   |                               |   |        |      |  |   | 1,130   |   |  |   | 19      |  
|Credit from waiver issued by Advisers board of directors(B)     |  |                                | (221    | ) |                               |   | (54     | )    |  |   | (221    | ) |  |   | (54     | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Net Incentive fee                                                |  | $                              | 368     |   |                               | $ | (54     | )    |  | $ | 909     |   |  | $ | (35     | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Total credits to fees:                                           |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Credit for fees received by Adviser from the portfolio companies |  |                                | (268    | ) |                               |   | (291    | )    |  |   | (968    | ) |  |   | (1,017  | )
|Credit from waiver issued by Advisers board of directors(B)     |  |                                | (221    | ) |                               |   | (54     | )    |  |   | (221    | ) |  |   | (54     | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  
|Credit to fees from Adviser(A)                                   |  |                                | (489    | ) |                               |   | (345    | )    |  |   | (1,189  | ) |  |   | (1,071  | )
|                                                                 |  |                                |         |   |                               |   |         |      |  |   |         |   |  |   |         |  



|(A) | Reflected as a line item on our accompanying Condensed Consolidated Statement of Operations.
|--- | --------------------------------------------------------------------------------------------

|(B) | The credit to the incentive fee for the three months ended December 31, 2011, is due to a payment of the incentive fee during the three months
ended June 30, 2010, in relation to the dividend income recognized based on a best-efforts valuation of Neville Limited (Neville), the property received in connection with the A. Stucki Holding Corp. (A. Stucki) sale in
June 2010. This property was sold during November 2011, resulting in an exit at a lower amount than the dividend recognized during the three months ended June 30, 2010. The Adviser determined to retroactively apply the exit value to the
incentive fee calculation for the three months ended June 30, 2010, resulting in an additional credit of $54, which was recorded during the three months ended December 31, 2011.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Base Management Fee

The base management fee is payable quarterly and assessed at an annual rate of 2.0%, computed on the basis of the value of our average total assets at the end of the two most recently-completed quarters.
Average total assets is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective
periods and adjusted appropriately for any share issuances or repurchases during the periods. In addition, the following three items are adjustments to the base management fee calculation:



| |  |  | Loan Servicing Fees
| | - |  | -------------------

The 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 our line of
credit. Since we own 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.



| |  |  | Portfolio Company Fees
| | - |  | ----------------------

Under the Advisory Agreement, the Adviser has also provided, and continues to provide, managerial assistance and other services to our portfolio companies and may receive fees for services other than
managerial assistance. 50% of certain of these fees and 100% of other fees are credited against the base management fee that we would otherwise be required to pay to the Adviser.



21



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Incentive Fee

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



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



| |  |  | 100% of our pre-incentive fee net investment income with respect to that portion of such pre-incentive fee net investment income, if any, that exceeds
the hurdle rate but is less than 2.1875% in any calendar quarter (8.75% annualized); and
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | 20% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------

Our Board of Directors accepted an unconditional and irrevocable voluntary waiver from the Adviser to reduce
the income-based incentive fee to the extent net investment income did not 100% cover distributions to common stockholders for the three months ended December 31, 2012.

The second part of the incentive fee is a capital gains-based incentive fee that will be determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement,
as of the termination date) and equals 20% of our realized capital gains as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the Adviser, we will calculate the cumulative aggregate realized capital gains
and cumulative aggregate realized capital losses since our inception, and the aggregate net unrealized capital depreciation as of the date of the calculation, as applicable, with respect to each of the investments in our portfolio. For this purpose,
cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital
losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since our inception. Aggregate net unrealized capital depreciation equals the sum of the difference,
if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year, the amount of capital gains that serves as the basis for our calculation of the
capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate net unrealized capital depreciation, with respect to our portfolio of investments. If this
number is positive at the end of such year, then the capital gains-based incentive fee for such year equals 20% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years.
No capital gains-based incentive fee has been recorded since our inception through December 31, 2012, as cumulative net unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.

Additionally, in accordance with GAAP, a capital gains-based incentive fee accrual is calculated using the aggregate
cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains-based incentive fee plus the aggregate cumulative unrealized capital appreciation. If such amount
is positive at the end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains-based incentive fees paid in all prior years. If such amount is
negative, then there is no accrual for such year. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be
payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital gains-based incentive fee has been recorded since our
inception through December 31, 2012.

As a BDC, we make available significant managerial assistance to our portfolio companies and
provide other services to such portfolio companies. Although neither we nor the Adviser receive fees in connection with managerial assistance, the Adviser provides other services to our portfolio companies and receives fees for these other services.

Administration Agreement

We
have entered into an administration agreement (the Administration Agreement) with Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser, whereby we pay separately for administrative services.
The Administration Agreement provides for payments equal to our allocable portion of the Administrators overhead expenses in performing its obligations under the Administration Agreement, including, but not limited to, rent and the salaries
and benefits expenses of our chief financial officer and treasurer, chief compliance officer, internal counsel and their respective staffs. Our allocable portion of administrative expenses is generally derived by multiplying the Administrators
total allocable expenses by the percentage of our total



22



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assets at the beginning of the quarter in comparison to the total assets at the beginning of the quarter of all companies managed by the Adviser under similar agreements. On July 10, 2012,
our Board of Directors approved the renewal of the Administration Agreement through August 31, 2013.

Related Party Fees Due

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



|                                    |  |                   |       |  |                |   |     |  
|----------------------------------- |  | ----------------- | ----- |  | -------------- | - | --- | -
|                                    |  | December 31, 2012 |       |  | March 31, 2012 |  
|Base management fee due to Adviser  |  | $                 | 431   |  |                | $ | 513 |  
|Incentive fee due to (from) Adviser |  |                   | 368   |  |                |   | (54 | )
|Other due to Adviser                |  |                   | 275   |  |                |   | 37  |  
|                                    |  |                   |       |  |                |   |     |  
|Total fees due to Adviser           |  | $                 | 1,074 |  |                | $ | 496 |  
|                                    |  |                   |       |  |                |   |     |  
|Fee due to Administrator            |  | $                 | 191   |  |                | $ | 218 |  
|                                    |  |                   |       |  |                |   |     |  
|Total related party fees due        |  | $                 | 1,265 |  |                | $ | 714 |  
|                                    |  |                   |       |  |                |   |     |  

NOTE 5. BORROWINGS

Line of Credit

On April 14, 2009, through our wholly-owned subsidiary, Business
Investment, we entered into a second amended and restated credit agreement providing for a $50.0 million revolving line of credit (the Credit Facility) arranged by Branch Banking and Trust Company (BB&T) as administrative
agent. Key Equipment Finance Inc. also joined our Credit Facility as a committed lender.

On April 13, 2010, we entered into a third
amended and restated credit agreement, which extended the maturity date of our Credit Facility to April 13, 2012. Advances under our Credit Facility generally bear interest at the 30-day London Interbank Offered Rate (LIBOR)
(subject to a minimum rate of 2.0%), plus 4.5% per annum, with a commitment fee of 0.50% per annum on undrawn amounts when advances outstanding are above 50.0% of the commitment and 1.0% on undrawn amounts if the advances outstanding are
below 50.0% of the commitment.

On October 26, 2011, we entered into a fourth amended and restated credit agreement to increase the
commitment amount under our Credit Facility to $60.0 million, reduce the interest rate and extend the maturity date. Subject to certain terms and conditions, our Credit Facility may be expanded up to a total of $175.0 million through the addition of
other committed lenders to the facility. Advances under our Credit Facility will generally bear interest at 30-day LIBOR, plus 3.75% per annum, with an unused fee of 0.50% on undrawn amounts.

On October 5, 2012, we entered into Amendment No. 1 (the Amendment) to our the fourth amended and restated credit agreement, which
extended the maturity date of our Credit Facility by one year. As a result of the Amendment, our Credit Facility is now scheduled to mature on October 25, 2015 (the Extended Maturity Date) and, if not renewed or extended by the
Extended Maturity Date, all principal and interest will be due and payable on or before October 25, 2016 (one year after the Extended Maturity Date). There remains a one-year extension option to be agreed upon by all parties, which may be
exercised on or before October 26, 2013. All other terms of our Credit Facility remained the same.

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



|                               |  |                   |        |  |                |   |        | 
|------------------------------ |  | ----------------- | ------ |  | -------------- | - | ------ | 
|                               |  | December 31, 2012 |        |  | March 31, 2012 |  
|Commitment amount              |  | $                 | 60,000 |  |                | $ | 60,000 | 
|Borrowings outstanding at cost |  |                   | 24,500 |  |                |   |       | 
|Availability                   |  |                   | 32,250 |  |                |   | 58,399 | 



|                                        |  |                                        |        |   |                                       |   |       |      |  |   |        |   |  |   |       |  
|--------------------------------------- |  | -------------------------------------- | ------ | - | ------------------------------------- | - | ----- | ---- |  | - | ------ | - |  | - | ----- | -
|                                        |  | For the Three Months EndedDecember 31, |        |   | For the Nine Months EndedDecember 31, |  
|                                        |  | 2012                                   |        |   | 2011                                  |   |       | 2012 |  |   | 2011   |  
|Weighted average borrowings outstanding |  | $                                      | 11,924 |   |                                       | $ | 7,591 |      |  | $ | 17,305 |   |  | $ | 4,852 |  
|Effective interest rate(A)              |  |                                        | 6.1    | % |                                       |   | 9.2   | %    |  |   | 5.3    | % |  |   | 14.4  | %
|Commitment (unused) fees incurred       |  | $                                      | 61     |   |                                       | $ | 77    |      |  | $ | 163    |   |  | $ | 314   |  



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

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



23



---

The administrative agent also requires that any interest or principal payments on pledged loans be remitted
directly by the borrower into a lockbox account with The Bank of New York Mellon Trust Company, N.A as custodian. BB&T is the trustee of the account and remits the collected funds to us monthly.

Generally, our Credit Facility contains covenants that require Business Investment to, among other things, maintain its status as a separate legal
entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and collection policies without the lenders consent. Our Credit
Facility also limits payments on distributions to the aggregate net investment income for each of the twelve-month periods ending March 31, 2013, 2014, 2015 and 2016. Business Investment is also subject to certain limitations on the type of
loan investments it can apply toward availability credit in the borrowing base, including restrictions on geographic concentrations, sector concentrations, loan size, dividend payout, payment frequency and status, average life and lien property. Our
Credit Facility further requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a
minimum number of obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our
mandatorily redeemable preferred stock) of $155.0 million plus 50% of all equity and subordinated debt raised after October 26, 2011, (ii) asset coverage with respect to senior securities representing indebtedness
of at least 200%, in accordance with Section 18 of the 1940 Act and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of December 31, 2012, and as defined in the performance guaranty of our Credit Facility,
we had a minimum net worth of $269.1 million, an asset coverage of 292% and an active status as a BDC and RIC. Our Credit Facility requires a minimum of 12 obligors in the borrowing base, and, as of December 31, 2012, Business Investment had 16
obligors. As of December 31, 2012, we were in compliance with all of our Credit Facility covenants.

Short-Term Loan

Similar to previous quarter ends, to maintain our status as a RIC, we purchased $50.0 million of short-term U.S. Treasury Bills (T-Bills)
through Jefferies & Company, Inc. (Jefferies) on December 27, 2012. As these T-Bills have a maturity of less than three months, we consider them to be cash equivalents and include them in cash and cash equivalents on our
accompanying Condensed Consolidated Statement of Assets and Liabilities as of December 31, 2012. The T-Bills were purchased on margin using $5.5 million in cash and the proceeds from a $44.5 million short-term loan from Jefferies with an
effective annual interest rate of approximately 1.44%. On January 3, 2013, when the T-Bills matured, we repaid the $44.5 million loan from Jefferies and we received back the $5.5 million margin payment sent to Jefferies to complete the
transaction.

Secured Borrowing

In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our senior subordinated term debt investment in Ginsey. We evaluated whether the transaction
should be accounted for as a sale or a financing-type transaction under the applicable guidance of ASC 860. Based on the terms of the participation agreement, we are required to treat the participation as a financing-type transaction. Specifically,
the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual rate established at origination. Therefore, our
accompanying Condensed Consolidated Statements of Assists and Liabilities reflects the entire senior subordinated term debt investment in Ginsey and a corresponding $5.0 million secured borrowing liability. The secured borrowing has a stated
interest rate of 7% and a maturity date of January 3, 2018.

Fair Value

We elected to apply ASC 825, Financial Instruments, specifically for our Credit Facility and short-term loan, which was consistent with the
application of ASC 820 to our investments. Generally, we estimate the fair value of our Credit Facility using estimates of value provided by an independent third party and our own assumptions in the absence of observable market data, including
estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. Additionally, due to the eight-day duration of the short-term loan, cost was deemed to approximate
fair value. At each of December 31 and March 31, 2012, all of our borrowings were valued using Level 3 inputs. The following tables present the short-term loan and Credit Facility carried at fair value as of December 31 and
March 31, 2012, by caption on our accompanying Condensed Consolidated Statements of Assets and Liabilities for Level 3 of the hierarchy established by ASC 820 and a roll-forward of the changes in fair value during the three and nine
months ended December 31, 2012 and 2011:



|                |  |                                                                                                             |        |  |               |   |        | 
|--------------- |  | ----------------------------------------------------------------------------------------------------------- | ------ |  | ------------- | - | ------ | 
|                |  | Level 3  Borrowings                                                                                        |       
|                |  | Total Recurring Fair Value MeasurementReported inCondensed
ConsolidatedStatements of Assets and Liabilities |       
|                |  | December 31, 2012                                                                                           |        |  | March 31,2012 |  
|Short-Term Loan |  | $                                                                                                           | 44,512 |  |               | $ | 76,005 | 
|Credit Facility |  |                                                                                                             | 25,104 |  |               |   |       | 
|                |  |                                                                                                             |        |  |               |   |        | 
|Total           |  | $                                                                                                           | 69,616 |  |               | $ | 76,005 | 
|                |  |                                                                                                             |        |  |               |   |        | 



24



---

|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|------------------------------------------------------------------------------------- |  | -------------- | -------- | - | -------------- | - | ------- | ----- |  | - | -------- | -
|Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3) | 
|                                                                                      |  | Short-TermLoan |          |   | CreditFacility |   |         | Total | 
|Three months ended December 31, 2012:                                                 |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at September 30, 2012                                                      |  | $              | 71,525   |   |                | $ | 57,209  |       |  | $ | 128,734  |  
|Borrowings                                                                            |  |                | 44,512   |   |                |   | 24,000  |       |  |   | 68,512   |  
|Repayments                                                                            |  |                | (71,525  | ) |                |   | (55,500 | )     |  |   | (127,025 | )
|Net unrealized depreciation(A)                                                        |  |                |         |   |                |   | (605    | )     |  |   | (605     | )
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at December 31, 2012                                                       |  | $              | 44,512   |   |                | $ | 25,104  |       |  | $ | 69,616   |  
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|Nine months ended December 31, 2012:                                                  |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at March 31, 2012                                                          |  | $              | 76,005   |   |                | $ |        |       |  | $ | 76,005   |  
|Borrowings                                                                            |  |                | 192,047  |   |                |   | 115,000 |       |  |   | 307,047  |  
|Repayments                                                                            |  |                | (223,540 | ) |                |   | (90,500 | )     |  |   | (314,040 | )
|Net unrealized appreciation(A)                                                        |  |                |         |   |                |   | 604     |       |  |   | 604      |  
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at December 31, 2012                                                       |  | $              | 44,512   |   |                | $ | 25,104  |       |  | $ | 69,616   |  
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|                                                                                      |  |                |         
|                                                                                      |  | Short-TermLoan |          |   | CreditFacility |   |         | Total | 
|Three months ended December 31, 2011:                                                 |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at September 30, 2011                                                      |  | $              | 62,501   |   |                | $ | 21,405  |       |  | $ | 83,906   |  
|Borrowings                                                                            |  |                | 76,001   |   |                |   | 31,200  |       |  |   | 107,201  |  
|Repayments                                                                            |  |                | (62,501  | ) |                |   | (22,900 | )     |  |   | (85,401  | )
|Net unrealized depreciation(A)                                                        |  |                |         |   |                |   | (405    | )     |  |   | (405     | )
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at December 31, 2011                                                       |  | $              | 76,001   |   |                | $ | 29,300  |       |  | $ | 105,301  |  
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|Nine months ended December 31, 2011:                                                  |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at March 31, 2011                                                          |  | $              | 40,000   |   |                | $ |        |       |  | $ | 40,000   |  
|Borrowings                                                                            |  |                | 178,502  |   |                |   | 52,700  |       |  |   | 231,202  |  
|Repayments                                                                            |  |                | (142,501 | ) |                |   | (23,400 | )     |  |   | (165,901 | )
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  
|Fair value at December 31, 2011                                                       |  | $              | 76,001   |   |                | $ | 29,300  |       |  | $ | 105,301  |  
|                                                                                      |  |                |          |   |                |   |         |       |  |   |          |  



|(A) | Included in net unrealized (depreciation) appreciation on our accompanying Condensed Consolidated Statement of Operations for periods ended
December 31, 2012.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the collateral under our Credit Facility was approximately $261.6 million and
$228.3 million at December 31 and March 31, 2012, respectively. The fair value of the collateral under the short-term loan was approximately $50.0 million and $85.0 million at December 31 and March 31, 2012, respectively.

NOTE 6. INTEREST RATE CAP AGREEMENTS

We have entered into multiple interest rate cap agreements with BB&T that effectively limit the interest rate on a portion of our borrowings under the line of credit pursuant to the terms of our
Credit Facility. The agreements provide that the interest rate on a portion of our borrowings is capped at a certain interest rate when 30-day LIBOR is in excess of that certain interest rate. The fair value of the interest rate cap agreements is
recorded in other assets on our accompanying Condensed Consolidated Statements of Assets and Liabilities. We record changes in the fair value of the interest rate cap agreements quarterly based on the current market valuations at quarter end
as net unrealized appreciation (depreciation) of other on our accompanying Condensed Consolidated Statements of Operations. Generally, we will estimate the fair value of our interest rate caps using estimates of value provided by the
counterparty and our own assumptions in the absence of observable market data, including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. At both
December 31 and March 31, 2012, our interest rate cap agreement(s) were valued using Level 3 inputs. The following table summarizes the key terms of each interest rate cap agreement:



|                     |  |                |        |  |           |  |     |                |  |               |      |                   |  |            |                |     |  |   |   |  |  |   |    |  |  |   |   | 
|-------------------- |  | -------------- | ------ |  | --------- |  | --- | -------------- |  | ------------- | ---- | ----------------- |  | ---------- | -------------- | --- |  | - | - |  |  | - | -- |  |  | - | - | 
|Interest
Rate
Cap(A) |  | NotionalAmount |        |  | LIBOR Cap |  |     | Effective Date |  | Maturity Date |      | December 31, 2012 |  |            | March 31, 2012 |    
|                     |  |                |        |  | Cost      |  |     | Fair Value     |  |               | Cost |                   |  | Fair Value |               
|April 2010           |  | $              | 45,000 |  |           |  | 6.0 | %              |  | May 2011      |      | May 2012          |  | $          |               | (B) |  | $ |  |  |  | $ | 41 |  |  | $ |  | 
|December 2011        |  |                | 50,000 |  |           |  | 6.0 |                |  | May 2012      |      | October 2013      |  |            | 29             |     |  |   | 1 |  |  |   | 29 |  |  |   | 2 | 



|(A) | Indicates date we entered into the interest rate cap agreement with BB&T.
|--- | -------------------------------------------------------------------------

|(B) | In May 2012, upon expiration of the April 2010 cap, we recognized a realized loss of $41.
|--- | -----------------------------------------------------------------------------------------



25



---

The use of a cap agreement involves risks that are different from those associated with ordinary portfolio
securities transactions. Cap agreements may be considered to be illiquid. Although we will not enter into any such agreements unless we believe that the other party to the transaction is creditworthy, we bear the risk of loss of the amount expected
to be received under such agreements in the event of default or bankruptcy of the agreement counterparty.

NOTE 7. MANDATORILY
REDEEMABLE PREFERRED STOCK

On March 6, 2012, we completed a public offering of 1,400,000 shares of 7.125% Series A Cumulative Term
Preferred Stock (our Term Preferred Stock) at a public offering price of $25.00 per share. Gross proceeds totaled $35.0 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $33.2
million, a portion of which was used to repay borrowings under our Credit Facility, with the remaining proceeds being held to make additional investments and for general corporate purposes. In connection with the offering, the underwriters exercised
their option to purchase an additional 200,000 shares of our Term Preferred Stock to cover over-allotments, which resulted in gross proceeds of $5.0 million and net proceeds, after deducting underwriting discounts, of $4.8 million. We incurred $2.0
million in total offering costs related to these transactions, which have been recorded as deferred financing costs on our accompanying Condensed Consolidated Statements of Assets and Liabilities and will be amortized over the redemption
period ending February 28, 2017.

The shares have a redemption date of February 28, 2017, and are traded under the ticker symbol
GAINP on the NASDAQ Global Select Market. The Term Preferred Stock is not convertible into our common stock or any other security. The Term Preferred Stock provides for a fixed dividend equal to 7.125% per year, payable monthly (which equates
to approximately $2.9 million per year). We are required to redeem all of the outstanding Term Preferred Stock on February 28, 2017, for cash at a redemption price equal to $25.00 per share, plus an amount equal to accumulated but unpaid
dividends, if any, to, but excluding, the date of redemption. In addition, there are three other potential redemption triggers: 1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem
all of the outstanding Term Preferred Stock, 2) if we fail to maintain an asset coverage ratio of at least 200%, we are required to redeem a portion of the outstanding Term Preferred Stock or otherwise cure the ratio redemption trigger and 3) at our
sole option, at any time on or after February 28, 2016, we may redeem some or all of the Term Preferred Stock.

Our Board of Directors
declared and paid the following monthly distributions to preferred stockholders for the nine months ended December 31, 2012:



|                                     |  |                  |           |                  |  |                    |  |                    |  |                                      |           | 
|------------------------------------ |  | ---------------- | --------- | ---------------- |  | ------------------ |  | ------------------ |  | ------------------------------------ | --------- | 
|Fiscal Year                          |  | Time Period      |           | Declaration Date |  | Record Date        |  | Payment Date       |  | Distribution per TermPreferred Share |          
|2013                                 |  | April 1  30     |           | April 11, 2012   |  | April 20, 2012     |  | April 30, 2012     |  | $                                    | 0.1484375 | 
|                                     |  | May 1  31       |           | April 11, 2012   |  | May 18, 2012       |  | May 31, 2012       |  |                                      | 0.1484375 | 
|                                     |  | June 1  30      |           | April 11, 2012   |  | June 20, 2012      |  | June 29, 2012      |  |                                      | 0.1484375 | 
|                                     |  | July 1  31      |           | July 10, 2012    |  | July 20, 2012      |  | July 31, 2012      |  |                                      | 0.1484375 | 
|                                     |  | August 1  31    |           | July 10, 2012    |  | August 22, 2012    |  | August 31, 2012    |  |                                      | 0.1484375 | 
|                                     |  | September 1  30 |           | July 10, 2012    |  | September 19, 2012 |  | September 28, 2012 |  |                                      | 0.1484375 | 
|                                     |  | October 1  31   |           | October 10, 2012 |  | October 22, 2012   |  | October 31, 2012   |  |                                      | 0.1484375 | 
|                                     |  | November 1  30  |           | October 10, 2012 |  | November 19, 2012  |  | November 30, 2012  |  |                                      | 0.1484375 | 
|                                     |  | December 1  31  |           | October 10, 2012 |  | December 19, 2012  |  | December 31, 2012  |  |                                      | 0.1484375 | 
|                                     |  |                  |           |                  |  |                    |  |                    |  |                                      |           | 
|Nine months ended December 31, 2012: |  | $                | 1.3359375 |                 
|                                     |  |                  |           |                  |  |                    |  |                    |  |                                      |           | 

In accordance with ASC 480, Distinguishing Liabilities from Equity, mandatorily redeemable financial
instruments should be classified as liabilities on the balance sheet and, therefore, the related dividend payments are treated as dividend expense on our accompanyingCondensed Consolidated Statements of Operationsat the ex-dividend date.
The fair value of the Term Preferred Stock based on the last reported closing price as of December 31 and March 31, 2012, was approximately $41.3 million and $40.0 million, respectively.

Aggregate Term Preferred Stock distributions declared and paid for the three and nine months ended December 31, 2012, were approximately $0.7
million and $2.1 million, respectively. The tax character of distributions paid by us to preferred stockholders is from ordinary income.

NOTE 8. COMMON STOCK

We filed a
registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed a Pre-effective Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective
on July 26, 2012. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and
warrants to purchase common stock, including through a combined offering of two or more of such securities.

On October 5, 2012, we
completed a public offering of 4.0 million shares of our common stock at a public offering price of $7.50 per share, which was below our then current net asset value (NAV) per share. Gross proceeds totaled $30.0 million and net
proceeds,



26



---

after deducting underwriting discounts and offering expenses borne by us, were $28.3 million, which was used to repay borrowings under our Credit Facility. In connection with the offering, the
underwriters exercised their option to purchase an additional 395,825 shares at the public offering price to cover over-allotments, which resulted in gross proceeds of $3.0 million and net proceeds, after deducting underwriting discounts, of $2.8
million.

NOTE 9. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE

The following table sets forth the computation of basic and diluted net increase in net assets resulting from operations per weighted average common share
for the three and nine months ended December 31, 2012 and 2011:



|                                                                                                      |  |                                 |            |  |                                |   |            |      |  |   |            |  |  |   |            | 
|----------------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- |  | ------------------------------ | - | ---------- | ---- |  | - | ---------- |  |  | - | ---------- | 
|                                                                                                      |  | Three Months Ended December 31, |            |  | Nine Months Ended December 31, |  
|                                                                                                      |  | 2012                            |            |  | 2011                           |   |            | 2012 |  |   | 2011       | 
|Numerator for basic and diluted net increase in net assets resulting from operations per common share |  | $                               | 4,699      |  |                                | $ | 5,495      |      |  | $ | 1,330      |  |  | $ | 22,377     | 
|Denominator for basic and diluted weighted average common shares                                      |  |                                 | 26,147,157 |  |                                |   | 22,080,133 |      |  |   | 23,440,737 |  |  |   | 22,080,133 | 
|                                                                                                      |  |                                 |            |  |                                |   |            |      |  |   |            |  |  |   |            | 
|Basic and diluted net increase in net assets resulting from operations per average common share       |  | $                               | 0.18       |  |                                | $ | 0.25       |      |  | $ | 0.06       |  |  | $ | 1.01       | 
|                                                                                                      |  |                                 |            |  |                                |   |            |      |  |   |            |  |  |   |            | 

NOTE 10. DISTRIBUTIONS TO COMMON STOCKHOLDERS

We are required to pay out as distributions 90% of our ordinary income and short-term capital gains for each taxable year in order to be taxed as a RIC under Subtitle A, Chapter 1 of Subchapter M of the
Code. The amount to be paid out as a distribution is determined by our Board of Directors each quarter and is based on our estimated taxable income by management. Based on that estimate, three monthly distributions are declared each quarter. For
calendar years ended December 31, 2012, 2011 and 2010, 100% of our common distributions during these periods were deemed to be paid from ordinary income for 1099 shareholder reporting purposes.

Our Board of Directors declared the following monthly distributions to common stockholders for the nine months ended December 31, 2012 and 2011:



|                                     |  |                  |       |                    |  |                    |  |                              |       | 
|------------------------------------ |  | ---------------- | ----- | ------------------ |  | ------------------ |  | ---------------------------- | ----- | 
|Fiscal
Year                          |  | Declaration Date |       | Record Date        |  | Payment Date       |  | Distributionper Common Share |      
|2013                                 |  | April 11, 2012   |       | April 20, 2012     |  | April 30, 2012     |  | $                            | 0.050 | 
|                                     |  | April 11, 2012   |       | May 18, 2012       |  | May 31, 2012       |  |                              | 0.050 | 
|                                     |  | April 11, 2012   |       | June 20, 2012      |  | June 29, 2012      |  |                              | 0.050 | 
|                                     |  | July 10, 2012    |       | July 20, 2012      |  | July 31, 2012      |  |                              | 0.050 | 
|                                     |  | July 10, 2012    |       | August 22, 2012    |  | August 31, 2012    |  |                              | 0.050 | 
|                                     |  | July 10, 2012    |       | September 19, 2012 |  | September 28, 2012 |  |                              | 0.050 | 
|                                     |  | October 10, 2012 |       | October 22, 2012   |  | October 31, 2012   |  |                              | 0.050 | 
|                                     |  | October 10, 2012 |       | November 19, 2012  |  | November 30, 2012  |  |                              | 0.050 | 
|                                     |  | October 10, 2012 |       | December 19, 2012  |  | December 31, 2012  |  |                              | 0.050 | 
|                                     |  |                  |       |                    |  |                    |  |                              |       | 
|Nine months ended December 31, 2012: |  | $                | 0.450 |                   
|                                     |  |                  |       |                    |  |                    |  |                              |       | 
|2012                                 |  | April 12, 2011   |       | April 22, 2011     |  | April 29, 2011     |  | $                            | 0.045 | 
|                                     |  | April 12, 2011   |       | May 20, 2011       |  | May 31, 2011       |  |                              | 0.045 | 
|                                     |  | April 12, 2011   |       | June 20, 2011      |  | June 30, 2011      |  |                              | 0.045 | 
|                                     |  | July 12, 2012    |       | July 22, 2012      |  | July 29, 2012      |  |                              | 0.050 | 
|                                     |  | July 12, 2012    |       | August 19, 2012    |  | August 31, 2012    |  |                              | 0.050 | 
|                                     |  | July 12, 2012    |       | September 22, 2012 |  | December 31, 2012  |  |                              | 0.050 | 
|                                     |  | October 11, 2011 |       | October 21, 2011   |  | October 31, 2011   |  |                              | 0.050 | 
|                                     |  | October 11, 2011 |       | November 17, 2011  |  | November 30, 2011  |  |                              | 0.050 | 
|                                     |  | October 11, 2011 |       | December 21, 2011  |  | December 30, 2011  |  |                              | 0.050 | 
|                                     |  |                  |       |                    |  |                    |  |                              |       | 
|Nine months ended December 31, 2011: |  | $                | 0.435 |                   
|                                     |  |                  |       |                    |  |                    |  |                              |       | 

Aggregate common distributions declared quarterly and paid for the nine months ended December 31, 2012 and 2011 were
approximately $10.6 million and $9.6 million, respectively, which were declared based on estimates of net investment income for the respective fiscal years. The tax characterization of the common distributions declared and paid for the fiscal year
ended March 31, 2013, will be determined at fiscal year end and cannot be determined at this time. For the fiscal year ended March 31, 2012, taxable income available for common distributions exceeded distributions declared and paid, and,
in accordance with Section 855(a) of the Code, we elected to treat $0.7 million of the first common distribution paid in fiscal year 2013 as having been paid in the prior year.



27



---

NOTE 11. COMMITMENTS AND CONTINGENCIES

As of December 31, 2012, we have lines of credit commitments to certain of our portfolio companies that have not been fully drawn. Since these lines of credit have expiration dates and we expect many
will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements.

In addition to
the lines of credit to certain portfolio companies, we have also extended certain guarantees on behalf of some of our portfolio companies. As of December 31, 2012, we have not been required to make any payments on the guarantees discussed
below, and we consider the credit risk to be remote and the fair values of the guarantees to be minimal.



| |  |  | In October 2008, we executed a guarantee of a vehicle finance facility agreement (the Finance Facility) between Ford Motor Credit
Company (Ford) and ASH. The Finance Facility provides ASH with a line of credit of up to $0.5 million for component Ford parts used by ASH to build truck bodies under a separate contract. Ford retains title and ownership of the parts.
The guarantee of the Finance Facility will expire upon termination of the separate parts supply contract with Ford or upon replacement of us as guarantor.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2010, we executed a guarantee of a wholesale financing facility agreement (the Floor Plan Facility) between Agricredit
Acceptance, LLC (Agricredit) and CCE. The Floor Plan Facility provides CCE with financing of up to $2.0 million to bridge the time and cash flow gap between the order and delivery of golf carts to customers. The guarantee was renewed in
February 2011 and again in February 2012 and expires in February 2013, unless it is renewed again by us, CCE and Agricredit. In connection with this guarantee and its subsequent renewals, we recorded aggregate premiums of $0.3 million from CCE.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

The following table summarizes the dollar balance of unused line of credit commitments and guarantees as of
December 31 and March 31, 2012:



|                                  |  |                   |       |  |                |   |       | 
|--------------------------------- |  | ----------------- | ----- |  | -------------- | - | ----- | 
|                                  |  | December 31, 2012 |       |  | March 31, 2012 |  
|Unused line of credit commitments |  | $                 | 3,853 |  |                | $ | 1,671 | 
|Guarantees                        |  |                   | 3,549 |  |                |   | 4,748 | 
|                                  |  |                   |       |  |                |   |       | 
|Total                             |  | $                 | 7,402 |  |                | $ | 6,419 | 
|                                  |  |                   |       |  |                |   |       | 

Escrow Holdbacks

From time to time, we will enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations,
as stipulated in the sales agreements. We record escrow amounts in restricted cash on our accompanying Condensed Consolidated Statements of Assets and Liabilities. We establish a contingent liability against the escrow amounts
if we determine that it is probable and estimable that a portion of the escrow amounts will not be ultimately received at the end of the escrow period. The aggregate contingent liability recorded against the escrow amounts was $0 million and $0.3
million as of December 31 and March 31, 2012, respectively, and is included in other liabilities on our accompanying Condensed Consolidated Statements of Assets and Liabilities.

NOTE 12. FINANCIAL HIGHLIGHTS



|                                                                            |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|--------------------------------------------------------------------------- |  | ------------------------------- | ----- | - | ------------------------------ | - | ----- | ---- |  | - | ----- | - |  | - | ----- | -
|                                                                            |  | Three Months Ended December 31, |       |   | Nine Months Ended December 31, |  
|                                                                            |  | 2012                            |       |   | 2011                           |   |       | 2012 |  |   | 2011  |  
|Per Common Share Data                                                       |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Net asset value at beginning of period(A)                                   |  | $                               | 8.93  |   |                                | $ | 9.48  |      |  | $ | 9.38  |   |  | $ | 9.00  |  
|Net investment income(B)                                                    |  |                                 | 0.15  |   |                                |   | 0.16  |      |  |   | 0.45  |   |  |   | 0.46  |  
|Realized gain (loss) on sale of investments and other(B)                    |  |                                 | 0.01  |   |                                |   | (0.01 | )    |  |   | 0.04  |   |  |   | 0.23  |  
|Net unrealized appreciation (depreciation) of investments and other(B)      |  |                                 | 0.02  |   |                                |   | 0.10  |      |  |   | (0.43 | ) |  |   | 0.32  |  
|                                                                            |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|Total from investment operations(B)                                         |  |                                 | 0.18  |   |                                |   | 0.25  |      |  |   | 0.06  |   |  |   | 1.01  |  
|Cash distributions from net investment income(B)(C)                         |  |                                 | (0.15 | ) |                                |   | (0.15 | )    |  |   | (0.45 | ) |  |   | (0.43 | )
|Net dilutive effect of issuance of common stock, net of expenses, below NAV |  |                                 | (0.31 | ) |                                |   |      |      |  |   | (0.34 | ) |  |   |      |  
|                                                                            |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  
|NAV at end of period(A)                                                     |  | $                               | 8.65  |   |                                | $ | 9.58  |      |  | $ | 8.65  |   |  | $ | 9.58  |  
|                                                                            |  |                                 |       |   |                                |   |       |      |  |   |       |   |  |   |       |  



28



---

|                                                        |  |                                |            |    |                               |   |            |      |  |   |            |    |  |   |            |   
|------------------------------------------------------- |  | ------------------------------ | ---------- | -- | ----------------------------- | - | ---------- | ---- |  | - | ---------- | -- |  | - | ---------- | --
|                                                        |  | Three Months EndedDecember 31, |            |    | Nine Months EndedDecember 31, |  
|                                                        |  | 2012                           |            |    | 2011                          |   |            | 2012 |  |   | 2011       |   
|Market value at beginning of period                     |  | $                              | 7.84       |    |                               | $ | 6.76       |      |  | $ | 7.57       |    |  | $ | 7.79       |   
|Market value at end of period                           |  |                                | 6.96       |    |                               |   | 7.27       |      |  |   | 6.96       |    |  |   | 7.27       |   
|Total return(D)                                         |  |                                | (9.34      | )% |                               |   | 9.73       | %    |  |   | (2.27      | )% |  |   | (0.91      | )%
|Shares outstanding at end of period                     |  |                                | 26,475,958 |    |                               |   | 22,080,133 |      |  |   | 26,475,958 |    |  |   | 22,080,133 |   
|                                                        |  |                                |            |   
|Statement of Assets and Liabilities Data:               |  |                                |            |    |                               |   |            |      |  |   |            |    |  |   |            |   
|Net assets at end of period                             |  | $                              | 229,070    |    |                               | $ | 211,601    |      |  | $ | 229,070    |    |  | $ | 211,601    |   
|Average net assets(E)                                   |  |                                | 227,740    |    |                               |   | 208,883    |      |  |   | 210,927    |    |  |   | 203,103    |   
|                                                        |  |                                |            |   
|Senior Securities Data(F):                              |  |                                |            |    |                               |   |            |      |  |   |            |    |  |   |            |   
|Total borrowings, at cost                               |  | $                              | 74,012     |    |                               | $ | 105,301    |      |  | $ | 74,012     |    |  | $ | 105,301    |   
|Mandatorily redeemable preferred stock                  |  |                                | 40,000     |    |                               |   |           |      |  |   | 40,000     |    |  |   |           |   
|Asset coverage ratio(G)                                 |  |                                | 292        | %  |                               |   | 288        | %    |  |   | 292        | %  |  |   | 288        | % 
|Average coverage per unit(H)                            |  | $                              | 2,922      |    |                               | $ | 2,879      |      |  | $ | 2,922      |    |  | $ | 2,879      |   
|                                                        |  |                                |            |   
|Ratios/Supplemental Data:                               |  |                                |            |    |                               |   |            |      |  |   |            |    |  |   |            |   
|Ratio of expenses to average net assets(I)(J)           |  |                                | 6.54       | %  |                               |   | 3.97       | %    |  |   | 6.71       | %  |  |   | 4.13       | % 
|Ratio of net expenses to average net assets(I)(K)       |  |                                | 5.68       |    |                               |   | 3.31       |      |  |   | 5.96       |    |  |   | 3.42       |   
|Ratio of net investment income to average net assets(I) |  |                                | 6.94       |    |                               |   | 6.59       |      |  |   | 6.73       |    |  |   | 6.73       |   



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

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

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

|(D) | Total return equals the change in the market value of our common stock from the beginning of the period, taking into account dividends reinvested in
accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common
stockholders, please refer to Note 10Distributions to Common Stockholders.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(F) | The 1940 Act currently permits BDCs to issue senior securities representing indebtedness and senior securities that are stock, to which we refer as
senior securities.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

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

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

NOTE 13. SUBSEQUENT EVENTS

Short-Term Loan

On December 27, 2012, we purchased $50.0 million of T-Bills through
Jefferies. The T-Bills were purchased on margin using $5.5 million in cash and the proceeds from a $44.5 million short-term loan from Jefferies with an effective annual interest rate of approximately 1.44%. On January 3, 2013, when the T-Bills
matured, we repaid the $44.5 million loan from Jefferies and received the $5.5 million margin payment sent to Jefferies to complete the transaction.

Distributions

On January 8, 2013, our Board of Directors declared the following
monthly cash distributions to common and preferred stockholders:



|                  |  |                        |  |                              |      |  |                                      |   |           | 
|----------------- |  | ---------------------- |  | ---------------------------- | ---- |  | ------------------------------------ | - | --------- | 
|Record Date       |  | Payment Date           |  | Distribution perCommon
Share |      |  | Distribution per TermPreferred Share |  
|January 18, 2013  |  | January 31, 2013       |  | $                            | 0.05 |  |                                      | $ | 0.1484375 | 
|February 15, 2013 |  | February 28, 2013      |  |                              | 0.05 |  |                                      |   | 0.1484375 | 
|March 15, 2013    |  | March 28, 2013         |  |                              | 0.05 |  |                                      |   | 0.1484375 | 
|                  |  |                        |  |                              |      |  |                                      |   |           | 
|                  |  | Total for the Quarter: |  | $                            | 0.15 |  |                                      | $ | 0.4453125 | 
|                  |  |                        |  |                              |      |  |                                      |   |           | 



29



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

All statements contained herein, other than historical facts, may constitute forward-looking statements. These statements may relate to, among other things, future events or our future
performance or financial condition. In some cases, you can identify forward-looking statements by terminology such as estimate, may, might, believe, will, provided,
anticipate, future, could, growth, plan, intend, expect, should, would, if, seek, possible,
potential, likely or the negative of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of
activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. 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, 2012.

OVERVIEW

General

We were incorporated under the General Corporation Law of the State of Delaware on February 18, 2005. We were established for the purpose of
investing in debt and equity securities of established private businesses in the United States (U.S.). Debt investments primarily come in the form of three types of loans, senior term loans: senior subordinated loans and junior
subordinated debt. Equity investments take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. To a much lesser extent, we also invest in senior and
subordinated syndicated loans. Our investment objectives are (a) to achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make
principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and (b) to provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity
securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. We aim to maintain a portfolio consisting of approximately 80% debt investment and 20% equity investment, at cost.

We focus on investing in small and medium-sized private U.S. businesses that meet certain criteria, including some but not all of the
following: the potential for growth in cash flow, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the borrower, profitable operations based on the borrowers cash flow, reasonable
capitalization of the borrower (usually by leveraged buyout funds or venture capital funds) and the potential to realize appreciation and gain liquidity in our equity position, if any. We anticipate that liquidity in our equity position will be
achieved through a merger or acquisition of the borrower, a public offering of the borrowers stock or by exercising our right to require the borrower to repurchase our warrants, though there can be no assurance that we will always have these
rights. We lend to borrowers that need funds to finance growth, restructure their balance sheets or effect a change of control. We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the
opportunity. If we are participating in an investment with one or more co-investors, our investment is likely to be smaller than if we were investing alone.

Business Environment

The strength of the global economy, and the U.S. economy in
particular, continues to be uncertain and volatile, and we remain cautious about a long-term economic recovery. The recession in general, and the disruptions in the capital markets in particular, have impacted our liquidity options and increased the
cost of debt and equity capital. Many of our portfolio companies, as well as those that we evaluate for possible investments, are impacted by these economic conditions. If these conditions persist, it may affect their ability to repay our loans or
engage in a liquidity event, such as a sale, recapitalization or initial public offering.

Capital Raising Efforts

Despite the challenges in these uncertain economic times, over the past year, we have been able to complete an extension under our line of credit (our
Credit Facility), a preferred stock public offering and a common stock public offering. In October 2012, we extended the maturity date on our Credit Facility an additional year to 2015. In March 2012, we issued 1.6 million shares of
7.125% Series A Cumulative Term Preferred Stock (our Term Preferred Stock) for gross proceeds of $40.0 million. During the three months ended December 31, 2012, we issued 4.4 million shares of common stock for gross proceeds of
$33.0 million. We discuss each of the foregoing in detail below under Recent Developments.



30



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Despite our public offering of common stock during the three months ended December 31, 2012, market
conditions continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of equity. On January 25, 2013, the closing market price of our common stock was $7.34, which represented a
14.1% discount to our December 31, 2012, net asset value (NAV) per share of $8.65. When our stock trades below NAV, our ability to issue equity is constrained by provisions of the Investment Company Act of 1940 (the 1940
Act), which generally prohibits the issuance and sale of our common stock at an issuance price below NAV per share without stockholder approval other than through sales to our then-existing stockholders pursuant to a rights offering.

At our annual meeting of stockholders held on August 9, 2012, our stockholders approved a proposal which authorizes us to sell shares of
our common stock at a price below our then current NAV per share, subject to certain limitations, including that the number of shares issued and sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately
prior to each such sale, provided that our Board of Directors makes certain determinations prior to any such sale. This proposal is in effect for one year from the date of stockholder approval. With our Board of Directors approval, we issued
shares of our common stock in October and November 2012 at a price per share below the then current NAV per share. The resulting proceeds, in part, will allow us to grow the portfolio by making new investments, generate additional income through
these new investments, provide us additional equity capital to help ensure continued compliance with regulatory tests and allow us to increase our debt capital while still complying with our applicable debt to equity ratios. At our next annual
meeting of stockholders, scheduled to take place in August 2013, we expect to ask our stockholders to vote in favor of this proposal again so that it may be in effect for another year.

New Investments

While conditions remain challenging, we are seeing an increase in the
number of new investment opportunities consistent with our investing strategy of providing a combination of debt and equity in support of management and sponsor-led buyouts of small and medium-sized companies in the U.S. These opportunities and the
aforementioned capital raising efforts have allowed us to invest approximately $183.7 million into 10 new proprietary debt and equity deals since October 2010. During the three months ended December 31, 2012, we invested $16.5 million in
Frontier Packaging, Inc. (Frontier).

Each of these new investments, as well as the majority of our debt securities in our
portfolio has a success fee component, which enhances the yield on our debt investment. Unlike paid in kind (PIK) income, we do not recognize the fee into income until it is received in cash. As a result, as of December 31, 2012, we
have an off-balance sheet success fee receivable of $12.3 million, or approximately $0.47 per common share. Due to their contingent nature, there are no guarantees that we will be able to collect all of these success fees or know the timing of such
collections.

Regulatory Compliance

Due to the limited number of investments in our portfolio, our current asset composition has affected our ability to satisfy certain elements of the Codes rules for maintenance of our RIC
status. To maintain our status as a RIC, in addition to other requirements, as of the close of each quarter of our taxable year, we must meet the asset diversification test, which requires that at least 50% of the value of our assets consist of
cash, cash items, U.S. government securities or certain other qualified securities (the 50% threshold). During the quarter ended December 31, 2012, we again fell below the 50% threshold.

Failure to meet the 50% threshold alone will not result in our loss of RIC status. In circumstances where the failure to meet the 50% threshold is the
result of fluctuations in the value of our assets, including as a result of the sale of assets, we will still be deemed to have satisfied the 50% threshold and, therefore, maintain our RIC status, provided that we have not made any new
investments, including additional investments in our existing portfolio companies (such as advances under outstanding lines of credit), since the time that we fell below the 50% threshold. At December 31, 2012, we satisfied the 50% threshold
primarily through the purchase of short-term qualified securities, which was funded through a short-term loan agreement. Subsequent to the December 31, 2012, measurement date, the short-term qualified securities matured and we repaid the
short-term loan. See Recent DevelopmentsShort-Term Loan for more information regarding this transaction. As of the date of this filing, we are once again below the 50% threshold.

Thus, while we currently qualify as a RIC despite our recent inability to continuously meet the 50% threshold and potential inability to do so in the
future, if we make any new or additional investments before regaining compliance with the asset diversification test, our RIC status could be threatened. If we make a new or additional investment and fail to regain compliance with the 50% threshold
on the next quarterly measurement date following such investment, we will be in non-compliance with the RIC rules and will have thirty days to cure our failure to meet the 50% threshold to avoid the loss of our RIC status. Potential
cures for failure of the asset diversification test include raising additional equity or debt capital, or changing the composition of our assets, which could include full or partial divestitures of investments, such that we would once again exceed
the 50% threshold on a consistent basis.

Until the composition of our assets satisfies the required 50% threshold on a consistent basis, we
will continue to seek to employ similar purchases of qualified securities using short-term loans that would allow us to satisfy the 50% threshold, thereby allowing us to make additional investments. There can be no assurance, however, that we will
be able to enter into such a transaction on



31



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reasonable terms, if at all. We also continue to explore a number of other strategies, including changing the composition of our assets, which could include full or partial divestitures of
investments, and raising additional equity or debt capital, such that we would once again exceed the 50% threshold on a consistent basis. Our ability to implement any of these strategies will be subject to market conditions and a number of risks and
uncertainties that are, in part, beyond our control.

Our ability to seek external debt financing, to the extent that it is available under
current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have an asset coverage ratio (as defined in Section 18(h) of the 1940 Act), of at least 200% on our senior securities
representing indebtedness and our senior securities that are stock, which we refer to collectively as senior securities. As of December 31, 2012, our asset coverage ratio was 292%. The ratio is impacted, in part, by our need to
obtain a short-term loan at quarter end to satisfy the 50% threshold for our RIC status. Between the quarter end measurement dates, when we do not have a short-term loan outstanding, our leverage and asset coverage ratio improve. However, until the
composition of our assets is above the required 50% threshold on a consistent basis, we will have to continue to obtain short-term loans on a quarterly basis. This strategy, while allowing us to satisfy the 50% threshold for our RIC status, limits
our ability to use increased debt capital to make new investments, due to our asset coverage ratio limitations under the 1940 Act. Our common stock offering during the three months ended December 31, 2012, was completed, in part, to provide us
additional equity capital to help ensure continued compliance with the 200% asset coverage ratio.

Investment Highlights

During the nine months ended December 31, 2012, we disbursed $68.0 million in new debt and equity investments and extended $12.6 million of
investments to existing portfolio companies through revolver draws or additions to term notes. From our initial public offering in June 2005 through December 31, 2012, we have made 192 investments in 98 companies for a total of
approximately $797.1 million, before giving effect to principal repayments on investments and divestitures.

Investment Activity

During the nine months ended December 31, 2012, the following significant transaction occurred:



| |  |  | In May 2012, we invested $9.5 million in a new Affiliate investment, Packerland Whey Products, Inc. (Packerland), through a combination of
debt and equity. Packerland is a processor of raw fluid whey, specializing in the production of protein supplements for dairy and beef cattle. In December 2012, our $7.0 million debt investment was paid off at par.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In July 2012, we invested $21.3 million in a new Control investment, Drew Foam Companies, Inc. (Drew Foam), through a combination of debt
and equity. Drew Foam is an expanded polystyrene foam molder and fabricator for a variety of applications in construction and packaging. In September 2012, $4.0 million of the debt and the line of credit was refinanced with a third-party. In
December 2012, $1.8 million of our equity investment was sold to a third-party at cost.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In July 2012, we invested $22.5 million in a new Control investment, Ginsey Holdings, Inc. (Ginsey), through a combination of debt and
equity. Ginsey designs and markets a broad line of branded juvenile and adult bath products. In August 2012, we participated out $5.0 million of the debt to a third-party.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2012, we restructured our investment in Tread Corp. (Tread), converting $3.0 million of senior subordinated debt into preferred
and common shares of Tread in a non-cash transaction.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2012, we invested $16.5 million in a new Control investment, Frontier, through a combination of debt and equity. Frontier is a supplier of
a range of time sensitive packaging materials to the Alaskan seafood market, adding value through its expertise in product consolidation and logistics.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Developments

Common Stock Offering

On October 5, 2012, we completed a public offering of 4.0 million shares of our common stock at a public offering price of $7.50 per share,
which was below our then current NAV per share. Gross proceeds totaled $30.0 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $28.3 million, which was used to repay borrowings under our Credit
Facility. In connection with the offering, the underwriters exercised their option to purchase an additional 395,825 shares at the public offering price to cover over-allotments, which resulted in gross proceeds of $3.0 million and net proceeds,
after deducting underwriting discounts, of $2.8 million.

Short-Term Loan

For each quarter end since December 31, 2009 (the measurement dates), we satisfied the 50% threshold to maintain our status as a RIC, in part, through the purchase of short-term qualified
securities, which were funded primarily through a short-term loan agreement. Subsequent to each of the measurement dates, the short-term qualified securities matured, and we repaid the short-term loan, at which time we again fell below the 50%
threshold.



32



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For the December 31, 2012 measurement date, we purchased $50.0 million of short-term United States
Treasury Bills (T-Bills) through Jefferies & Company, Inc. (Jefferies) on December 27, 2012. The T-Bills were purchased on margin using $5.5 million in cash and the proceeds from a $44.5 million short-term loan
from Jefferies with an effective annual interest rate of approximately 1.44%. On January 3, 2013, when the T-Bills matured, we repaid the $44.5 million loan from Jefferies and received the $5.5 million margin payment sent to Jefferies to
complete the transaction.

Credit Facility Extension

On October 5, 2012, we, through Business Investment, entered into an amendment (the Amendment) to our revolving line of credit (our Credit Facility), which extended the
maturity date on our Credit Facility one year. As a result of the Amendment, our Credit Facility is now scheduled to mature on October 25, 2015 (the Extended Maturity Date) and, if not renewed or extended by the Extended Maturity
Date, all principal and interest will be due and payable on or before October 25, 2016 (one year after the Extended Maturity Date). There remains a one-year extension option to be agreed upon by all parties, which may be exercised on or before
October 26, 2013. All other terms of our Credit Facility remained the same.

Term Preferred Stock Offering

On March 6, 2012, we completed an offering of 1.4 million shares of Term Preferred Stock at a public offering price of $25.00 per share under
our previous shelf registration statement on Form N-2 (File No. 333-160720). Net proceeds of the offering, after deducting underwriting discounts and offering expenses borne by us, were approximately $33.2 million, a portion of which was used
to repay borrowings under our Credit Facility, with the remaining proceeds being held to make additional investments and for general corporate purposes. On March 13, 2012, the underwriters purchased an additional 0.2 million of our Term
Preferred Stock to cover over-allotments, for which we received net proceeds, after deducting underwriting discounts, of $4.8 million.

Co-Investment Order

In an order dated
July 26, 2012, the U.S. Securities and Exchange Commission (the SEC) granted us the relief sought in the exemptive application we had previously filed with the SEC that expands our ability to co-invest with certain affiliates by
permitting us, under certain circumstances, to co-invest with Gladstone Capital Corporation and any future business development company or closed-end management investment company that is advised by our investment adviser, Gladstone Management
Corporation, (our Adviser) (or sub-advised by our Adviser if it controls the fund) or any combination of the foregoing.

Modification to Investment Objectives and Strategies

On September 21, 2012, our Board of Directors approved limited revisions to our investment objectives and strategies, which went into effect on January 1, 2013. All of our current portfolio
investments fit within the scope of our revised objectives and strategies, and no changes will need to be made to the current portfolio as a result of the revision.

Departure of Executive Officer and Director

On November 27, 2012, George Stelljes III
informed the Company that he intended to resign as chief investment officer and co-vice chairman of the Board of Directors of the Company, although no effective date for his resignation has been determined. He will continue to perform his duties for
the Company until his resignation is effective.



33



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RESULTS OF OPERATIONS

Comparison of the Three months ended December 31, 2012, to the Three months ended December 31, 2011



|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|--------------------------------------------------------- |  | --------------------------------------- | ----- | - | ---- | - | ----- | -------- |  | - | -------- | - |  |  | ----- | -
|                                                          |  | For the Three Months Ended December 31, |      
|                                                          |  | 2012                                    |       |   | 2011 |   |       | $ Change |  |   | % Change |  
|INVESTMENT INCOME                                         |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Interest income                                           |  | $                                       | 6,482 |   |      | $ | 5,085 |          |  | $ | 1,397    |   |  |  | 27.5  | %
|Other income                                              |  |                                         | 702   |   |      |   | 84    |          |  |   | 618      |   |  |  | 735.7 |  
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Total investment income                                   |  |                                         | 7,184 |   |      |   | 5,169 |          |  |   | 2,015    |   |  |  | 39.0  |  
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|EXPENSES                                                  |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Base management fee                                       |  |                                         | 1,440 |   |      |   | 1,140 |          |  |   | 300      |   |  |  | 26.3  |  
|Incentive fee                                             |  |                                         | 589   |   |      |   |      |          |  |   | 589      |   |  |  | NM    |  
|Administration fee                                        |  |                                         | 191   |   |      |   | 182   |          |  |   | 9        |   |  |  | 4.9   |  
|Interest and dividend expense                             |  |                                         | 1,001 |   |      |   | 185   |          |  |   | 816      |   |  |  | 441.1 |  
|Amortization of deferred financing costs                  |  |                                         | 194   |   |      |   | 106   |          |  |   | 88       |   |  |  | 83.0  |  
|Other                                                     |  |                                         | 306   |   |      |   | 459   |          |  |   | (153     | ) |  |  | (33.3 | )
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Expenses before credits from Adviser                      |  |                                         | 3,721 |   |      |   | 2,072 |          |  |   | 1,649    |   |  |  | 79.6  |  
|Credits to fees                                           |  |                                         | (489  | ) |      |   | (345  | )        |  |   | (144     | ) |  |  | 41.7  |  
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Total expenses net of credits to fees                     |  |                                         | 3,232 |   |      |   | 1,727 |          |  |   | 1,505    |   |  |  | 87.1  |  
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|NET INVESTMENT INCOME                                     |  |                                         | 3,952 |   |      |   | 3,442 |          |  |   | 510      |   |  |  | 14.8  |  
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|REALIZED AND UNREALIZED GAIN (LOSS):                      |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Net realized gain (loss) on investments                   |  |                                         | 96    |   |      |   | (105  | )        |  |   | 201      |   |  |  | NM    |  
|Net unrealized appreciation of investments                |  |                                         | 46    |   |      |   | 1,769 |          |  |   | (1,723   | ) |  |  | (97.4 | )
|Net unrealized appreciation of other                      |  |                                         | 605   |   |      |   | 389   |          |  |   | 216      |   |  |  | 55.5  |  
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|Net realized and unrealized gain on investments and other |  |                                         | 747   |   |      |   | 2,053 |          |  |   | (1,306   | ) |  |  | (63.6 | )
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  
|NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS      |  | $                                       | 4,699 |   |      | $ | 5,495 |          |  | $ | (796     | ) |  |  | (14.5 | )
|                                                          |  |                                         |       |   |      |   |       |          |  |   |          |   |  |  |       |  



|NM | = Not Meaningful
|-- | ----------------

Investment Income

Total investment income increased by 39.0% for the three months ended December 31, 2012, as compared to the prior year period. This
increase was primarily due to an overall increase in interest income in the three months ended December 31, 2012, as a result of an increase in the size of our loan portfolio during the three months ended December 31, 2012, as well as an
increase in other income, which primarily consisted of dividends received from Acme Cryogenics, Inc. (Acme).

Interest income from
our investments in debt securities increased 27.5% for the three months ended December 31, 2012, as compared to the prior year period. The level of interest income from investments is directly related to the principal balance of our
interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield. The weighted average principal balance of our interest-bearing investment portfolio during the three months ended December 31, 2012,
was approximately $202.7 million, compared to approximately $161.4 million for the prior year period. This increase was primarily due to originating investments in Ginsey, Packerland, Drew Foam and Frontier partially offset by the restructuring of
Tread. At December 31, 2012, loans to two portfolio companies, ASH Holdings Corp. (ASH) and Tread, were on non-accrual, with an aggregate weighted average principal balance of $23.1 million during the three months ended
December 31, 2012. At December 31, 2011, two loans, ASH and Country Club Enterprises (CCE), were on non-accrual, with an aggregate weighted average principal balance of $14.8 million. CCE went onto accrual and Tread went onto
non-accrual during the three months ended December 31, 2012. The weighted average yield on our interest-bearing investments for the three months ended December 31, 2012, excluding cash and cash equivalents and receipts recorded as other
income, was 12.7%, compared to 12.5% for the prior year period. The weighted average yield varies from period to period, based on the current stated interest rate on interest-bearing investments.



34



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



|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | ------------------------------------ |  | ----- | ---------------- |  | - | -------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2012 |         |  | Three months ended December 31, 2012 | 
|Portfolio Company                   |  | Fair Value              |         |  | % of Portfolio                       |  |       | InvestmentIncome |  |   | % of TotalInvestmentIncome | 
|SOG Specialty Knives and Tools, LLC |  | $                       | 30,365  |  |                                      |  | 11.1  | %                |  | $ | 670                        |  |  |  | 9.3   | %
|Acme Cryogenics, Inc.               |  |                         | 27,887  |  |                                      |  | 10.2  |                  |  |   | 1,104                      |  |  |  | 15.4  |  
|Venyu Solutions, Inc.               |  |                         | 23,976  |  |                                      |  | 8.8   |                  |  |   | 631                        |  |  |  | 8.8   |  
|Ginsey Holdings, Inc.               |  |                         | 23,235  |  |                                      |  | 8.5   |                  |  |   | 450                        |  |  |  | 6.3   |  
|SBS, Industries, LLC                |  |                         | 18,528  |  |                                      |  | 6.8   |                  |  |   | 406                        |  |  |  | 5.6   |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 123,991 |  |                                      |  | 45.4  |                  |  |   | 3,261                      |  |  |  | 45.4  |  
|Other portfolio companies           |  |                         | 149,269 |  |                                      |  | 54.6  |                  |  |   | 3,923                      |  |  |  | 54.6  |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  
|Total investment portfolio          |  | $                       | 273,260 |  |                                      |  | 100.0 | %                |  | $ | 7,184                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  



|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | ------------------------------------ |  | ----- | ---------------- |  | - | -------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2011 |         |  | Three Months Ended December 31, 2011 | 
|Company                             |  | Fair Value              |         |  | % of Portfolio                       |  |       | InvestmentIncome |  |   | % of TotalInvestmentIncome | 
|SOG Specialty Knives and Tools, LLC |  | $                       | 28,543  |  |                                      |  | 12.6  | %                |  | $ | 670                        |  |  |  | 13.0  | %
|Acme Cryogenics, Inc.               |  |                         | 26,662  |  |                                      |  | 11.7  |                  |  |   | 426                        |  |  |  | 8.2   |  
|Venyu Solutions, Inc.               |  |                         | 24,654  |  |                                      |  | 10.9  |                  |  |   | 631                        |  |  |  | 12.2  |  
|Channel Technologies Group, LLC(A)  |  |                         | 18,549  |  |                                      |  | 8.2   |                  |  |   | 15                         |  |  |  | 0.3   |  
|Mitchell Rubber Products, Inc.      |  |                         | 17,700  |  |                                      |  | 7.8   |                  |  |   | 450                        |  |  |  | 8.7   |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 116,108 |  |                                      |  | 51.2  |                  |  |   | 2,192                      |  |  |  | 42.4  |  
|Other portfolio companies           |  |                         | 110,663 |  |                                      |  | 48.8  |                  |  |   | 2,977                      |  |  |  | 57.6  |  
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  
|Total investment portfolio          |  | $                       | 226,771 |  |                                      |  | 100.0 | %                |  | $ | 5,169                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                                      |  |       |                  |  |   |                            |  |  |  |       |  



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

Other income increased 735.7% from the prior year period, primarily due to $0.7 million in cash dividends received on preferred shares of Acme during the three months ended December 31, 2012. No
success fee or dividend income was recorded during the quarter ended December 31, 2011.

Expenses

Total expenses, excluding any voluntary and irrevocable credits to the base management and incentive fees, increased for the three months ended
December 31, 2012, by 79.6%, as compared to the prior year period. The increase was primarily due to an increase in dividend expense on our Term Preferred Stock, on which we made our first distribution in March 2012, and an incentive fee of
$0.6 million that was earned during the three months ended December 31, 2012.

The base management fee increased for the three months
ended December 31, 2012, as compared to the prior year period, which is reflective of the increased size of our loan portfolio over the respective periods. An incentive fee was earned by the Adviser during the three months ended
December 31, 2012, because net investment income for the quarter was above the hurdle rate, primarily due to increased interest income from our larger investment portfolio. No incentive fee was earned in the prior year period.



35



---

The base management and incentive fees are computed quarterly, as described further in Note
4Related Party Transactionsof our accompanying Condensed Consolidated Financial Statements and are summarized in the following table:



|                                                                 |  |                                |         |   |      |   |         |  
|---------------------------------------------------------------- |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                                 |  | Three Months EndedDecember 31, |        
|                                                                 |  | 2012                           |         |   | 2011 |  
|Average total assets subject to base management fee(A)           |  | $                              | 288,000 |   |      | $ | 228,000 |  
|Multiplied by prorated annual base management fee of 2%          |  |                                | 0.5     | % |      |   | 0.5     | %
|                                                                 |  |                                |         |   |      |   |         |  
|Base management fee(B)                                           |  |                                | 1,440   |   |      |   | 1,140   |  
|Reduction for loan servicing fees                                |  |                                | (972    | ) |      |   | (811    | )
|                                                                 |  |                                |         |   |      |   |         |  
|Adjusted base management fee                                     |  | $                              | 468     |   |      | $ | 329     |  
|Credit for fees received by Adviser from the portfolio companies |  |                                | (268    | ) |      |   | (291    | )
|                                                                 |  |                                |         |   |      |   |         |  
|Net base management fee                                          |  | $                              | 200     |   |      | $ | 38      |  
|                                                                 |  |                                |         |   |      |   |         |  
|Incentive fee(B)                                                 |  |                                | 589     |   |      |   |        |  
|Credit from waiver issued by Advisers board of directors(C)     |  |                                | (221    | ) |      |   | (54     | )
|                                                                 |  |                                |         |   |      |   |         |  
|Net Incentive fee                                                |  | $                              | 368     |   |      | $ | (54     | )
|                                                                 |  |                                |         |   |      |   |         |  
|Total credits to fees:                                           |  |                                |         |   |      |   |         |  
|Credit for fees received by Adviser from the portfolio companies |  |                                | (268    | ) |      |   | (291    | )
|Credit from waiver issued by Advisers board of directors(C)     |  |                                | (221    | ) |      |   | (54     | )
|                                                                 |  |                                |         |   |      |   |         |  
|Credit to fees from Adviser(B)                                   |  | $                              | (489    | ) |      | $ | (345    | )
|                                                                 |  |                                |         |   |      |   |         |  



|(A) | 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 applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(C) | The credit to the incentive fee for the three months ended December 31, 2011, is due to a payment of the incentive fee during the three months
ended June 30, 2010, in relation to the dividend income recognized based on a best-efforts valuation of Neville Limited (Neville), the property received in connection with the A. Stucki Holding Corp. (A. Stucki) sale in
June 2010. This property was sold during November 2011, resulting in an exit at a lower amount than the dividend recognized during the three months ended June 30, 2010. The Adviser determined to retroactively apply the exit value to the
incentive fee calculation for the three months ended June 30, 2010, resulting in an additional credit of $54, which was recorded during the three months ended December 31, 2011.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest and dividend expense increased 441.1% for the three months ended December 31, 2012, as compared to the prior year period,primarily
due to $0.7 million of dividends we paid on our Term Preferred Stock during the three months ended December 31, 2012. We classify these dividends as dividend expense on our accompanyingCondensed Consolidated Statements of Operations.
There were no preferred stock dividends paid in the prior year period. The average balance outstanding on our Credit Facility during the three months ended December 31, 2012, was $11.9 million, as compared to $7.6 million in the prior year
period. The effective interest rate charged on our borrowings on our Credit Facility for the three months ended December 31, 2012, excluding the impact of deferred financing fees, was 6.1%, as compared to 9.2% in the prior year period.

Amortization of deferred financing costs increased $0.1 million, or 83.0%, during the three months ended December 31, 2012, as compared
to the prior year period, primarily due to the Term Preferred Stock offering costs being deferred and amortized, resulting in $0.1 million in amortization during the three months ended December 31, 2012. No such amortization was recorded in the
prior year period, as the Term Preferred Stock offering was not completed until March 2012.

Other expenses decreased $0.2 million, or 41.7%,
during the three months ended December 31, 2012, as compared to the prior year period, primarily due to bad debt expense in the prior year period of $0.1 million and due to the reversal of certain legal expenses in the current period of $0.1
million related to reimbursable deal expenses.

Realized and Unrealized Gain (Loss) on Investments

Realized Gain (Loss)

During the three
months ended December 31, 2012, we recorded a realized gain of $0.1 million relating to post-closing adjustments on previous investment exits. During the three months ended December 31, 2011, we sold Neville, the property received in
connection with our sale of A. Stucki in June 2010, for total proceeds of $0.3 million, which resulted in a realized loss of $0.3 million, partially offset by a net post-closing adjustment gain of $0.2 million to the A. Stucki sale.

Unrealized Appreciation (Depreciation)

During the three months ended December 31, 2012, we recorded net unrealized appreciation on investments in the aggregate amount of $0.



36



---

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three
months ended December 31, 2012, were as follows:



|                               |  |                           |  |                                      |    |  |                                      |   |        |                                                 |  |   |                |  |  |   |        |  
|------------------------------ |  | ------------------------- |  | ------------------------------------ | -- |  | ------------------------------------ | - | ------ | ----------------------------------------------- |  | - | -------------- |  |  | - | ------ | -
|                               |  |                           |  | Three months ended December 31, 2012 |   
|Portfolio Company              |  | InvestmentClassification  |  | RealizedGain (Loss)                  |    |  | UnrealizedAppreciation(Depreciation) |   |        | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) | 
|Galaxy Tool Holding Corp.      |  | Control                   |  | $                                    |   |  |                                      | $ | 4,635  |                                                 |  | $ |               |  |  | $ | 4,635  |  
|Mathey Investments, Inc.       |  | Control                   |  |                                      |   |  |                                      |   | 2,767  |                                                 |  |   |               |  |  |   | 2,767  |  
|Drew Foam Companies, Inc.      |  | Control                   |  |                                      |   |  |                                      |   | 1,923  |                                                 |  |   |               |  |  |   | 1,923  |  
|Country Club Enterprises, LLC  |  | Control                   |  |                                      |   |  |                                      |   | 1,736  |                                                 |  |   |               |  |  |   | 1,736  |  
|Acme Cryogenics, Inc.          |  | Control                   |  |                                      |   |  |                                      |   | 1,673  |                                                 |  |   |               |  |  |   | 1,673  |  
|Venyu Solutions, Inc.          |  | Control                   |  |                                      |   |  |                                      |   | 1,313  |                                                 |  |   |               |  |  |   | 1,313  |  
|Precision Southeast, Inc.      |  | Control                   |  |                                      |   |  |                                      |   | 1,103  |                                                 |  |   |               |  |  |   | 1,103  |  
|Ginsey Holdings, Inc.          |  | Control                   |  |                                      |   |  |                                      |   | 783    |                                                 |  |   |               |  |  |   | 783    |  
|SOG Specialty K&T, LLC         |  | Control                   |  |                                      |   |  |                                      |   | 634    |                                                 |  |   |               |  |  |   | 634    |  
|SBS, Industries, LLC           |  | Control                   |  |                                      |   |  |                                      |   | 301    |                                                 |  |   |               |  |  |   | 301    |  
|Packerland Whey Products, Inc. |  | Affiliate                 |  |                                      |   |  |                                      |   | (505   | )                                               |  |   |               |  |  |   | (505   | )
|Noble Logistics, Inc.          |  | Affiliate                 |  |                                      |   |  |                                      |   | (766   | )                                               |  |   |               |  |  |   | (766   | )
|B-Dry, LLC                     |  | Non-Control/Non-Affiliate |  |                                      |   |  |                                      |   | (1,263 | )                                               |  |   |               |  |  |   | (1,263 | )
|Mitchell Rubber Products, Inc. |  | Control                   |  |                                      |   |  |                                      |   | (1,390 | )                                               |  |   |               |  |  |   | (1,390 | )
|Danco Acquisition Corp.        |  | Control                   |  |                                      |   |  |                                      |   | (1,485 | )                                               |  |   |               |  |  |   | (1,485 | )
|Quench Holdings Corp.          |  | Affiliate                 |  |                                      |   |  |                                      |   | (1,633 | )                                               |  |   |               |  |  |   | (1,633 | )
|Tread Corp.                    |  | Control                   |  |                                      |   |  |                                      |   | (9,750 | )                                               |  |   |               |  |  |   | (9,750 | )
|Other, net (<$250 Net)         |  | Various                   |  |                                      | 96 |  |                                      |   | (30    | )                                               |  |   |               |  |  |   | 66     |  
|                               |  |                           |  |                                      |    |  |                                      |   |        |                                                 |  |   |                |  |  |   |        |  
|Total                          |  |                           |  | $                                    | 96 |  |                                      | $ | 46     |                                                 |  | $ |               |  |  | $ | 142    |  
|                               |  |                           |  |                                      |    |  |                                      |   |        |                                                 |  |   |                |  |  |   |        |  

The primary changes in our net unrealized appreciation for the three months ended December 31, 2012, were due to
increased equity valuations in several of our portfolio companies primarily due to increased portfolio company performance, partially offset by decreases in certain comparable multiples used to estimate the fair value of our investments, as well as
notable depreciation of our debt investments in Tread, primarily due to decreased portfolio company performance. We placed our debt investments in Tread on non-accrual during the three months ended December 31, 2012.

During the three months ended December 31, 2011, we recorded net unrealized appreciation on investments in the aggregate amount of $1.8 million. The
realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2011, were as follows:



|                               |  |                          |           |  |                                      |   |      |                                      |  |   |                                   |   |  |                |    |  |  |   |        |  
|------------------------------ |  | ------------------------ | --------- |  | ------------------------------------ | - | ---- | ------------------------------------ |  | - | --------------------------------- | - |  | -------------- | -- |  |  | - | ------ | -
|                               |  |                          |           |  | Three Months Ended December 31, 2011 |  
|Portfolio Company              |  | InvestmentClassification |           |  | RealizedGain(Loss)                   |   |      | UnrealizedAppreciation(Depreciation) |  |   | Reversal ofUnrealizedDepreciation |   |  | Net Gain(Loss) |   
|Tread Corp.                    |  |                          | Control   |  |                                      | $ |     |                                      |  | $ | 3,121                             |   |  | $              |   |  |  | $ | 3,121  |  
|SBS Industries, LLC            |  |                          | Control   |  |                                      |   |     |                                      |  |   | 2,110                             |   |  |                |   |  |  |   | 2,110  |  
|Mitchell Rubber Products, Inc. |  |                          | Control   |  |                                      |   |     |                                      |  |   | 1,082                             |   |  |                |   |  |  |   | 1,082  |  
|Precision Southeast, Inc.      |  |                          | Control   |  |                                      |   |     |                                      |  |   | 603                               |   |  |                |   |  |  |   | 603    |  
|Mathey Investments, Inc.       |  |                          | Control   |  |                                      |   |     |                                      |  |   | 413                               |   |  |                |   |  |  |   | 413    |  
|SOG Specialty Knives K&T, LLC  |  |                          | Control   |  |                                      |   |     |                                      |  |   | 395                               |   |  |                |   |  |  |   | 395    |  
|Acme Cryogenics, Inc.          |  |                          | Control   |  |                                      |   |     |                                      |  |   | 358                               |   |  |                |   |  |  |   | 358    |  
|Quench Holdings Corp.          |  |                          | Affiliate |  |                                      |   |     |                                      |  |   | 327                               |   |  |                |   |  |  |   | 327    |  
|Danco Acquisition Corp.        |  |                          | Affiliate |  |                                      |   |     |                                      |  |   | (485                              | ) |  |                |   |  |  |   | (485   | )
|Venyu Solutions, Inc.          |  |                          | Control   |  |                                      |   |     |                                      |  |   | (651                              | ) |  |                |   |  |  |   | (651   | )
|Country Club Enterprises, LLC  |  |                          | Control   |  |                                      |   |     |                                      |  |   | (1,600                            | ) |  |                |   |  |  |   | (1,600 | )
|Noble Logistics, Inc.          |  |                          | Affiliate |  |                                      |   |     |                                      |  |   | (1,627                            | ) |  |                |   |  |  |   | (1,627 | )
|Galaxy Tool Holding Corp.      |  |                          | Control   |  |                                      |   |     |                                      |  |   | (2,459                            | ) |  |                |   |  |  |   | (2,459 | )
|Other, net (<$250 Net)         |  |                          | Various   |  |                                      |   | (105 | )                                    |  |   | 91                                |   |  |                | 91 |  |  |   | 77     |  
|                               |  |                          |           |  |                                      |   |      |                                      |  |   |                                   |   |  |                |    |  |  |   |        |  
|Total                          |  |                          |           |  |                                      | $ | (105 | )                                    |  | $ | 1,678                             |   |  | $              | 91 |  |  | $ | 1,664  |  
|                               |  |                          |           |  |                                      |   |      |                                      |  |   |                                   |   |  |                |    |  |  |   |        |  

The primary changes in our net unrealized appreciation for the three months ended December 31, 2011, were notable
appreciation of our equity investments in Tread, SBS Industries, LLC (SBS), and Mitchell Rubber Products, Inc. (Mitchell), which were primarily due to increased performance. This appreciation was partially offset by increased
depreciation in Galaxy and Noble Logistics, Inc. (Noble), primarily due to decreased performance, as well as a full markdown in fair value on CCE, which had a fair value of $0 as of December 31, 2011, primarily due to decreased
performance. Excluding the impact of the aforementioned portfolio companies, the net unrealized appreciation of $1.1 million recognized on our portfolio investments was primarily due to an increase in certain comparable multiples used to estimate
the fair value of our investments, partially offset by decreases in the performance of some of our portfolio companies.



37



---

Over our entire investment portfolio, we recorded, in the aggregate, approximately $13.1 million of net
unrealized depreciation on our debt positions and $13.1 million of net unrealized appreciation on our equity holdings for the three months ended December 31, 2012. At December 31, 2012, the fair value of our investment portfolio was less
than our cost basis by approximately $50.3 million, as compared to $50.3 million at September 30, 2012, representing net unrealized appreciation of $0 for the three months ended December 31, 2012. We believe that our aggregate investment
portfolio was valued at a depreciated value due to the general instability of the loan markets and lingering effects of the recent recession on the performance of certain of our portfolio companies. Our entire portfolio was fair valued at 84.5% of
cost as of December 31, 2012. The unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders; however, it may be an indication of future realized losses, which could ultimately
reduce our income available for distribution.

Realized and Unrealized Gain and Loss on Other

Net Unrealized Appreciation on Borrowings

For the three months ended December 31, 2012 and 2011, we recorded $0.6 million and $0.4 million of net unrealized appreciation, respectively,
primarily due to decreased borrowings outstanding during both periods. Our Credit Facility was fair valued at $25.1 million and $29.3 million as of December 31, 2012 and 2011, respectively.



38



---

Comparison of the Nine Months Ended December 31, 2012, to the Nine Months Ended December 31,
2011



|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|--------------------------------------------------------- |  | ------------------------------ | ------ | - | ---- | - | ------ | -------- |  | - | -------- | - |  |  | ------- | -
|                                                          |  | Nine Months Ended December 31, |        |   |      |  
|                                                          |  | 2012                           |        |   | 2011 |   |        | $ Change |  |   | % Change |  
|INVESTMENT INCOME                                         |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Interest income                                           |  | $                              | 18,453 |   |      | $ | 14,188 |          |  | $ | 4,265    |   |  |  | 30.1    | %
|Other income                                              |  |                                | 1,609  |   |      |   | 1,278  |          |  |   | 331      |   |  |  | 25.9    |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Total investment income                                   |  |                                | 20,062 |   |      |   | 15,466 |          |  |   | 4,596    |   |  |  | 29.7    |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|EXPENSES                                                  |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Base management fee                                       |  |                                | 3,939  |   |      |   | 3,212  |          |  |   | 727      |   |  |  | 22.6    |  
|Incentive fee                                             |  |                                | 1,130  |   |      |   | 19     |          |  |   | 1,111    |   |  |  | 5,847.4 |  
|Administration fee                                        |  |                                | 564    |   |      |   | 468    |          |  |   | 96       |   |  |  | 20.5    |  
|Interest and dividend expense                             |  |                                | 3,002  |   |      |   | 550    |          |  |   | 2,452    |   |  |  | 445.8   |  
|Amortization of deferred financing fees                   |  |                                | 597    |   |      |   | 321    |          |  |   | 276      |   |  |  | 86.0    |  
|Other                                                     |  |                                | 1,378  |   |      |   | 1,715  |          |  |   | (337     | ) |  |  | (19.7   | )
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Expenses before credits from Adviser                      |  |                                | 10,610 |   |      |   | 6,285  |          |  |   | 4,325    |   |  |  | 68.8    |  
|Credits to fees                                           |  |                                | (1,189 | ) |      |   | (1,071 | )        |  |   | (118     | ) |  |  | 11.0    |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Total expenses net of credits to fee                      |  |                                | 9,421  |   |      |   | 5,214  |          |  |   | 4,207    |   |  |  | 80.7    |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|NET INVESTMENT INCOME                                     |  |                                | 10,641 |   |      |   | 10,252 |          |  |   | 389      |   |  |  | 3.8     |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|REALIZED AND UNREALIZED (LOSS) GAIN ON:                   |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Net realized gain on sale of investments                  |  |                                | 848    |   |      |   | 5,091  |          |  |   | (4,243   | ) |  |  | (83.3   | )
|Net realized loss on other                                |  |                                | (41    | ) |      |   | (40    | )        |  |   | (1       | ) |  |  | 2.5     |  
|Net unrealized (depreciation) appreciation on investments |  |                                | (9,555 | ) |      |   | 7,053  |          |  |   | (16,608  | ) |  |  | NM      |  
|Net unrealized (depreciation) appreciation on other       |  |                                | (563   | ) |      |   | 21     |          |  |   | (584     | ) |  |  | NM      |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|Net (loss) gain on investments and other                  |  |                                | (9,311 | ) |      |   | 12,125 |          |  |   | (21,436  | ) |  |  | NM      |  
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  
|NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS      |  | $                              | 1,330  |   |      | $ | 22,377 |          |  | $ | (21,047  | ) |  |  | (93.2   | )
|                                                          |  |                                |        |   |      |   |        |          |  |   |          |   |  |  |         |  



|NM | = Not Meaningful
|-- | ----------------

Investment Income

Total investment income increased by 29.7% for the nine months ended December 31, 2012, as compared to the prior year period. This
increase was primarily due to an overall increase in interest income in the nine months ended December 31, 2012, as a result of an increase in the size of our loan portfolio and holding higher-yielding debt investments during the nine months
ended December 31, 2012.

Interest income from our investments in debt securities increased 30.1% for the nine months ended
December 31, 2012, as compared to the prior year period. The level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the
weighted average yield. The weighted average principal balance of our interest-bearing investment portfolio during the nine months ended December 31, 2012, was approximately $194.9 million, compared to approximately $153.8 million for the prior
year period. This increase was due primarily to new investments in SOG, SBS, Channel Technologies, Packerland, Ginsey, Drew Foam and Frontier, partially offset by payoff of our debt investments in Quench and AMG and the restructuring of CCE and
Tread. At December 31, 2012, loans to two portfolio companies, ASH and Tread, were on non-accrual. During the three months ended December 31, 2012, CCE was placed back onto accrual, Tread was placed on non-accrual and ASH remained on
non-accrual. In aggregate, our non-accrual loans had a weighted average principal balance of $19.1 million and $14.2 million during the nine months ended December 31, 2012 and 2011, respectively.

The weighted average yield on our interest-bearing investments, excluding cash and cash equivalents, for the nine months ended December 31, 2012,
was 12.6%, compared to 12.3% for the prior year period. The weighted average yield varies from period to period, based on the current stated interest rate on interest-bearing investments. The increase in the weighted average yield for the nine
months ended December 31, 2012, is a result of the exits of lower interest-bearing debt investments, such as Quench and AMG, which had an aggregate, weighted-average effective interest rate of 9.4% at the time of their respective exits, and the
addition of higher-yielding debt investments in SOG, SBS, Channel Technologies, Packerland, Ginsey, Drew Foam and Frontier which had an aggregate, weighted average effective interest rate of 13.1% as of December 31, 2012.



39



---

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



|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  
|----------------------------------- |  | ----------------------- | ------- |  | ----------------------------------- |  | ----- | ---------------- |  | - | --------------------------- |  |  |  | ----- | -
|                                    |  | As of December 31, 2012 |         |  | Nine Months Ended December 31, 2012 | 
|Portfolio Company                   |  | Fair Value              |         |  | % of Portfolio                      |  |       | InvestmentIncome |  |   | % of TotalInvestment Income | 
|SOG Specialty Knives and Tools, LLC |  | $                       | 30,365  |  |                                     |  | 11.1  | %                |  | $ | 2,002                       |  |  |  | 10.0  | %
|Acme Cryogenics, Inc.               |  |                         | 27,887  |  |                                     |  | 10.2  |                  |  |   | 1,951                       |  |  |  | 9.7   |  
|Venyu Solutions, Inc.               |  |                         | 23,976  |  |                                     |  | 8.8   |                  |  |   | 1,885                       |  |  |  | 9.4   |  
|Ginsey Holdings, Inc.(A)            |  |                         | 23,235  |  |                                     |  | 8.5   |                  |  |   | 891                         |  |  |  | 4.4   |  
|SBS, Industries, LLC                |  |                         | 18,528  |  |                                     |  | 6.8   |                  |  |   | 1,214                       |  |  |  | 6.1   |  
|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 123,991 |  |                                     |  | 45.4  |                  |  |   | 7,943                       |  |  |  | 39.6  |  
|Other portfolio companies           |  |                         | 149,269 |  |                                     |  | 54.6  |                  |  |   | 12,119                      |  |  |  | 60.4  |  
|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  
|Total investment portfolio          |  | $                       | 273,260 |  |                                     |  | 100.0 | %                |  | $ | 20,062                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  
|                                    |  |                        
|                                    |  | As of December 31, 2011 |         |  | Nine Months Ended December 31, 2011 | 
|Company                             |  | Fair Value              |         |  | % of Portfolio                      |  |       | InvestmentIncome |  |   | % of TotalInvestment Income | 
|SOG Specialty Knives and Tools, LLC |  | $                       | 28,543  |  |                                     |  | 12.6  | %                |  | $ | 1,063                       |  |  |  | 6.8   | %
|Acme Cryogenics, Inc.               |  |                         | 26,662  |  |                                     |  | 11.7  |                  |  |   | 1,283                       |  |  |  | 8.3   |  
|Venyu Solutions, Inc.               |  |                         | 24,654  |  |                                     |  | 10.9  |                  |  |   | 1,885                       |  |  |  | 12.2  |  
|Channel Technologies Group, LLC (A) |  |                         | 18,549  |  |                                     |  | 8.2   |                  |  |   | 15                          |  |  |  | 0.1   |  
|Mitchell Rubber Products, Inc.      |  |                         | 17,700  |  |                                     |  | 7.8   |                  |  |   | 1,312                       |  |  |  | 8.5   |  
|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  
|Subtotalfive largest investments   |  |                         | 116,108 |  |                                     |  | 51.2  |                  |  |   | 5,558                       |  |  |  | 35.9  |  
|Other portfolio companies           |  |                         | 110,663 |  |                                     |  | 48.8  |                  |  |   | 9,908                       |  |  |  | 64.1  |  
|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  
|Total investment portfolio          |  | $                       | 226,771 |  |                                     |  | 100.0 | %                |  | $ | 15,466                      |  |  |  | 100.0 | %
|                                    |  |                         |         |  |                                     |  |       |                  |  |   |                             |  |  |  |       |  



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

Other income increased from the prior year period, primarily due to $0.7 million in cash dividends received on preferred shares of Acme and Matheys and Caverts elections to each prepay $0.4
million of success fees during the nine months ended December 31, 2012, partially offset by $0.7 million of cash dividends received on preferred shares of Cavert in connection with its recapitalization in April 2011, as well as Caverts
election to prepay $0.3 million of success fees during the prior year period.

Operating Expenses

Total operating expenses, excluding any voluntary and irrevocable credits to the base management and incentive fees, increased for the nine months ended
December 31, 2012, driven primarily by a 445.8% increase in interest and dividend expense and a substantial increase in the incentive fee, as compared to the prior year period.

The net base management fee increased for the nine months ended December 31, 2012, as compared to the prior year period, which is a result of the increase in the size of our investment portfolio. An
incentive fee was earned by the Adviser during the three months ended December 31, 2012, because net investment income for the quarter was above the hurdle rate, primarily due to increased interest income from our larger investment portfolio.



40



---

The base management and incentive fees are computed quarterly, as described further in Note 4 of our
accompanying Condensed Consolidated Financial Statements and are summarized in the following table:



|                                                                 |  |                               |         |   |      |   |         |  
|---------------------------------------------------------------- |  | ----------------------------- | ------- | - | ---- | - | ------- | -
|                                                                 |  | Nine Months EndedDecember 31, |        
|                                                                 |  | 2012                          |         |   | 2011 |  
|Average total assets subject to base management fee(A)           |  | $                             | 262,600 |   |      | $ | 214,133 |  
|Multiplied by prorated annual base management fee of 2%          |  |                               | 1.5     | % |      |   | 1.5     | %
|                                                                 |  |                               |         |   |      |   |         |  
|Base management fee(B)                                           |  |                               | 3,939   |   |      |   | 3,212   |  
|Reduction for loan servicing fees                                |  |                               | (2,789  | ) |      |   | (2,204  | )
|                                                                 |  |                               |         |   |      |   |         |  
|Adjusted base management fee                                     |  | $                             | 1,150   |   |      | $ | 1,008   |  
|Credit for fees received by Adviser from the portfolio companies |  |                               | (968    | ) |      |   | (1,017  | )
|                                                                 |  |                               |         |   |      |   |         |  
|Net base management fee                                          |  | $                             | 182     |   |      | $ | (9      | )
|                                                                 |  |                               |         |   |      |   |         |  
|Incentive fee(B)                                                 |  |                               | 1,130   |   |      |   | 19      |  
|Credit from waiver issued by Advisers board of directors(C)     |  |                               | (221    | ) |      |   | (54     | )
|                                                                 |  |                               |         |   |      |   |         |  
|Net Incentive fee                                                |  | $                             | 909     |   |      | $ | (35     | )
|                                                                 |  |                               |         |   |      |   |         |  
|Total credits to fees:                                           |  |                               |         |   |      |   |         |  
|Credit for fees received by Adviser from the portfolio companies |  |                               | (968    | ) |      |   | (1,017  | )
|Credit from waiver issued by Advisers board of directors(C)     |  |                               | (221    | ) |      |   | (54     | )
|                                                                 |  |                               |         |   |      |   |         |  
|Credit to fees from Adviser(B)                                   |  | $                             | (1,189  | ) |      | $ | (1,071  | )
|                                                                 |  |                               |         |   |      |   |         |  



|(A) | 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 applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(C) | The credit to the incentive fee for the nine months ended December 31, 2011, is due to a payment of the incentive fee during the three months
ended June 30, 2010, in relation to the dividend income recognized based on a best-efforts valuation of Neville, the property received in connection with the A. Stucki sale in June 2010. This property was sold during November 2011, resulting in
an exit at a lower amount than the dividend recognized during the three months ended June 30, 2010. The Adviser determined to retroactively apply the exit value to the incentive fee calculation for the three months ended June 30, 2010,
resulting in an additional credit of $54, which was recorded during the three months ended December 31, 2011.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Interest
and dividend expense increased for the nine months ended December 31, 2012, as compared to the prior year period, primarily due to $2.1 million of dividends we paid on our Term Preferred Stock during the nine months ended
December 31, 2012. We classify these dividends as dividend expense on our accompanyingCondensed Consolidated Statements of Operations. There were no preferred stock dividends paid in the prior year period. Additionally, we had increased
interest expense due to increased borrowings outstanding under our Credit Facility. The weighted average balance outstanding on our Credit Facility during the nine months ended December 31, 2012, was approximately $17.3 million, as compared to
$4.9 million during the prior year period. For the nine months ended December 31, 2012 and 2011, the effective interest rate charged on our borrowings, excluding the impact of deferred financing fees, was 5.3% and 14.4%, respectively.

Amortization of deferred financing costs increased $0.3 million, or 86.0%, during the nine months ended December 31, 2012, as compared
to the prior year period, primarily due to the Term Preferred Stock offering costs being deferred and amortized. No such amortization was recorded in the prior year period, as the Term Preferred Stock offering was not completed until March 2012.

Other expenses decreased $0.3 million, or 19.7%, during the nine months ended December 31, 2012, as compared to the prior year period,
primarily due to bad debt expense in the prior year period of $0.2 million and due to decreased shareholder expenses by $0.1 million when compared to the prior year period.

Realized and Unrealized Gain (Loss) on Investments

Realized Gain (Loss)

During the nine months ended December 31, 2012, we recorded a realized gain of $0.8 million relating to post-closing adjustments on our previous
investment exit of A. Stucki. In April 2011, we recapitalized our investment in Cavert, receiving $8.5 million in proceeds and realizing a gain of $5.5 million. Additionally, we recorded post-closing adjustments related to the A. Stucki exit in June
2010 and the Chase exit in December 2010, which resulted in a net aggregate loss of $0.3 million during the nine months ended December 31, 2011.



41



---

Unrealized Appreciation (Depreciation)

During the nine months ended December 31, 2012, we recorded net unrealized depreciation on investments in the aggregate amount of $9.6 million. The realized gains (losses) and unrealized appreciation
(depreciation) across our investments for the nine months ended December 31, 2012, were as follows:



|                                |  |                           |  |                                     |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  
|------------------------------- |  | ------------------------- |  | ----------------------------------- | --- | - | ------------------------------------ | - | ------- | ----------------------------------------------- |  | - | -------------- |  |  | - | ------- | -
|                                |  |                           |  | Nine Months Ended December 31, 2012 |    
|Portfolio Company               |  | Investment Classification |  | RealizedGain (Loss)                 |     |   | UnrealizedAppreciation(Depreciation) |   |         | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) | 
|Galaxy Tool Holding Corp.       |  | Control                   |  | $                                   |    |   |                                      | $ | 9,231   |                                                 |  | $ |               |  |  | $ | 9,231   |  
|Country Club Enterprises, LLC   |  | Control                   |  |                                     |    |   |                                      |   | 8,662   |                                                 |  |   |               |  |  |   | 8,662   |  
|Mathey Investments, Inc.        |  | Control                   |  |                                     |    |   |                                      |   | 3,774   |                                                 |  |   |               |  |  |   | 3,774   |  
|Precision Southeast, Inc.       |  | Control                   |  |                                     |    |   |                                      |   | 2,011   |                                                 |  |   |               |  |  |   | 2,011   |  
|Drew Foam Companies, Inc.       |  | Control                   |  |                                     |    |   |                                      |   | 1,923   |                                                 |  |   |               |  |  |   | 1,923   |  
|SBS, Industries, LLC            |  | Control                   |  |                                     |    |   |                                      |   | 1,524   |                                                 |  |   |               |  |  |   | 1,524   |  
|A. Stucki Holding Corp.         |  | Control                   |  |                                     | 860 |   |                                      |   |        |                                                 |  |   |               |  |  |   | 860     |  
|Ginsey Holdings, Inc.           |  | Control                   |  |                                     |    |   |                                      |   | 783     |                                                 |  |   |               |  |  |   | 783     |  
|Venyu Solutions, Inc.           |  | Control                   |  |                                     |    |   |                                      |   | 646     |                                                 |  |   |               |  |  |   | 646     |  
|SOG Specialty K&T, LLC          |  | Control                   |  |                                     |    |   |                                      |   | 269     |                                                 |  |   |               |  |  |   | 269     |  
|Acme Cryogenics, Inc.           |  | Control                   |  |                                     |    |   |                                      |   | (414    | )                                               |  |   |               |  |  |   | (414    | )
|ASH Holdings Corp.              |  | Control                   |  |                                     |    |   |                                      |   | (695    | )                                               |  |   |               |  |  |   | (695    | )
|Channel Technologies Group, LLC |  | Affiliate                 |  |                                     |    |   |                                      |   | (1,231  | )                                               |  |   |               |  |  |   | (1,231  | )
|Quench Holdings Corp.           |  | Affiliate                 |  |                                     |    |   |                                      |   | (1,667  | )                                               |  |   |               |  |  |   | (1,667  | )
|B-Dry, LLC                      |  | Non-Control/Non-Affiliate |  |                                     |    |   |                                      |   | (1,937  | )                                               |  |   |               |  |  |   | (1,937  | )
|Packerland Whey Products, Inc.  |  | Affiliate                 |  |                                     |    |   |                                      |   | (1,996  | )                                               |  |   |               |  |  |   | (1,996  | )
|Mitchell Rubber Products, Inc.  |  | Control                   |  |                                     |    |   |                                      |   | (2,491  | )                                               |  |   |               |  |  |   | (2,491  | )
|Noble Logistics, Inc.           |  | Affiliate                 |  |                                     |    |   |                                      |   | (5,653  | )                                               |  |   |               |  |  |   | (5,653  | )
|Danco Acquisition Corp.         |  | Control                   |  |                                     |    |   |                                      |   | (7,023  | )                                               |  |   |               |  |  |   | (7,023  | )
|Tread Corp.                     |  | Control                   |  |                                     |    |   |                                      |   | (15,491 | )                                               |  |   |               |  |  |   | (15,491 | )
|Other, net (<$250 Net)          |  | Various                   |  |                                     | (12 | ) |                                      |   | 220     |                                                 |  |   |               |  |  |   | 208     |  
|                                |  |                           |  |                                     |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  
|Total                           |  |                           |  | $                                   | 848 |   |                                      | $ | (9,555  | )                                               |  | $ |               |  |  | $ | (8,707  | )
|                                |  |                           |  |                                     |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  

The primary changes in our net unrealized depreciation for the nine months ended December 31, 2012, were due to
notable depreciation of our debt investments in Danco and in our debt and equity investments in Tread and Noble, primarily due to decreased portfolio company performance and, to a lesser extent, a decrease in certain comparable multiples used to
estimate the fair value of our investments. This depreciation was partially offset by increased appreciation in Galaxy, CCE and Mathey, primarily due to increased portfolio company performance.

During the nine months ended December 31, 2011, we recorded net unrealized appreciation on investments in the aggregate amount of $7.1 million,
which included the reversal of $6.0 million in aggregate unrealized appreciation, primarily related to the Cavert recapitalization. Excluding reversals, we had $13.1 million in net unrealized appreciation for the nine months ended December 31,
2011.



42



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The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the nine
months ended December 31, 2011 were as follows:



|                               |  |                           |  |                                     |       |   |                                      |   |        |                                                 |  |   |                |   |  |   |        |  
|------------------------------ |  | ------------------------- |  | ----------------------------------- | ----- | - | ------------------------------------ | - | ------ | ----------------------------------------------- |  | - | -------------- | - |  | - | ------ | -
|                               |  |                           |  | Nine Months Ended December 31, 2011 |      
|Portfolio Company              |  | Investment Classification |  | RealizedGain (Loss)                 |       |   | UnrealizedAppreciation(Depreciation) |   |        | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) |  
|Acme Cryogenics, Inc.          |  | Control                   |  | $                                   |      |   |                                      | $ | 7,171  |                                                 |  | $ |               |   |  | $ | 7,171  |  
|Tread Corp.                    |  | Control                   |  |                                     |      |   |                                      |   | 6,760  |                                                 |  |   |               |   |  |   | 6,760  |  
|SBS, Industries, LLC           |  | Control                   |  |                                     |      |   |                                      |   | 2,110  |                                                 |  |   |               |   |  |   | 2,110  |  
|Quench Holdings Corp.          |  | Affiliate                 |  |                                     |      |   |                                      |   | 1,888  |                                                 |  |   |               |   |  |   | 1,888  |  
|Mitchell Rubber Products, Inc. |  | Control                   |  |                                     |      |   |                                      |   | 1,322  |                                                 |  |   |               |   |  |   | 1,322  |  
|Galaxy Tool Holding Corp.      |  | Control                   |  |                                     |      |   |                                      |   | 1,008  |                                                 |  |   |               |   |  |   | 1,008  |  
|Survey Sampling, LLC           |  | Non-Control/Non-Affiliate |  |                                     | (1    | ) |                                      |   | 808    |                                                 |  |   | 1              |   |  |   | 808    |  
|Mathey Investments, Inc.       |  | Control                   |  |                                     |      |   |                                      |   | 471    |                                                 |  |   |               |   |  |   | 471    |  
|A. Stucki Holding Corp.        |  | Control                   |  |                                     | 412   |   |                                      |   |       |                                                 |  |   |               |   |  |   | 412    |  
|Noble Logistics                |  | Affiliate                 |  |                                     |      |   |                                      |   | 306    |                                                 |  |   | 95             |   |  |   | 401    |  
|SOG Specialty K&T Knives       |  | Control                   |  |                                     |      |   |                                      |   | 395    |                                                 |  |   |               |   |  |   | 395    |  
|Venyu Solutions, Inc.          |  | Control                   |  |                                     |      |   |                                      |   | (358   | )                                               |  |   |               |   |  |   | (358   | )
|ASH Holdings Corp.             |  | Control                   |  |                                     |      |   |                                      |   | (375   | )                                               |  |   |               |   |  |   | (375   | )
|Cavert II Holding Corp.        |  | Affiliate                 |  |                                     | 5,507 |   |                                      |   | 243    |                                                 |  |   | (6,194         | ) |  |   | (444   | )
|Chase II Holding Corp.         |  | Control                   |  |                                     | (563  | ) |                                      |   |       |                                                 |  |   |               |   |  |   | (563   | )
|Danco Acquisition Corp.        |  | Affiliate                 |  |                                     |      |   |                                      |   | (1,057 | )                                               |  |   |               |   |  |   | (1,057 | )
|Country Club Enterprises, LLC  |  | Control                   |  |                                     |      |   |                                      |   | (7,560 | )                                               |  |   |               |   |  |   | (7,560 | )
|Other, net (<$250 Net)         |  | Various                   |  |                                     | (264  | ) |                                      |   | (58    | )                                               |  |   | 77             |   |  |   | (245   | )
|                               |  |                           |  |                                     |       |   |                                      |   |        |                                                 |  |   |                |   |  |   |        |  
|Total                          |  |                           |  | $                                   | 5,091 |   |                                      | $ | 13,074 |                                                 |  | $ | (6,021         | ) |  | $ | 12,144 |  
|                               |  |                           |  |                                     |       |   |                                      |   |        |                                                 |  |   |                |   |  |   |        |  

The primary changes in our net unrealized appreciation for the nine months ended December 31, 2011, were notable
appreciation in our equity investments in Acme, Tread, SBS, Mitchell and Galaxy, primarily due to both increased performance and an increase in multiples, and appreciation of our debt investment to Quench, which was paid off at par during the three
months ended December 31, 2011. This appreciation was partially offset by increased depreciation in Danco Acquisition Corp. (Danco) and CCE, which was placed on non-accrual during the three months ended September 30, 2011, for
decreased performance and being past-due on its obligations to us, as well as the reversal of previously-recorded unrealized appreciation on the Cavert recapitalization. Excluding the impact of the aforementioned portfolio companies, the net
unrealized appreciation of $1.4 million recognized on our investments was primarily due to an increase in certain comparable multiples used to estimate the fair value of our investments, partially offset by decreases in the performance of some of
our portfolio companies.

Over our entire investment portfolio, we recorded, in the aggregate, approximately $8.6 million of net unrealized
appreciation and $18.2 million of net unrealized depreciation on our equity positions and debt positions, respectively, for the nine months ended December 31, 2012. At December 31, 2012, the fair value of our investment portfolio was less
than our cost basis by approximately $50.3 million, as compared to $40.7 million at March 31, 2012, representing net unrealized appreciation of $9.6 million for the period. We believe that our aggregate investment portfolio was valued at a
depreciated value due to the general instability of the loan markets and lingering effects of the recent recession on the performance of certain of our portfolio companies. Our entire portfolio was fair valued at 84.5% of cost as of
December 31, 2012. The unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders; however, it may be an indication of future realized losses, which could ultimately reduce our
income available for distribution.

Realized and Unrealized Loss on Other

Realized Loss on Interest Rate Caps

For the nine months ended December 31, 2012 and
2011, we recorded a net realized loss of $41 and 40, respectively, due to the expiration of an interest rate cap agreements in each period.

Net Unrealized (Depreciation) Appreciation on Borrowings

For the nine months ended December 31, 2012 and 2011, we recorded $0.6 million and $0, respectively, of net unrealized depreciation primarily due to increased borrowings outstanding and comparable
market rates decreasing during both periods. Our Credit Facility was fair valued at $25.1 million and $29.3 million as of December 31, 2012 and 2011, respectively.



43



---

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash used in
operating activities for the nine months ended December 31, 2012, was approximately $53.4 million, as compared to $48.9 million during the nine months ended December 31, 2011. This increase in cash used in operating activities was
primarily due to a $9.8 million increase in cash due from the custodian, which subsequently was received after quarter end, partially offset by greater net investment activity (sum of purchase of investments, principal repayments and proceeds from
sales) in the prior period year by $5.0 million. Our cash flows from operations generally come from cash collections of interest and dividend income from our portfolio companies, as well as cash proceeds received through repayments of loan
investments and sales of equity investments. These cash collections are primarily used to pay distributions to our stockholders, interest payments on our Credit Facility, dividend payments on our Term Preferred Stock, management fees to our Adviser,
and other entity-level expenses.

At December 31, 2012, we had equity investments in or loans to 21 private companies with an aggregate
cost basis of approximately $323.6 million. At December 31, 2011, we had investments in equity of, loans to or syndicated participations in 17 private companies with an aggregate cost basis of approximately $263.6 million. The following table
summarizes our total portfolio investment activity during the nine months ended December 31, 2012 and 2011:



|                                                       |  |                                |         |   |      |   |         |  
|------------------------------------------------------ |  | ------------------------------ | ------- | - | ---- | - | ------- | -
|                                                       |  | Nine Months Ended December 31, |        
|                                                       |  | 2012                           |         |   | 2011 |  
|Beginning investment portfolio, at fair value          |  | $                              | 225,652 |   |      | $ | 153,285 |  
|New investments                                        |  |                                | 68,004  |   |      |   | 76,895  |  
|Disbursements to existing portfolio companies          |  |                                | 12,635  |   |      |   | 9,432   |  
|Scheduled principal repayments                         |  |                                | (362    | ) |      |   | (820    | )
|Unscheduled principal repayments                       |  |                                | (20,751 | ) |      |   | (16,133 | )
|Proceeds from sales                                    |  |                                | (3,187  | ) |      |   | (8,032  | )
|Net realized gain                                      |  |                                | 848     |   |      |   | 5,091   |  
|Net unrealized (depreciation) appreciation             |  |                                | (9,555  | ) |      |   | 13,074  |  
|Reversal of net unrealized depreciation (appreciation) |  |                                |        |   |      |   | (6,021  | )
|Other cash activity, net                               |  |                                | (24     | ) |      |   |        |  
|                                                       |  |                                |         |   |      |   |         |  
|Ending investment portfolio, at fair value             |  | $                              | 273,260 |   |      | $ | 226,771 |  
|                                                       |  |                                |         |   |      |   |         |  

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal
year, assuming no voluntary prepayments, at December 31, 2012:



|                                                |  |                                                            |  |        |         |  
|----------------------------------------------- |  | ---------------------------------------------------------- |  | ------ | ------- | -
|                                                |  |                                                            |  | Amount |        
|For the remaining three months ending March 31: |  | 2013                                                       |  | $      | 29,479  |  
|For the fiscal year ending March 31:            |  | 2014                                                       |  |        | 36,380  |  
|                                                |  | 2015                                                       |  |        | 34,809  |  
|                                                |  | 2016                                                       |  |        | 27,925  |  
|                                                |  | 2017                                                       |  |        | 63,435  |  
|                                                |  | Thereafter                                                 |  |        | 36,462  |  
|                                                |  |                                                            |  |        |         |  
|                                                |  | Total contractual repayments                               |  | $      | 228,490 |  
|                                                |  | Investments in equity securities                           |  |        | 95,324  |  
|                                                |  | Adjustments to cost basis on debt securities               |  |        | (256    | )
|                                                |  |                                                            |  |        |         |  
|                                                |  | Total cost basis of investments held at December 31, 2012: |  | $      | 323,558 |  
|                                                |  |                                                            |  |        |         |  

Financing Activities

Net cash provided by financing activities for the nine months ended December 31, 2012, was approximately $18.2 million and consisted primarily of net proceeds from our common stock offering of $31.1,
partially offset by $10.6 million in distributions to common stockholders and $31.5 million in decreased short-term borrowings. Net cash provided by financing activities for the nine months ended December 31, 2011, was approximately $54.8
million, consisting primarily of net borrowings on the short-term loan and our Credit Facility in excess of repayments by approximately $65.3 million, partially offset by $9.6 million in distributions to stockholders.

Distributions

To qualify to be taxed as
a RIC and thus avoid corporate level tax on the income we distribute to our stockholders, we are required under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual
basis. In accordance with these requirements, we declared and paid monthly cash distributions of $0.05 per common share for each of the nine months from April 2012 to December 2012. In January 2013, our Board of Directors declared a monthly
distribution of $0.05 per common share for each of January, February and March 2013. We declared these distributions based on our estimates of net taxable income for the fiscal year.



44



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For the fiscal year ended March 31, 2012, which includes the nine months ended December 31, 2011,
our distributions to common stockholders totaled approximately $13.6 million. Distributions to common stockholders declared for the fiscal year ended March 31, 2012, were comprised 100% from ordinary income and none from a return of capital. At
year-end, we elected to treat $0.7 million of the first distribution paid after year-end as having been paid in the prior year, in accordance with Section 855(a) of the Code. The characterization of the common distributions declared and paid
for the fiscal year ending March 31, 2013 will be determined at year end and cannot be determined at this time. Additionally, the covenants in our Credit Facility restrict the amount of distributions that we can pay out to be no greater than
our net investment income.

We also declared and paid cash distributions of $0.12369792 per share of Term Preferred Stock for a prorated
portion of March and a monthly cash distribution of $0.1484375 per share of Term Preferred Stock for each of the nine months from April 2012 through December 2012. In January 2013, our Board of Directors also declared a monthly distribution of
$0.1484375 per preferred share for each of January, February and March 2013. In accordance with accounting principles generally accepted in the U.S. (GAAP), we treat these monthly distributions as an operating expense. For tax purposes,
these preferred distributions are deemed to be paid entirely out of ordinary income to preferred stockholders.

Equity

Registration Statement

We filed a
registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed a Pre-effective Amendment No. 1 to the registration statement on July 17, 2012 that the SEC declared effective on
July 26, 2012. The registration statement will permit us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and
warrants to purchase common stock, including through a combined offering of such securities.

Common Stock

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

Term Preferred Stock

Pursuant to our prior registration statement on Form N-2 (Registration No. 333-160720), in March 2012, we completed an offering of 1.6 million
shares of Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $40.0 million, and net proceeds, after deducting underwriting discounts and offering expenses borne by us were approximately $38.0 million, a
portion of which was used to repay borrowings under our Credit Facility, with the remaining proceeds being held to make additional investments and for general corporate purposes. We incurred $2.0 million in total offering costs related to the
offering, which have been recorded as an asset in accordance with GAAP and are being amortized over the redemption period ending February 28, 2017.

The Term Preferred Stock provides for a fixed dividend equal to 7.125% per year, payable monthly (which equates to approximately $2.9 million per year). We are required to redeem all of the
outstanding Term Preferred Stock on February 28, 2017, for cash at a redemption price equal to $25.00 per share plus an amount equal to accumulated but unpaid dividends, if any, to the date of redemption. The Term Preferred Stock has a
preference over our common stock with respect to dividends, whereby no distributions are payable on our common stock unless the stated dividends, including any accrued and unpaid dividends, on the Term Preferred Stock have been paid in full. In
addition, there are three other potential redemption triggers: 1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of the outstanding Term Preferred Stock; 2) if we fail to
maintain an asset coverage ratio of at least 200%, we are required to redeem a portion of the outstanding Term Preferred Stock or otherwise cure the ratio redemption trigger and 3) at our sole option, at any time on or after February 28, 2016,
we may redeem some or all of the Term Preferred Stock.

The Term Preferred Stock has been recorded as a liability in accordance with GAAP and,
as such, affects our asset coverage, exposing us to additional leverage risks. In addition, the Term Preferred Stock is not convertible into our common stock or any other security.



45



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Revolving Credit Facility

On October 26, 2011, through our wholly-owned subsidiary, Business Investment, we entered into a fourth amended and restated credit agreement increasing the commitment amount on our Credit Facility
from $50.0 million to $60.0 million. Our Credit Facility was arranged by Branch Banking and Trust Company (BB&T) and Key Equipment Finance Inc. (Keybank) as joint lead arrangers and committed lenders with BB&T also
serving as administrative agent. This replaced the prior revolving line of credit entered into by us, BB&T and Keybank on April 14, 2009, which provided a $50.0 million revolving line of credit and the renewal of such revolving line of
credit through a third amended and restated credit agreement on April 13, 2010. The third amended and restated credit agreement provided for a $50.0 million, two-year revolving line of credit, with advances under the line of credit generally
bearing interest at the 30-day LIBOR (subject to a minimum rate of 2.0%), plus 4.5% per annum, with a commitment fee of 0.50% per annum on undrawn amounts when advances outstanding were above 50.0% of the commitment and 1.0% on undrawn
amounts if the advances outstanding were below 50.0% of the commitment.

On October 5, 2012, we entered into an Amendment to our Credit
Facility, which extended the maturity date on our Credit Facility one year. As a result of the Amendment, our Credit Facility is now scheduled to mature on October 25, 2015, and, if not renewed or extended by the Extended Maturity Date, all
principal and interest will be due and payable on or before October 25, 2016 (one year after the Extended Maturity Date). There remains a one-year extension option to be agreed upon by all parties, which may be exercised on or before
October 26, 2013.

Subject to certain terms and conditions, our Credit Facility may be expanded to a total of $175 million through the
addition of other committed lenders to the facility. Advances under our Credit Facility will generally bear interest at 30-day LIBOR plus 3.75% per annum, with an unused fee of 0.50% on undrawn amounts. As of December 31, 2012, we had
$24.5 million in borrowings outstanding with approximately $32.3 million of availability under our Credit Facility.

Our Credit Facility
contains covenants that require Business Investment to, among other things, maintain its status as a separate legal entity; prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and
restrict material changes to our credit and collection policies without lenders consent. The facility also limits payments as distributions to the aggregate net investment income for each of the twelve-month periods ending March 31, 2013,
2014, 2015 and 2016. Business Investment is also subject to certain limitations on the type of loan investments it can apply toward availability credit in the borrowing base, including restrictions on geographic concentrations, sector
concentrations, loan size, dividend payout, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Investment to comply with other financial and operational covenants, which obligate Business
Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a performance
guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our Term Preferred Stock) of $155.0 million plus 50% of all equity and subordinated debt raised after October 26, 2011 (as of
December 31, 2012, this equates to $191.5 million), (ii) asset coverage with respect to senior securities representing indebtedness of at least 200%, in accordance with Section 18 of the 1940 Act and
(iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of December 31, 2012, and as defined in the performance guaranty of our Credit Facility, we had a minimum net worth of $269.1 million, an asset coverage ratio of
292% and an active status as a BDC and RIC. Our Credit Facility requires a minimum of 12 obligors in the borrowing base, and as of December 31, 2012, Business Investment had 16 obligors. As of December 31, 2012, we were in compliance with
all of our Credit Facility covenants.

In December 2011, we entered into a forward interest rate cap agreement, effective May 2012 and
expiring in October 2013, for a notional amount of $50.0 million that effectively limits the interest rate on a portion of the borrowings under the line of credit pursuant to the terms of our Credit Facility. We incurred a premium fee of $29 in
conjunction with this agreement.

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

Short-Term Loan

Similar to previous
quarter ends, to maintain our status as a RIC, we purchased $50.0 million of short-term United States Treasury Bills through Jefferies & Company, Inc. on December 27, 2012. The T-Bills were purchased on margin using $5.5 million in
cash and the proceeds from a $44.5 million short-term loan from Jefferies with an effective annual interest rate of approximately 1.44%. On January 3, 2013, when the T-Bills matured, we repaid the $44.5 million loan from Jefferies and received
the $5.5 million margin payment sent to Jefferies to complete the transaction.

Contractual Obligations and Off-Balance Sheet Arrangements

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



46



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In addition to the lines of credit to our portfolio companies, we have also extended certain guarantees on
behalf of some our portfolio companies, whereby we have guaranteed an aggregate of $3.5 million of obligations of ASH and CCE. As of December 31, 2012, we have not been required to make any payments on any of the guarantees and we consider the
credit risks to be remote.

We estimate the fair value of our unused line of credit commitments and guarantees as of December 31, 2012,
to be minimal; and therefore, they are not recorded on our accompanying Condensed Consolidated Statements of Assets and Liabilities.

The following table shows our contractual obligations as of December 31, 2012, at cost:



|                                                 |  |       |         |  |                 |   |        |          |  |   |          |  |  |                  |        |  |  |   |       | 
|------------------------------------------------ |  | ----- | ------- |  | --------------- | - | ------ | -------- |  | - | -------- |  |  | ---------------- | ------ |  |  | - | ----- | 
|Contractual
Obligations(A)                       |  | Total |         |  | Less than1 Year |   |        | 1-3Years |  |   | 4-5Years |  |  | More than5 Years |       
|Short-term loan(B)                               |  | $     | 44,512  |  |                 | $ | 44,512 |          |  | $ |         |  |  | $                |       |  |  | $ |      | 
|Credit Facility                                  |  |       | 24,500  |  |                 |   |       |          |  |   |         |  |  |                  | 24,500 |  |  |   |      | 
|Term Preferred Stock                             |  |       | 40,000  |  |                 |   |       |          |  |   |         |  |  |                  | 40,000 |  |  |   |      | 
|Secured borrowings                               |  |       | 5,000   |  |                 |   |       |          |  |   |         |  |  |                  |       |  |  |   | 5,000 | 
|Interest and dividend payments on obligations(C) |  |       | 18,096  |  |                 |   | 4,373  |          |  |   | 8,739    |  |  |                  | 4,981  |  |  |   | 3     | 
|                                                 |  |       |         |  |                 |   |        |          |  |   |          |  |  |                  |        |  |  |   |       | 
|Total                                            |  | $     | 132,108 |  |                 | $ | 48,885 |          |  | $ | 8,739    |  |  | $                | 69,481 |  |  | $ | 5,003 | 
|                                                 |  |       |         |  |                 |   |        |          |  |   |          |  |  |                  |        |  |  |   |       | 



|(A) | Excludes our unused line of credit commitments and guarantees to our portfolio companies in the aggregate amount of $7.4 million.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(B) | Subsequently paid off on January 3, 2013.
|--- | -----------------------------------------

|(C) | Includes interest payments due on our Credit Facility and dividend obligations on the Term Preferred Stock. Dividend payments on the Term Preferred
Stock assume quarterly declarations and monthly distributions through the date of mandatory redemption.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The majority of our
debt securities in our portfolio have a success fee component, which can enhance the yield on our debt investments. Unlike PIK income, we do not recognize the fee into income until it is received in cash. As a result, as of December 31, 2012,
we have an off-balance sheet success fee receivable of $12.3 million, or approximately $0.47 per common share. There is no guarantee that we will be able to collect any or all of our success fee receivables due to their contingent nature. It is also
impossible to predict the timing of such collections.

Critical Accounting Policies

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

Investment
Valuation

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

The Financial
Accounting Standards Board (FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, defines fair value, establishes a framework for measuring fair value and expands disclosures
about assets and liabilities measured at fair value. ASC 820 provides a consistent definition of fair value that focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of
market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of an asset or liability as of the measurement date.



| |  |  | 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 or
inactive 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 reflect assumptions that market participants would use
when pricing the asset or liability. Level 3 inputs can include the Advisers own assumptions based upon the best available information.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of December 31 and March 31, 2012, all of our investments were valued using Level 3 inputs. See Note 3Investmentsin our accompanying Condensed Consolidated Financial
Statements included elsewhere in this report for additional information regarding fair value measurements and our application of ASC 820.



47



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The Adviser uses generally accepted valuation techniques to value our portfolio unless it has specific
information about the value of an investment to determine otherwise. From time to time the Adviser may accept an appraisal of a business in which we hold securities. These appraisals are expensive and occur infrequently, but provide a third-party
valuation opinion that may differ in results, techniques and scope used to value our investments. When these specific third-party appraisals are obtained, the Adviser would use estimates of value provided by such appraisals and its own assumptions
including estimated remaining life, current market yield and interest rate spreads of similar securities, as of the measurement date, to value our investments.

General Valuation Policy: In determining the value of our investments, the Adviser has established an investment valuation policy (the Policy). The Policy has been approved by our Board
of Directors, and each quarter our Board of Directors reviews whether the Adviser has applied the Policy consistently and votes whether or not to accept the recommended valuation of our investment portfolio. The Adviser values our investments in
accordance with the requirements of the 1940 Act. As discussed more fully below, the Adviser values securities for which market quotations are readily available and reliable at their market value. The Adviser values all other securities and assets
at fair value as determined in good faith by our Board of Directors. Such determination of fair values may involve subjective judgments and estimates.

The Policy, which is summarized below, applies to the following categories of securities:



| |  |  | Publicly traded securities;
| | - |  | ---------------------------



| |  |  | Securities for which a limited market exists; and
| | - |  | -------------------------------------------------



| |  |  | Securities for which no market exists.
| | - |  | --------------------------------------

Valuation Methods:

Publicly traded securities: The Adviser determines the
value of publicly traded securities based on the closing price for the security on the exchange or securities market on which it is listed and primarily traded on the valuation date. To the extent that we own restricted securities that are not
freely tradable, but for which a public market otherwise exists, the Adviser will use the market value of that security adjusted for any decrease in value resulting from the restrictive feature. As of December 31 and March 31, 2012, we did
not have any investments in publicly traded securities.

Securities for which a limited market exists:The Adviser values securities
that are not traded on an established secondary securities market, but for which a limited market for the security exists, such as certain participations in, or assignments of, syndicated loans, at the quoted bid price (which are non-binding). In
valuing these assets, the Adviser assesses trading activity in an asset class, evaluates variances in prices and other market insights to determine if any available quote prices are reliable. In general, if the Adviser concludes that quotes based on
active markets or trading activity may be relied upon, firm bid prices are requested; however, if firm bid prices are unavailable, the Adviser bases the value of the security upon the indicative bid price (IBP) offered by the respective
originating syndication agents trading desk, or secondary desk, on or near the valuation date. To the extent that the Adviser uses the IBP as a basis for valuing the security, it may take further steps to consider additional information to
validate that price in accordance with the Policy, including but not limited to reviewing a range of indicative bids to the extent the Adviser has ready access to such qualified information.

In the event these limited markets become illiquid to a degree that market prices are no longer readily available, the Adviser will value our syndicated loans using alternative methods, such as estimated
net present values of the future cash flows or discounted cash flows (DCF). The use of a DCF methodology follows that prescribed by ASC 820, which provides guidance on the use of a reporting entitys own assumptions about future
cash flows and risk-adjusted discount rates when relevant observable inputs, such as quotes in active markets, are not available. When relevant observable market data does not exist, the alternative outlined in ASC 820 is the valuation of
investments based on DCF. For the purposes of using DCF to provide fair value estimates, the Adviser considers multiple inputs such as a risk-adjusted discount rate that incorporates adjustments that market participants would make both for
nonperformance and liquidity risks. As such, the Adviser developed a modified discount rate approach that incorporates risk premiums including, among other things, increased probability of default, or higher loss given default, or increased
liquidity risk. The DCF valuations applied to the syndicated loans provide an estimate of what we believe a market participant would pay to purchase a syndicated loan in an active market, thereby establishing a fair value. The Adviser applies the
DCF methodology in illiquid markets until quoted prices are available or are deemed reliable based on trading activity. At December 31 and March 31, 2012, we had no syndicated investments.

Securities for which no market exists: The valuation methodology for securities for which no market exists falls into four categories:
(1) portfolio investments comprised solely of debt securities; (2) portfolio investments in controlled companies comprised of a bundle of securities, which can include debt and equity securities; (3) portfolio investments in
non-controlled companies comprised of a bundle of investments, which can include debt and equity securities; and (4) portfolio investments comprised of non-publicly traded non-control equity securities of other funds.



48



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|(1) | Portfolio investments comprised solely of debt securities:Debt securities that are not publicly traded on an established securities market, or for which a
limited market does not exist (Non-Public Debt Securities), and that are issued by portfolio companies in which we have no equity or equity-like securities, are fair valued in accordance with the terms of the Policy, which utilizes
opinions of value submitted to the Adviser by Standard & Poors Securities Evaluations, Inc. (SPSE). The Adviser may also submit 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, the Adviser has 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 will only evaluate the debt portion of our investments for which the Adviser specifically requests evaluation and may decline
to make requested evaluations for any reason, at its sole discretion. Quarterly, the Adviser collects data with respect to the investments (which includes portfolio company financial and operational performance and the information described below
under Credit Information, the risk ratings of the loans described below under Loan Grading and Risk Rating and the factors described hereunder). This portfolio company data is then forwarded to SPSE for review and
analysis. SPSE makes its independent assessment of the data that the Adviser has assembled and assesses its independent data to form an opinion as to what they consider to be the market values for the securities. With regard to its work, SPSE has
issued the following paragraph:

SPSE provides evaluated price opinions which are reflective of what SPSE believes the bid
side of the market would be for each loan after careful review and analysis of descriptive, market and credit information. Each price reflects SPSEs best judgment based upon careful examination of a variety of market factors. Because of
fluctuation in the market and in other factors beyond its control, SPSE cannot guarantee these evaluations. The evaluations reflect the market prices, or estimates thereof, on the date specified. The prices are based on comparable market prices for
similar securities. Market information has been obtained from reputable secondary market sources. Although these sources are considered reliable, SPSE cannot guarantee their accuracy.

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 the Advisers supplemental assessment and recommendation regarding valuation of each of these investments. The Adviser generally accepts the opinion of value given by SPSE; however,
in certain limited circumstances, such as when the Adviser may learn new information regarding an investment between the time of submission to SPSE and the date of our Board of Directors assessment, the Advisers conclusions as to value
may differ from the opinion of value delivered by SPSE. Our Board of Directors then reviews whether the Adviser has followed its established procedures for determinations of fair value and votes to accept or reject the recommended valuation of our
investment portfolio. The 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 our accompanying Condensed Consolidated Schedule of
Investments.

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, the Adviser makes its own determination about the value of these investments in accordance with our 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 our Non-Public Debt Securities and equity or equity-like securities
(e.g., preferred equity, common equity or other equity-like securities) that are purchased together as part of a package, where we have control or could gain control through an option or warrant security; both the debt and equity securities of the
portfolio investment would exit in the mergers and acquisitions market as the principal market, generally through a sale of the portfolio company. We manage our risk related to these investments at the aggregated issuer level and generally exit the
debt and equity securities together. Applying the liquidity waterfall approach to all of the investments of an issuer, the Adviser first calculates 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, the Adviser generally references industry statistics and may use outside experts. TEV is only an estimate of value and may not be the value
received in an actual sale. Once the Adviser has estimated the TEV of the issuer, the Adviser will subtract the value of all the debt securities of the issuer, which are valued at the contractual principal balance. Fair values of these debt
securities are discounted for any shortfall of TEV over the total debt outstanding for the issuer. Once the values for all outstanding senior securities, which include all the debt securities, have been subtracted from the TEV of the issuer, the
remaining amount, if any, is used to determine the value of the issuers equity or equity-like securities. If, in the Advisers judgment, the liquidity waterfall approach does not accurately reflect the value of the debt component, the
Adviser may recommend that we use a valuation by SPSE, or, if that is unavailable, a DCF valuation technique.



49



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|(3) | Portfolio investments in non-controlled companies comprised of a bundle of investments, which can include debt and equity securities:The Adviser values
Non-Public Debt Securities that are purchased together with equity or equity-like securities from the same portfolio company, or issuer, for which we do not control or cannot gain control as of the measurement date, using a hypothetical secondary
market as our principal market. In accordance with ASC 820 (as amended by the FASBs Accounting Standards Update No. 2011-04, Fair Value Measurement (Topic 820): Amendments to Achieve Common Fair Value Measurement and Disclosure
Requirements in U.S. GAAP and International Financial Reporting Standards (IFRS), (ASU 2011-04)), the Adviser has defined our unit of account at the investment level (either debt or equity) and as such
determined our fair value of these non-control investments assuming the sale of an individual security using the standalone premise of value. As such, the Adviser estimates the fair value of the debt component using estimates of value provided by
SPSE and the Advisers 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. For
equity or equity-like securities of investments for which we do not control or cannot gain control as of the measurement date, the Adviser estimates the fair value of the equity based on factors such as the overall value of the issuer, the relative
fair value of other units of account including debt, or other relative value approaches. Consideration also is given to capital structure and other contractual obligations that may impact the fair value of the equity. Furthermore, the Adviser may
utilize comparable values of similar companies, recent investments and indices with similar structures and risk characteristics or DCF valuation techniques and, in the absence of other observable market data, the Advisers own assumptions.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | Portfolio investments comprised of non-publicly traded non-control equity securities of other funds:The Advisor generally values any uninvested capital of the
non-control fund at par value and values any invested capital at the value provided by the non-control fund. At December 31 and March 31, 2012, we had no non-control equity securities of other funds.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly and materially from the values that would
have been obtained had a ready market for the securities existed. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments
to be different than the valuations currently assigned. There is no single standard for determining fair value in good faith, as fair value depends upon circumstances of each individual case. In general, fair value is the amount that we might
reasonably expect to receive upon the current sale of the security in an orderly transaction between market participants at the measurement date.

Valuation Considerations:From time to time, depending on certain circumstances, the Adviser may use the following valuation considerations, including but not limited to:



| |  |  | 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.
| | - |  | -------------------------------

Because such valuations, particularly valuations of private securities and private companies, are not susceptible to precise determination, may fluctuate over short periods of time, and may be based on
estimates, the Advisers determinations of fair value may differ from the values that might have actually resulted had a readily available market for these securities been available.

Credit Information: Our Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio
performance. We and our Adviser generally participate in the periodic board meetings of our portfolio companies in which we hold Control and Affiliate investments and also require them to provide annual audited and monthly unaudited financial
statements. Using these statements or comparable information and board discussions, our Adviser calculates and evaluates the credit statistics.

Loan Grading and Risk Rating: As part of the Advisers valuation procedures above, it risk rates all of our investments in debt securities.
For syndicated loans that have been rated by a Nationally Recognized Statistical Rating Organization (NRSRO), the Adviser uses the NRSROs risk rating for such security. For all other debt securities, the Adviser uses a proprietary
risk rating system. The Advisers risk rating system uses a scale of 0 to 10, with 10 being the lowest probability of default. This system is used to estimate the probability of default on debt securities and the probability of loss if there is
a default. These types of systems are referred to as risk rating systems and are used by banks and rating agencies. The risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.

For the debt securities for which the Adviser does not use a third-party NRSRO risk rating, it seeks to have its risk rating system mirror the risk
rating systems of major risk rating organizations, such as those provided by an NRSRO. While the Adviser seeks to



50



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mirror the NRSRO systems, the Adviser cannot provide any assurance that our risk rating system will provide the same risk rating as an NRSRO for these securities. The following chart is an
estimate of the relationship of the Advisers risk rating system to the designations used by two NRSROs as they risk rate debt securities of major companies. Because the Advisers system rates debt securities of companies that are unrated
by any NRSRO, there can be no assurance that the correlation to the NRSRO set out below is accurate. The Adviser believes its risk rating would be higher than a typical NRSRO risk rating because the risk rating of the typical NRSRO is designed for
larger businesses. However, the Advisers risk rating has been designed to risk rate the securities of smaller businesses that are not rated by a typical NRSRO. Therefore, when the Adviser uses its risk rating on larger business securities, the
risk rating is higher than a typical NRSRO rating. The primary difference between the Advisers risk rating and the rating of a typical NRSRO is that the Advisers risk rating uses more quantitative determinants and includes qualitative
determinants that it believes are not used in the NRSRO rating. It is the Advisers understanding that most debt securities of medium-sized companies do not exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the
middle market that would meet the definition of AAA, AA or A. Therefore, the Advisers scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a
>10 on the Advisers scale is equal to a BBB or Baa2 on an NRSRO scale.



|                 |  |             |  |              |  |                                                                                                                  
|---------------- |  | ----------- |  | ------------ |  | -----------------------------------------------------------------------------------------------------------------
|Advisers System |  | First NRSRO |  | Second NRSRO |  | Description(A)                                                                                                   
|>10              |  | Baa2        |  | BBB          |  | Probability of Default (PD) during the next ten years is 4% and the Expected Loss upon Default (EL) is 1% or less
|10               |  | 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 this risk rating scale.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The above scale gives an indication of the probability of default and the magnitude of the loss if there is a default. Generally, our policy is to stop
accruing interest on an investment if we determine that interest is no longer collectable. At December 31, 2012, loans to two portfolio companies, ASH and Tread, were on non-accrual, with an aggregate loan fair value of $0. At March 31,
2012, two loans, ASH and CCE, were on non-accrual, with an aggregate loan fair value of $0. CCE went onto accrual and Tread went onto non-accrual during the three months ended December 31, 2012. Additionally, the Adviser does not risk rate our
equity securities.

The following table lists the risk ratings for all proprietary loans in our portfolio, representing approximately 100.0%
of the principal balance of all loans in our portfolio at the end of each period:



|                 |  |                  |      |  |               |  |     | 
|---------------- |  | ---------------- | ---- |  | ------------- |  | --- | 
|Rating           |  | December 31,2012 |      |  | March 31,2012 | 
|Highest          |  |                  | 10.0 |  |               |  | 7.9 | 
|Average          |  |                  | 5.2  |  |               |  | 5.0 | 
|Weighted Average |  |                  | 5.2  |  |               |  | 5.3 | 
|Lowest           |  |                  | 1.3  |  |               |  | 2.4 | 

As of December 31 and March 31, 2012, we did not have any non-proprietary loans in our investment portfolio.



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Tax Status

Federal Income Taxes

We intend to continue to qualify for treatment as a RIC under
Subtitle A, Chapter 1 of Subchapter M of the Code. As a RIC, we are not subject to federal income tax on the portion of our taxable income and gains distributed to stockholders. To qualify as a RIC, we must meet certain source-of-income, asset
diversification and annual distribution requirements. For more information regarding the requirements we must meet as a RIC, see Business Environment. Under the annual distribution requirements, we are required to distribute to
stockholders at least 90% of our investment company taxable income, as defined by the Code. Our practice is to pay out as distributions up to 100% of that amount.

In an effort to limit certain excise taxes imposed on RICs, we generally distribute during each calendar year, an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar
year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and net capital gains for preceding years that were not distributed during
such years. However, we did incur an excise tax of approximately $32 and $36 for the calendar years ended December 31, 2012 and 2011, respectively. Under the RIC Modernization Act, we are permitted to carry forward capital losses incurred in
taxable years beginning after March 31, 2011, for an unlimited period. However, any losses incurred during those future taxable years will be required to be utilized prior to the losses incurred in pre-enactment taxable years, which carry an
expiration date. As a result of this ordering rule, pre-enactment capital loss carryforwards may be more likely to expire unused. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term
capital losses rather than only being considered short-term as permitted under previous regulation.

Revenue Recognition

Interest Income Recognition

Interest
income, adjusted for amortization of premiums and acquisition costs, the accretion of discounts and the amortization of amendment fees, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a
loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan
until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost
basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid and, in managements judgment, are likely to remain current, or due to a restructuring
such that the interest income is deemed to be collectible. At December 31, 2012, loans to two portfolio companies, ASH and Tread, were on non-accrual. These non-accrual loans had an aggregate cost value of $23.7 million, or 10.4% of the cost
basis of debt investments in our portfolio, and an aggregate fair value of $0. During the three months ended December 31, 2012, we placed Tread on non-accrual and took CCE off non-accrual. At March 31, 2012, ASH and CCE were on non-accrual
with an aggregate debt cost basis of $16.4 million, or 8.6% of the cost basis of debt investments in our portfolio, and an aggregate fair value of $0.

We did not hold any loans in our portfolio that contained a PIK provision at December 31, 2012, and no PIK income was recorded during the three and nine months ended December 31, 2012. During
the three and nine months ended December 31, 2011, we recorded PIK income of $0 and $7, respectively. PIK interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as
interest income. To maintain our status as a RIC, this non-cash source of income must be included in our calculation of distributable income for purposes of complying with our distribution requirements, even though we have not yet collected the
cash. The sole loan with a PIK provision was paid off, at par, during the quarter ended September 30, 2011.

Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company
and are recorded in other income in our accompanying Condensed Consolidated Statements of Operations. We recorded $0 and $0.8 million of success fees during the three and nine months ended December 31, 2012, respectively, representing
prepayments received from Mathey and Cavert. During the three and nine months ended December, 31, 2011, we recorded success fees of $0 and $0.4 million, respectively, representing prepayments received from Mathey and Cavert. As of December 31,
2012, we have an off-balance sheet success fee receivable of approximately $12.3 million.

We accrue dividend income on preferred equity
securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash, and it is recorded in Other income in our accompanying Condensed Consolidated Statements of Operations. We
recorded $0.7 and $0.8 million in dividend income during the three and nine months ended December 31, 2012, on accrued preferred shares of Acme and Drew Foam. We recorded $0 and $0.7 million in dividend income during the three and nine months
ended December 31, 2011, on accrued preferred shares in connection with the recapitalization of Cavert.



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|ITEM 3. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|------- | ----------------------------------------------------------

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

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

While we target that ultimately approximately 20% of the loans in our portfolio will be made at fixed rates, with approximately 80% made at variable rates or variables rates with a floor mechanism, all of
our variable-rate loans have rates associated with either the current LIBOR or prime rate. At December 31, 2012, our portfolio consisted of the following breakdown based on total principal balance of all outstanding debt investments:



| |       |   |  |                            
| | ----- | - |  | ---------------------------
| | 79.3  | % |  | Variable rates with a floor
| | 20.7  |   |  | Fixed rates                
| |       |   |  |                            
| | 100.0 | % |  | Total                      
| |       |   |  |                            

There have been no material changes in the quantitative and qualitative market risk disclosures for the three months
ended December 31, 2012 from that disclosed in our Annual Report on Form 10-K for the fiscal year ended March 31, 2012, as filed with the SEC on May 21, 2012.



|ITEM 4. | CONTROLS AND PROCEDURES.
|------- | ------------------------

a) Evaluation
of Disclosure Controls and Procedures

As of December 31, 2012 (the end of the period covered by this report), we, including our chief
executive officer and chief financial officer, evaluated the effectiveness and design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the chief executive officer and chief financial
officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required
to be included in periodic SEC filings. However, in evaluation of the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of
achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

b) Changes in Internal Control over Financial Reporting

There were no changes in internal
controls for the three months ended December 31, 2012 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART IIOTHER INFORMATION



|ITEM 1. | LEGAL PROCEEDINGS.
|------- | ------------------

Neither we, nor any
of our subsidiaries, are currently subject to any material legal proceeding, nor, to our knowledge, is any material legal proceeding threatened against us or any of our subsidiaries.



|ITEM 1A. | RISK FACTORS.
|-------- | -------------

Our business is subject to
certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. For a discussion of these risks, please refer to the Risk Factors section in
our Pre-Effective Amendment No. 1 to our registration statement on Form N-2 (No. 333-181879) as filed with the SEC on July 17, 2012 (the Prospectus) and the supplement to the Prospectus as filed with the SEC on
October 2, 2012.



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

Not applicable.



|ITEM 3. | DEFAULTS UPON SENIOR SECURITIES.
|------- | --------------------------------

Not
applicable.



|ITEM 4. | MINE SAFETY DISCLOSURES.
|------- | ------------------------

Not applicable.



|ITEM 5. | OTHER INFORMATION.
|------- | ------------------

Not applicable.



|ITEM 6. | EXHIBITS
|------- | --------

See the exhibit index.



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SIGNATURE

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



GLADSTONE INVESTMENT CORPORATIONBy:

/s/ David WatsonDavid WatsonChief Financial Officer and Treasurer


Date: January 28, 2013



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EXHIBIT INDEX



|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  | Description                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        | 
|3.1     |  | Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit a.2 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2
(File No. 333-123699), filed May 13, 2005.                                                                                                                                                                                                                                                                 
|        | 
|3.2     |  | Certificate of Designation, incorporated by reference to Exhibit 2.a.2 to Post-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-160720), filed
February 29, 2012.                                                                                                                                                                                                                                                                                
|        | 
|3.3     |  | 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.                                                                                                                                                                                                                                                                                      
|        | 
|3.4     |  | 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.                                                                                                                                                                                                                                                                                      
|        | 
|4.2     |  | Specimen 7.125% Series A Cumulative Term Preferred Stock Certificate, incorporated by reference to Exhibit 2.d.4 to Post-Effective Amendment No. 5 to the Registration Statement on
Form N-2 (File No. 333-160720), filed February 29, 2012.                                                                                                                                                                                                                                      
|        | 
|4.3     |  | Dividend Reinvestment Plan, incorporated by reference to Exhibit 99.e to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June
21, 2005.                                                                                                                                                                                                                                                                                      
|        | 
|4.4     |  | Form of Common Stock Subscription Form and Subscription Certificate, incorporated by reference to Exhibit 2.d.5 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-2 (File No. 333-181879), filed July 17, 2012.                                                                                                                                                                                                                                            
|        | 
|4.5     |  | Form of Preferred Stock Subscription Form and Subscription Certificate, incorporated by reference to Exhibit 2.d.6 to Pre-Effective Amendment No. 1 to the Registration Statement on
Form N-2 (File No. 333-181879), filed July 17, 2012.                                                                                                                                                                                                                                         
|        | 
|4.6     |  | Form of Common Stock Warrant Agreement and Warrant Certificate, incorporated by reference to Exhibit 2.d.7 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2
(File No. 333-181879), filed July 17, 2012.                                                                                                                                                                                                                                                 
|        | 
|4.7     |  | Form of Preferred Stock Warrant Agreement and Warrant Certificate, incorporated by reference to Exhibit 2.d.8 to Pre-Effective Amendment No. 1 to the Registration Statement on Form
N-2 (File No. 333-181879), filed July 17, 2012.                                                                                                                                                                                                                                              
|        | 
|10.1    |  | Amendment No. 1 to Gladstone Business Investment, LLC Credit Agreement, dated October 5, 2012, 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. 001-34007), filed October 9, 2012.
|        | 
|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.                                                                                                                                                                                                                                                                                                                                                                               

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



56