##### Table of Contents

UNITED STATES SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549   FORM 10-Q   (Mark One) ☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended September 30, 2019 OR  ☐
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from
                     to Commission file number: 814-00704   GLADSTONE INVESTMENT CORPORATION (Exact name of registrant as specified in its charter)    DELAWARE

83-0423116(State or other jurisdiction ofincorporation or organization)

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

22102(Address of principal executive offices)

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

TradingSymbol(s)

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

GAIN

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

GAINM

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

GAINL

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

☐

Accelerated filer

☒Non-accelerated filer

☐

Smaller reporting company

☐Emerging growth company

☐ If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ☐ Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).    Yes  ☐    No  ☒ The number of shares of the
issuers Common Stock, $0.001 par value per share, outstanding as of November 1, 2019 was 32,822,459.




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION TABLE OF CONTENTS  PART I.

FINANCIAL INFORMATION:Item 1.

Financial Statements (Unaudited)Consolidated Statements of Assets and Liabilities as of September 30, 2019 and March 
31, 2019


2Consolidated Statements of Operations for the three and six months ended September 
30, 2019 and 2018


3Consolidated Statements of Changes in Net Assets for the three and six months ended September 30,
 2019 and 2018


5Consolidated Statements of Cash Flows for the six months ended September 30, 2019 and
2018


6Consolidated Schedules of Investments as of September 30, 2019 and March 31,
2019


7Notes to Consolidated Financial Statements


19Item 2.

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


43Results of Operations


48Liquidity and Capital Resources


56Item 3.

Quantitative and Qualitative Disclosures About Market Risk


62Item 4.

Controls and Procedures


62PART II.

OTHER INFORMATION:Item 1.

Legal Proceedings


63Item 1A.

Risk Factors


63Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds


63Item 3.

Defaults Upon Senior Securities


63Item 4.

Mine Safety Disclosures


63Item 5.

Other Information


63Item 6.

Exhibits


64SIGNATURES


65




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


March 31,2019


2019ASSETSInvestments at fair valueNon-Control/Non-Affiliate
investments (Cost of $279,232 and $254,002, respectively)

$
346,445


$
313,750Affiliate investments (Cost of $293,010 and $314,175, respectively)


249,830



297,113Control investments (Cost of $21,512 and $21,512 respectively)


12,061



13,309Cash and cash equivalents


2,169



1,702Restricted cash and cash equivalents


1,770



1,903Interest receivable


2,729



2,808Due from administrative agent


1,820



1,285Deferred financing costs, net


1,398



1,730Other assets, net


1,541



1,500TOTAL ASSETS

$
619,763


$
635,100LIABILITIESBorrowings:Line of credit at fair value (Cost of $46,800 and $53,000, respectively)

$
46,964


$
53,000Secured borrowing


5,096



5,096Total borrowings


52,060



58,096Mandatorily redeemable preferred stock, $0.001 par value per share, $25.00 liquidation
preference per share; 6,500,000 shares authorized; 5,290,000 shares issued and outstanding, net


128,821



128,482Accounts payable and accrued expenses


1,753



892Fees due to Adviser(A)


24,740



24,724Fee due to Administrator(A)


423



344Other liabilities


5,136



15,452TOTAL LIABILITIES

$
212,933


$
227,990Commitments and contingencies(B)NET ASSETS

$
406,830


$
407,110ANALYSIS OF NET ASSETSCommon stock, $0.001 par value per share, 100,000,000 shares authorized,
32,822,459 shares issued and outstanding

$
33


$
33Capital in excess of par value


365,148



366,422Cumulative net unrealized appreciation of investments


14,582



34,483Cumulative net unrealized appreciation of other


(164
)


Underdistributed (Overdistributed) net investment income


651



(7,343
)Accumulated net realized gain in excess of distributions


26,580



13,515Total distributable earnings


41,649



40,655TOTAL NET ASSETS

$
406,830


$
407,110NET ASSET VALUE PER SHARE AT END OF PERIOD

$
12.39


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




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


Six Months Ended September 30,2019


2018


2019


2018INVESTMENT INCOMEInterest incomeNon-Control/Non-Affiliate
investments

$
6,636


$
5,622


$
12,476


$
11,888Affiliate investments


7,274



6,051



13,083



12,880Control investments


214



212



428



421Cash and cash equivalents


19



10



31



20Total interest income


14,143



11,895



26,018



25,209Dividend incomeNon-Control/Non-Affiliate
investments


612



1,196



2,727



1,262Affiliate investments










3,080



Total dividend income


612



1,196



5,807



1,262Success fee incomeNon-Control/Non-Affiliate
investments














124Affiliate investments


1,881







2,121



Control investments














2,000Total success fee income


1,881







2,121



2,124Total investment income


16,636



13,091



33,946



28,595EXPENSESBase management fee(A)


3,144



3,275



6,315



6,386Loan servicing fee(A)


1,593



1,674



3,345



3,414Incentive fee(A)


1,600



7,125



3,169



14,711Administration fee(A)


423



344



737



629Interest expense on borrowings


1,207



1,526



2,266



3,268Dividends on mandatorily redeemable preferred stock


2,090



2,317



4,180



4,568Amortization of deferred financing costs and discounts


373



497



746



864Professional fees


467



247



971



658Other general and administrative expenses


1,357



2,319



1,954



2,972Expenses before credits from Adviser


12,254



19,324



23,683



37,470Credits to base management fee  loan servicing fee(A)


(1,593
)


(1,674
)


(3,345
)


(3,414
)Credits to fees from
Adviserother(A)


(608
)


(565
)


(1,830
)


(1,525
)Total expenses, net of credits to fees


10,053



17,085



18,508



32,531NET INVESTMENT INCOME (LOSS)


6,583



(3,994
)


15,438



(3,936
)REALIZED AND UNREALIZED GAIN (LOSS)Net realized gain (loss):Non-Control/Non-Affiliate
investments


791



745



1,321



14,531Affiliate investments


20,353



(3,601
)


20,356



(3,279
)Other






(1,687
)






(1,687
)Total net realized gain (loss)


21,144



(4,543
)


21,677



9,565Net unrealized appreciation (depreciation):Non-Control/Non-Affiliate
investments


8,231



19,805



7,465



16,064Affiliate investments


(26,617
)


17,650



(26,118
)


36,221Control investments


1,532



1,039



(1,248
)


4,277Other


131



407



(164
)


500Total net unrealized (depreciation) appreciation


(16,723
)


38,901



(20,065
)


57,062Net realized and unrealized gain


4,421



34,358



1,612



66,627NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
11,004


$
30,364


$
17,050


$
62,691  (A)
Refer to Note 4  Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED
FINANCIAL STATEMENTS.  3




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


Six Months Ended September 30,2019


2018


2019


2018BASIC AND DILUTED PER COMMON SHARE:Net investment income (loss)

$
0.20


$
(0.12
)

$
0.47


$
(0.12
)Net increase in net assets resulting from operations

$
0.34


$
0.93


$
0.52


$
1.91WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:Basic and diluted


32,822,459



32,822,459



32,822,459



32,792,816 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  4




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GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS (IN THOUSANDS) (UNAUDITED)  2019


2018NET ASSETS, MARCH 31

$
407,110


$
354,200OPERATIONSNet investment income


8,855



58Net realized gain on investments


533



14,108Net realized loss on other






Net unrealized (depreciation) appreciation of investments


(3,047
)


18,068Net unrealized (appreciation) depreciation of other


(295
)


93Net increase in net assets from operations


6,046



32,327DISTRIBUTIONS(A)Distributions to common stockholders from net investment income ($0.20 and $0.21 per share,
respectively)


(6,523
)


(6,914
)Distributions to common stockholders from realized gains ($0.09 and $0.05 per share,
respectively)


(3,127
)


(1,641
)Net decrease in net assets from distributions


(9,650
)


(8,555
)CAPITAL ACTIVITYIssuance of common stock






1,873Discounts, commissions, and offering costs for issuance of common stock






(37
)Net increase in net assets from capital activity






1,836NET (DECREASE) INCREASE IN NET ASSETS


(3,604
)


25,608NET ASSETS, JUNE 30

$
403,506


$
379,808OPERATIONSNet investment income (loss)

$
6,583


$
(3,994
)Net realized gain (loss) on investments


21,144



(2,856
)Net realized loss on other






(1,687
)Net unrealized (depreciation) appreciation of investments


(16,854
)


38,494Net unrealized depreciation of other


131



407Net increase in net assets from operations


11,004



30,364DISTRIBUTIONS(A)Distributions to common stockholders from net investment income ($0.16 and $0.20 per
share)


(5,236
)


(6,598
)Distributions to common stockholders from realized gains ($0.07 and $0.00 per share,
respectively)


(2,444
)


Net decrease in net assets from distributions


(7,680
)


(6,598
)NET INCREASE IN NET ASSETS


3,324



23,766NET ASSETS, SEPTEMBER 30

$
406,830


$
403,574  (A)
Refer to Note 9  Distributions to Common Stockholders in the accompanying Notes to Consolidated
Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE
CONSOLIDATED FINANCIAL STATEMENTS.  5




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GLADSTONE INVESTMENT CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (IN THOUSANDS) (UNAUDITED)  Six Months Ended September 30,2019


2018CASH FLOWS FROM OPERATING ACTIVITIESNet increase in net assets resulting from operations

$
17,050


$
62,691Adjustments to reconcile net increase in net assets resulting from operations to net cash provided
by operating activities:Purchase of investments


(71,380
)


(30,952
)Principal repayments of investments


53,926



14,514Net proceeds from the sale of investments


34,539



18,291Net realized (gain) loss on investments


(21,677
)


(11,252
)Net unrealized depreciation (appreciation) of investments


19,901



(56,562
)Net realized loss on other






1,670Net unrealized appreciation (depreciation) of other


164



(500
)Amortization of premiums, discounts, and acquisition costs, net


(9
)


(9
)Amortization of deferred financing costs and discounts


746



864Bad debt expense, net of recoveries


148



1,374Changes in assets and liabilities:Decrease in interest receivable


79



434(Increase) decrease in due from administrative agent


(534
)


409Increase in other assets, net


(33
)


(142
)Increase in accounts payable and accrued expenses


861



602Increase in fees due to
Adviser(A)


16



12,846Increase in fee due to
Administrator(A)


79



20(Decrease) increase in other liabilities


(9,879
)


827Net cash provided by operating activities


23,997



15,125CASH FLOWS FROM FINANCING ACTIVITIESProceeds from issuance of common stock






1,873Discounts, commissions, and offering costs for issuance of common stock






(28
)Proceeds from line of credit


100,000



129,200Repayments on line of credit


(106,200
)


(120,500
)Proceeds from issuance of mandatorily redeemable preferred stock






74,750Redemption of mandatorily redeemable preferred stock






(81,650
)Deferred financing and offering costs


(133
)


(4,283
)Distributions paid to common stockholders


(17,330
)


(15,153
)Net cash used in financing activities


(23,663
)


(15,791
)NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH
EQUIVALENTS


334



(666
)CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT BEGINNING OF
PERIOD


3,605



3,967CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS AT END OF
PERIOD

$
3,939


$
3,301CASH PAID FOR INTEREST

$
1,536


$
3,114  (A)
Refer to Note 4  Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  6




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GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS(N)  85.0%Secured First Lien Debt  43.8%Containers, Packaging, and Glass  2.3%Frontier Packaging, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 3/2021)(L)

$
9,500


$
9,500


$
9,500Diversified/Conglomerate Manufacturing  0.8%Phoenix Door Systems, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 9/2024)(L)


3,200



3,200



3,200Diversified/Conglomerate Services  25.2%Bassett Creek Restoration, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 4/2023)(L)


37,500



37,500



37,500Counsel Press, Inc.  Term Debt (L+11.8%, 13.8% Cash, Due 3/2020)(L)


18,000



18,000



18,000Counsel Press, Inc.  Term Debt (L+13.0%, 15.0% Cash, Due 3/2020)(L)


5,500



5,500



5,500Horizon Facilities Services, Inc.  Line of Credit, $2,500 available (L+7.0%, 10.0% Cash, Due
6/2020)(L)


500



500



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


27,700



27,700



27,700Nth Degree, Inc.  Term Debt (L+11.5%, 13.5% Cash, Due 3/2023)(L)


13,290



13,290



13,290102,490



102,490Healthcare, Education, and Childcare  4.9%Educators Resource, Inc.  Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)(L)


20,000



20,000



20,000Leisure, Amusement, Motion Pictures, and Entertainment  5.7%Schylling, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)


13,081



13,081



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


8,500



8,500



8,500Schylling, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)


1,500



1,500



1,50023,081



23,081Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  4.9%SBS Industries, LLC  Term Debt (L+12.0%, 14.0% Cash, Due 6/2020)(L)


19,957



19,957



19,957Total Secured First Lien Debt





$
178,228


$
178,228Secured Second Lien Debt  7.5%Automobile  0.9%Country Club Enterprises, LLC  Term Debt (L+8.0%, 10.0% Cash, Due 2/2022)(K)

$
4,000


$
4,000


$
3,860Country Club Enterprises, LLC  Guaranty ($1,000)(T)










4,000



3,860Cargo Transport  3.3%Diligent Delivery Systems  Term Debt (L+9.0%, 11.0% Cash, Due 11/2022)(K)


13,000



12,942



13,276Home and Office Furnishings, Housewares, and Durable Consumer Products  3.3%Ginsey Home Solutions, Inc.  Term Debt (L+10.0%, 13.5% Cash, Due 1/2021)(H)(L)


13,300



13,300



13,300Total Secured Second Lien Debt





$
30,242


$
30,436 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  7




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GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValuePreferred Equity  29.5%Containers, Packaging, and Glass  0.3%Frontier Packaging, Inc.  Preferred
Stock(C)(L)


1,373


$
1,373


$
1,373Diversified/Conglomerate Services  22.2%Bassett Creek Restoration, Inc.  Preferred Stock(C)(L)


4,900



4,900



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


6,995



6,995



21,889Horizon Facilities Services, Inc.  Preferred Stock(C)(L)


10,080



10,080



10,703Nth Degree, Inc.  Preferred
Stock(C)(L)


5,660



5,660



57,72227,635



90,314Healthcare, Education, and Childcare  1.9%Educators Resource, Inc.  Preferred
Stock(C)(L)


8,560



8,560



7,907Home and Office Furnishings, Housewares, and Durable Consumer Products  3.0%Ginsey Home Solutions, Inc.  Preferred
Stock(C)(L)


19,280



9,583



12,290Leisure, Amusement, Motion Pictures, and Entertainment  1.0%Schylling, Inc.  Preferred
Stock(C)(L)


4,000



4,000



4,066Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  1.1%SBS Industries, LLC  Preferred
Stock(C)(L)


27,705



2,771



4,634Personal, Food, and Miscellaneous Services  0.0%B-Dry, LLC  Preferred Stock(C)(L)(Q)


2,500



14,399



Total Preferred Equity





$
68,321


$
120,584Common Equity/Equivalents  4.2%Cargo Transport  0.6%Diligent Delivery Systems  Common Stock Warrants(C)(L)


8
%

$
500


$
2,564Containers, Packaging, and Glass  2.7%Frontier Packaging, Inc.  Common
Stock(C)(L)


153



153



10,979Diversified/Conglomerate Manufacturing  0.3%Phoenix Door Systems, Inc.  Common
Stock(C)(L)


2,515



1,200



1,200Home and Office Furnishings, Housewares, and Durable Consumer Products  0.0%Ginsey Home Solutions, Inc.  Common
Stock(C)(L)


63,747



8



Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  0.6%SBS Industries, LLC  Common
Stock(C)(L)


221,500



222



2,284Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.0%Funko Acquisition Holdings, LLC(M) 
Common Units(C)(S)


12,180



58



170 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS  8




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValuePersonal, Food, and Miscellaneous Services  0.0%B-Dry, LLC  Common Stock(C)(L)(Q)


2,500


$
300


$
Total Common Equity/Equivalents





$
2,441


$
17,197Total
Non-Control/Non-Affiliate Investments





$
279,232


$
346,445AFFILIATE INVESTMENTS(O) 
61.3%Secured First Lien Debt  30.1%Automobile  0.1%Meridian Rack & Pinion, Inc.(M)
 Term Debt (L+11.5%, 13.5% Cash, Due 12/2019)(G)(L)

$
9,660


$
9,660


$
260Beverage, Food, and Tobacco  2.2%Head Country, Inc.  Term Debt (L+10.5%, 12.5% Cash, Due 2/2021)(L)


9,050



9,050



9,050Diversified/Conglomerate Manufacturing  5.7%D.P.M.S., Inc.  Line of Credit, $500 available (L+6.5%, 9.0% Cash, (0.5% Unused Fee), Due
10/2021)(L)


500



500



500D.P.M.S., Inc.  Term Debt (10.0% Cash, Due 10/2021)(I)(L)


10,796



10,796



10,796Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+10.5%, 12.5% Cash, Due 2/2022)(K)


9,300



9,300



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


3,000



3,000



2,94023,596



23,304Diversified/Conglomerate Services  5.4%ImageWorks Display and Marketing Group, Inc.  Term Debt (L+11.0%, 13.0% Cash, Due
11/2022)(L)


22,000



22,000



22,000Home and Office Furnishings, Housewares, and Durable Consumer Products  4.4%Brunswick Bowling Products, Inc.  Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)


17,700



17,700



17,700Leisure, Amusement, Motion Pictures, and Entertainment  2.2%SOG Specialty Knives & Tools, LLC  Term Debt (Due 8/2020)(L)(R)


538



538



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


8,399



8,399



8,3998,937



8,937Personal and Non-Durable Consumer Products
(Manufacturing Only)  6.3%The Mountain Corporation  Line of Credit, $400 available (L+5.0%, 9.0% Cash, Due 4/2020)(L)


2,500



2,500



2,500Pioneer Square Brands, Inc.  Term Debt (L+12.0%, 14.0% Cash, Due 8/2022)(L)


23,100



23,100



23,10025,600



25,600Telecommunications  3.8%B+T Group Acquisition, Inc.(M)  Line of
Credit, $1,015 available (L+11.0%, 13.0% Cash, Due 12/2021)(L)


1,785



1,785



1,785B+T Group Acquisition, Inc.(M)  Term
Debt (L+11.0%, 13.0% Cash, Due 12/2021)(L)


14,000



14,000



14,00015,785



15,785Total Secured First Lien Debt





$
132,328


$
122,636 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  9




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueSecured Second Lien Debt  16.3%Chemicals, Plastics, and Rubber  3.8%PSI Molded Plastics, Inc.  Term Debt (L+12.0%, 14.0% Cash, Due 1/2024)(G)(L)

$
26,618


$
26,618


$
15,505Diversified/Conglomerate Services  11.3%J.R. Hobbs Co.  Atlanta, LLC  Line of Credit, $0 available (L+6.0%, 8.0% Cash, Due
10/2024)(L)


10,000



10,000



10,000J.R. Hobbs Co.  Atlanta, LLC  Term Debt (L+10.3%, 12.3% Cash, Due 10/2024)(L)


36,000



36,000



36,00046,000



46,000Personal and Non-Durable Consumer Products
(Manufacturing Only)  1.2%The Mountain Corporation  Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)


11,700



11,700



4,803Total Secured Second Lien Debt





$
84,318


$
66,308Preferred Equity  14.9%Automobile  0.0%Meridian Rack & Pinion, Inc.(M)
 Preferred Stock(C)(L)


3,381


$
3,381


$
Beverage, Food, and Tobacco  1.1%Head Country, Inc.  Preferred
Stock(C)(L)


4,000



4,000



4,595Chemicals, Plastics, and Rubber  0.0%PSI Molded Plastics, Inc.  Preferred
Stock(C)(L)


58,598



9,730



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


2,279



1,841



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


3,774



3,774



5,615



Diversified/Conglomerate Services  2.6%ImageWorks Display and Marketing Group, Inc.  Preferred Stock(C)(L)


67,490



6,749



10,386J.R. Hobbs Co.  Atlanta, LLC  Preferred Stock(C)(L)


5,920



5,920



12,669



10,386Home and Office Furnishings, Housewares, and Durable Consumer Products  9.7%Brunswick Bowling Products, Inc.  Preferred Stock(C)(L)


4,943



4,943



22,429Old World Christmas, Inc.  Preferred
Stock(C)(L)


6,180



6,180



17,11111,123



39,540Leisure, Amusement, Motion Pictures, and Entertainment  0.0%SOG Specialty Knives & Tools, LLC  Preferred Stock(C)(L)


13,249



13,249



192Personal and Non-Durable Consumer Products
(Manufacturing Only)  1.5%The Mountain Corporation  Preferred
Stock(C)(L)


6,899



6,899



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


5,502



5,500



6,17312,399



6,173Telecommunications  0.0%B+T Group Acquisition, Inc.(M) 
Preferred Stock(C)(L)


12,841



4,196



Total Preferred Equity





$
76,362


$
60,886 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  10




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


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


2,319,184







D.P.M.S., Inc.  Common
Stock(C)(L)


627



1



1



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


3.5
%






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


751



1



Total Common Equity/Equivalents





$
2


$
Total Affiliate Investments





$
293,010


$
249,830CONTROL INVESTMENTS(P) 
2.9%:Secured Second Lien Debt  2.4%Aerospace and Defense  2.4%Galaxy Tool Holding Corporation  Line of Credit, $0 available (L+4.5%, 6.5% Cash (1.0%
Unused Fee), Due 8/2021)(L)

$
5,000


$
5,000


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


5,000



5,000



5,000$
10,000


$
10,000Preferred Equity  0.5%Aerospace and Defense  0.5%Galaxy Tool Holding Corporation  Preferred Stock(C)(L)


5,517,444


$
11,464


$
2,061Common Equity  0.0%Aerospace and Defense  0.0%Galaxy Tool Holding Corporation  Common Stock(C)(L)


88,843


$
48


$
Total Control Investments





$
21,512


$
12,061TOTAL INVESTMENTS  149.2%





$
593,754


$
608,336 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  11




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS) (UNAUDITED)  (A)
Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The
majority of the securities listed, totaling $558.2 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5  Borrowings in the accompanying Notes to Consolidated
Financial Statements. Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the 1940 Act), we may not acquire any non-qualifying assets unless, at the time such
acquisition is made, qualifying assets represent at least 70% of our total assets. As of September 30, 2019, our investment in Funko Acquisition Holdings, LLC (Funko) is considered a
non-qualifying asset under Section 55 of the 1940 Act and represents less than 0.1% of total investments, at fair value. (B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day London Interbank Offered Rate (LIBOR or L), which was 2.0% as of September 30, 2019. If applicable,
paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the
greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date. (C)
Security is non-income producing. (D)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of September 30, 2019. (E)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the Financial
Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Topic 820, Fair Value Measurements and Disclosures (ASC 820) fair value hierarchy. Refer to Note 3 
Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (F)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. (G)
Debt security is on non-accrual status. (H)
$5.1 million of the debt security was participated to a third party, but is accounted for as collateral
for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilitiesas of September 30, 2019. (I)
Debt security has a fixed interest rate. (J)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable. (K)
Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. Refer to Note 3  Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (L)
Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to
the portfolio companys securities in order of their relative priority in the capital structure. Refer to Note 3  Investments in the accompanyingNotes to Consolidated Financial Statements for additional information. (M)
One of our affiliated funds, Gladstone Capital Corporation, co-invested
with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. (N)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. (O)
Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we
own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. (P)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. (Q)
Investment was exited and/or amended subsequent to September 30, 2019. Refer to Note 13 
Subsequent Events in the accompanying Notes to Consolidated Financial Statements for additional information. (R)
Debt security does not have a stated current interest rate. (S)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol FNKO. Refer to Note 3  Investments in the accompanying Notes to Consolidated Financial Statements for additional
information. (T)
Refer to Note 10  Commitments and Contingencies in the accompanyingNotes to
Consolidated Financial Statements for additional information regarding this guaranty. THE ACCOMPANYING NOTES
ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  12




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS MARCH 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueNON-CONTROL/NON-AFFILIATE
INVESTMENTS(N)  77.2%Secured First Lien Debt  38.4%Containers, Packaging, and Glass  2.3%Frontier Packaging, Inc.  Term Debt (L+10.0%, 12.5% Cash, Due 3/2021)(L)

$
9,500


$
9,500


$
9,500Diversified/Conglomerate Services  16.0%Bassett Creek Restoration, Inc.  Term Debt (L+10.0%, 12.5% Cash, Due 4/2023)(L)


28,000



28,000



28,000Counsel Press, Inc.  Term Debt (L+11.8%, 14.2% Cash, Due 3/2020)(L)


18,000



18,000



18,000Counsel Press, Inc.  Term Debt (L+13.0%, 15.5% Cash, Due 3/2020)(L)


5,500



5,500



5,500Nth Degree, Inc.  Term Debt (L+11.5%, 14.0% Cash, Due 3/2023)(L)


13,290



13,290



13,29064,790



64,790Farming and Agriculture  2.7%Jackrabbit, Inc.  Term Debt (L+10.0%, 13.5% Cash, Due 12/2020)(Q)(T)


11,000



11,000



11,000Healthcare, Education, and Childcare  4.9%Educators Resource, Inc.  Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)(L)


20,000



20,000



20,000Leisure, Amusement, Motion Pictures, and Entertainment  6.8%Schylling, Inc.  Term Debt (L+11.0%, 13.5% Cash, Due 8/2019)(L)


13,081



13,081



13,081Schylling, Inc.  Term Debt (L+11.0%, 13.5% Cash, Due 8/2019)(L)


8,500



8,500



8,500Schylling, Inc.  Term Debt (L+11.0%, 13.5% Cash, Due 8/2019)(L)


6,000



6,000



6,00027,581



27,581Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  4.9%SBS Industries, LLC  Term Debt (L+12.0%, 14.5% Cash, Due 6/2020)(L)


19,957



19,957



19,957Oil and Gas  0.8%Tread Corporation  Line of Credit, $634 available (L+10.0%, 12.5% Cash, Due 3/2021)(Q)(T)


3,216



3,216



3,216Personal, Food, and Miscellaneous Services  0.0%B-Dry, LLC  Line of Credit, $50 available (L+0.3%,
2.7% Cash (0.8% Unused Fee), Due 12/2019)(G)(L)


4,600



4,600



B-Dry, LLC  Term Debt (L+0.3%, 2.7% Cash, Due
12/2019)(G)(L)


6,443



6,443



B-Dry, LLC  Term Debt (L+0.3%, 2.7% Cash, Due
12/2019)(G)(L)


840



840



11,883



Total Secured First Lien Debt





$
167,927


$
156,044Secured Second Lien Debt  7.5%Automobile  1.0%Country Club Enterprises, LLC  Term Debt (L+8.0%, 10.5% Cash, Due 2/2022)(K)

$
4,000


$
4,000


$
3,920Country Club Enterprises, LLC  Guaranty ($1,000)(U)










4,000



3,920Cargo Transport  3.2%Diligent Delivery Systems  Term Debt (L+9.0%, 11.5% Cash, Due 11/2022)(K)


13,000



12,933



13,163Home and Office Furnishings, Housewares, and Durable Consumer Products  3.3%Ginsey Home Solutions, Inc.  Term Debt (L+10.0%, 13.5% Cash, Due 1/2021)(H)(L)


13,300



13,300



13,300Total Secured Second Lien Debt





$
30,233


$
30,383 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  13




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValuePreferred Equity  26.2%Containers, Packaging, and Glass  0.4%Frontier Packaging, Inc.  Preferred
Stock(C)(L)


1,373


$
1,373


$
1,428Diversified/Conglomerate Services  15.6%Bassett Creek Restoration, Inc.  Preferred Stock(C)(L)


4,900



4,900



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


6,995



6,995



16,720Nth Degree, Inc.  Preferred
Stock(C)(L)


5,660



5,660



46,95817,555



63,678Farming and Agriculture  1.4%Jackrabbit, Inc.  Preferred
Stock(Q)(T)


3,556



3,556



5,632Healthcare, Education, and Childcare  2.5%Educators Resource, Inc.  Preferred
Stock(C)(L)


8,560



8,560



10,023Home and Office Furnishings, Housewares, and Durable Consumer Products  3.9%Ginsey Home Solutions, Inc.  Preferred
Stock(C)(L)


19,280



9,583



15,845Leisure, Amusement, Motion Pictures, and Entertainment  1.0%Schylling, Inc.  Preferred
Stock(C)(L)


4,000



4,000



4,255Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  1.1%SBS Industries, LLC  Preferred
Stock(C)(L)


27,705



2,771



4,461Oil and Gas  0.3%Tread Corporation  Preferred
Stock(C)(Q)(T)


12,998,639



3,768



1,140Personal, Food, and Miscellaneous Services  0.0%B-Dry, LLC  Preferred Stock(C)(L)


2,500



2,516



Total Preferred Equity





$
53,682


$
106,462Common Equity/Equivalents  5.1%Cargo Transport  0.6%Diligent Delivery Systems  Common Stock Warrants(C)(L)


8
%

$
500


$
2,327Containers, Packaging, and Glass  2.7%Frontier Packaging, Inc.  Common
Stock(C)(L)


152



152



11,081Farming and Agriculture  0.6%Jackrabbit, Inc.  Common
Stock(C)(Q)(T)


548



94



2,565Home and Office Furnishings, Housewares, and Durable Consumer Products  0.0%Ginsey Home Solutions, Inc.  Common
Stock(C)(L)


63,747



8



Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)  1.1%SBS Industries, LLC  Common
Stock(C)(L)


221,500



222



4,487Oil and Gas  0.0%Tread Corporation  Common
Stock(C)(Q)(T)


10,089,048



753



Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.1%Funko Acquisition Holdings, LLC(M) 
Common Units(C)(S)


27,188



131



401 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS  14




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValuePersonal, Food, and Miscellaneous Services  0.0%B-Dry, LLC  Common Stock(C)(L)


2,500


$
300


$
Total Common Equity





$
2,160


$
20,861Total
Non-Control/Non-Affiliate Investments





$
254,002


$
313,750AFFILIATE INVESTMENTS(O) 
72.8%Secured First Lien Debt  42.8%Automobile  1.4%Meridian Rack & Pinion, Inc.(M)
 Term Debt (L+11.5%, 14.0% Cash, Due 6/2019)(G)(K)

$
9,660


$
9,660


$
5,796Beverage, Food, and Tobacco  2.2%Head Country, Inc.  Term Debt (L+10.5%, 13.0% Cash, Due 2/2021)(L)


9,050



9,050



9,050Diversified/Conglomerate Manufacturing  4.6%D.P.M.S., Inc.  Term Debt (10.0% Cash, Due 10/2021)(I)(L)


10,796



10,796



7,115Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+10.5%, 13.0% Cash, Due 2/2022)(K)


9,300



9,300



8,951Edge Adhesives Holdings, Inc.(M)  Term
Debt (L+11.8%, 14.2% Cash, Due 2/2022)(K)


3,000



3,000



2,90223,096



18,968Diversified/Conglomerate Services  14.2%ImageWorks Display and Marketing Group, Inc.  Term Debt (L+11.0%, 13.5% Cash, Due 11/2022)(L)


22,000



22,000



22,000J.R. Hobbs Co.  Atlanta, LLC  Term Debt (L+10.3%, 12.7% Cash, Due 10/2023)(L)


36,000



36,000



36,00058,000



58,000Home and Office Furnishings, Housewares, and Durable Consumer Products  8.2%Brunswick Bowling Products, Inc.  Term Debt (L+10.0%, 12.5% Cash, Due 1/2023)(L)


17,700



17,700



17,700Old World Christmas, Inc.  Term Debt (L+11.3%, 13.7% Cash, Due 10/2019)(L)


15,770



15,770



15,77033,470



33,470Leisure, Amusement, Motion Pictures, and Entertainment  2.2%SOG Specialty Knives & Tools, LLC  Term Debt (L+4.0%, 6.5% Cash, Due 8/2022)(G)(L)


8,399



8,399



8,399SOG Specialty Knives & Tools, LLC  Term Debt (Due 8/2020)(L)(R)


538



538



5388,937



8,937Personal and Non-Durable Consumer Products
(Manufacturing Only)  6.3%The Mountain Corporation  Line of Credit, $400 available (L+5.0%, 9.0% Cash, Due 4/2020)(L)


2,500



2,500



2,500Pioneer Square Brands, Inc.  Term Debt (L+12.0%, 14.5% Cash, Due 8/2022)(L)


23,100



23,100



23,10025,600



25,600Telecommunications  3.7%B+T Group Acquisition, Inc.(M)  Line of
Credit, $175 available (L+11.0%, 13.5% Cash, Due 12/2021)(L)


1,225



1,225



1,225B+T Group Acquisition, Inc.(M)  Term
Debt (L+11.0%, 13.5% Cash, Due 12/2021)(L)


14,000



14,000



14,00015,225



15,225Total Secured First Lien Debt





$
183,038


$
175,046 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  15




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueSecured Second Lien Debt  8.6%Chemicals, Plastics, and Rubber  4.1%PSI Molded Plastics, Inc.  Term Debt (L+12.0%, 14.5% Cash, Due 1/2024)(G)(L)

$
26,618


$
26,618


$
16,641Diversified/Conglomerate Manufacturing  3.2%Alloy Die Casting Co.(M)  Term Debt
(L+4.0%, 6.5% Cash, Due 4/2021)(K)


12,215



12,215



12,032Alloy Die Casting Co.(M)  Term Debt
(L+4.0%, 6.5% Cash, Due 4/2021)(K)


175



175



172Alloy Die Casting Co.(M)  Term Debt
(L+4.0%, 6.5% Cash, Due 4/2021)(K)


910



910



89613,300



13,100Personal and Non-Durable Consumer Products
(Manufacturing Only)  1.3%The Mountain Corporation  Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)


11,700



11,700



5,169Total Secured Second Lien Debt





$
51,618


$
34,910Preferred Equity  21.0%Automobile  0.0%Meridian Rack & Pinion, Inc.(M)
 Preferred Stock(C)(L)


3,381


$
3,381


$
Beverage, Food, and Tobacco  0.7%Head Country, Inc.  Preferred
Stock(C)(L)


4,000



4,000



2,887Chemicals, Plastics, and Rubber  0.0%PSI Molded Plastics, Inc.  Preferred
Stock(C)(L)


58,598



9,730



Diversified/Conglomerate Manufacturing  1.9%Alloy Die Casting Co.(M)  Preferred
Stock(C)(L)


5,114



5,114



7,616Channel Technologies Group, LLC  Preferred Stock(C)(L)


2,279



1,841



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


3,774



3,774



10,729



7,616Diversified/Conglomerate Services  6.5%ImageWorks Display and Marketing Group, Inc.  Preferred Stock(C)(L)


67,490



6,749



8,526J.R. Hobbs Co.  Atlanta, LLC  Preferred Stock(C)(L)


5,920



5,920



17,82212,669



26,348Home and Office Furnishings, Housewares, and Durable Consumer Products  9.7%Brunswick Bowling Products, Inc.  Preferred Stock(C)(L)


4,943



4,943



23,747Old World Christmas, Inc.  Preferred
Stock(C)(L)


6,180



6,180



15,90911,123



39,656Leisure, Amusement, Motion Pictures, and Entertainment  0.0%SOG Specialty Knives & Tools, LLC  Preferred Stock(C)(L)


11,249



11,249



139Personal and Non-Durable Consumer Products
(Manufacturing Only)  2.2%The Mountain Corporation  Preferred
Stock(C)(L)


6,899



6,899



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


5,502



5,500



8,96012,399



8,960Telecommunications  0.0%B+T Group Acquisition, Inc.(M) 
Preferred Stock(C)(L)


12,841



4,196



 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL
STATEMENTS.  16




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  Company and
Investment(A)(B)(D)(E)

Principal/Shares/Units(F)(J)


Cost


Fair ValueTotal Preferred Equity





$
79,476


$
85,606Common Equity  0.4%Diversified/Conglomerate Manufacturing  0.4%Alloy Die Casting Co.(M)  Common Stock(C)(L)


630


$
41


$
1,551Channel Technologies Group, LLC  Common
Stock(C)(L)


2,319,184







D.P.M.S., Inc.  Common
Stock(C)(L)


627



1



42



1,551Personal and Non-Durable Consumer Products
(Manufacturing Only)  0.0%The Mountain Corporation  Common
Stock(C)(L)


751



1



Total Common Equity





$
43


$
1,551Total Affiliate Investments





$
314,175


$
297,113CONTROL INVESTMENTS(P) 
3.2%:Secured Second Lien Debt  2.4%Aerospace and Defense  2.4%Galaxy Tool Holding Corporation  Line of Credit, $0 available (L+4.5%, 7.0% Cash (1.0%
Unused Fee), Due 8/2019)(L)

$
5,000


$
5,000


$
5,000Galaxy Tool Holding Corporation  Term Debt (L+6.0%, 10.0% Cash, Due 8/2019)(L)


5,000



5,000



5,000$
10,000


$
10,000Preferred Equity  0.8%Aerospace and Defense  0.8%Galaxy Tool Holding Corporation  Preferred Stock(C)(L)


5,517,444


$
11,464


$
3,309Common Equity  0.0%Aerospace and Defense  0.0%Galaxy Tool Holding Corporation  Common
Stock(C)(L)


88,843


$
48


$
Total Control Investments





$
21,512


$
13,309TOTAL INVESTMENTS 
153.2%(V)





$
589,689


$
624,172 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  17




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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued) MARCH 31, 2019 (DOLLAR AMOUNTS IN THOUSANDS)  (A)
Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The
majority of the securities listed, totaling $536.3 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5Borrowings in the accompanying Notes to Consolidated
Financial Statements. Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the 1940 Act), we may not acquire any non-qualifying assets unless, at the time such
acquisition is made, qualifying assets represent at least 70% of our total assets. As of March 31, 2019, our investment in Funko is considered a non-qualifying asset under Section 55 of the 1940 Act
and represents less than 0.1% of total investments, at fair value. (B)
Unless indicated otherwise, all cash interest rates are indexed to
30-day LIBOR, which was 2.5% as of March 31, 2019. If applicable, paid-in-kind interest rates are noted separately from the
cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity
date. (C)
Security is non-income producing. (D)
Category percentages represent the fair value of each category and subcategory as a percentage of net assets as
of March 31, 2019. (E)
Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair
value hierarchy. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (F)
Where applicable, aggregates all shares of a class of stock owned without regard to specific series owned
within such class (some series of which may or may not be voting shares) or aggregates all warrants to purchase shares of a class of stock owned without regard to specific series of such class of stock such warrants allow us to purchase. (G)
Debt security is on non-accrual status. (H)
$5.1 million of the debt security was participated to a third party, but is accounted for as collateral
for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilitiesas of March 31, 2019. (I)
Debt security has a fixed interest rate. (J)
Represents the principal balance for debt investments and the number of shares/units held for equity
investments. Warrants are represented as a percentage of ownership, as applicable. (K)
Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and
Reference Data, LLC. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional information. (L)
Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to
the portfolio companys securities in order of their relative priority in the capital structure. Refer to Note 3Investments in the accompanyingNotes to Consolidated Financial Statements for additional information. (M)
One of our affiliated funds, Gladstone Capital Corporation, co-invested
with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission. (N)
Non-Control/Non-Affiliate
investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities. (O)
Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we
own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities. (P)
Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling
influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities. (Q)
Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to
occur imminently. (R)
Debt security does not have a stated current interest rate. (S)
Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our
common units in Funko are convertible to class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of
marketability. Funko, Inc. is traded on the Nasdaq Stock Market under the trading symbol FNKO. Refer to Note 3Investments in the accompanying Notes to Consolidated Financial Statements for additional
information. (T)
Security was sold subsequent to March 31, 2019. Refer to Note 3Investments in the
accompanyingNotes to Consolidated Financial Statements for additional information. (U)
Refer to Note 10Commitments and Contingencies in the accompanyingNotes to Consolidated
Financial Statements for additional information regarding this guaranty. (V)
Cumulative gross unrealized depreciation for federal income tax purposes is $98.8 million; cumulative
gross unrealized appreciation for federal income tax purposes is $133.2 million. Cumulative net unrealized appreciation is $34.4 million, based on a tax cost of $589.8 million. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONSOLIDATED FINANCIAL STATEMENTS.  18




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GLADSTONE INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS SEPTEMBER 30, 2019 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA AND AS OTHERWISE INDICATED) (UNAUDITED) NOTE 1. ORGANIZATION Gladstone Investment Corporation (Gladstone Investment) was incorporated under the General Corporation Law of the State of Delaware on
February 18, 2005, and completed an initial public offering on June 22, 2005. The terms the Company, we, our and us all refer to Gladstone Investment and its consolidated subsidiaries. We are
an externally advised, closed-end, non-diversified management investment company that has elected to be treated as a business development company (BDC) under
the Investment Company Act of 1940, as amended (the 1940 Act), and are applying the guidance of Financial Accounting Standards Board (FASB) Accounting Standards Codification (ASC) Topic 946, Financial
Services-Investment Companies (ASC 946). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment company (RIC) under the Internal Revenue Code of 1986, as amended
(the Code). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (U.S.). Debt investments primarily take the form of two types of loans: secured
first lien loans and secured second lien loans. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. Our investment
objectives are to: (i) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding
indebtedness and make distributions to stockholders that grow over time, and (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in
combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our equity investments for capital gains. We intend that our investment portfolio over time will consist of approximately 75.0% in debt
investments and 25.0% in equity investments, at cost. Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of
ours, was established on August 11, 2006 for the sole purpose of holding certain investments pledged as collateral under our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment. We
also have significant subsidiaries (as defined under Rule 1-02(w) of the U.S. Securities and Exchange Commissions (SEC) Regulation S-X) whose financial
statements are not consolidated with ours. Refer to Note 12  Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries. We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours and an
SEC-registered investment adviser, pursuant to an investment advisory agreement and management agreement (the Advisory Agreement). Administrative services are provided by Gladstone Administration,
LLC (the Administrator), an affiliate of ours and the Adviser, pursuant to an administration agreement (the Administration Agreement). Refer to Note 4  Related Party Transactions for more information regarding
these arrangements. NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Unaudited Interim Financial Statements and Basis of Presentation We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (GAAP) for interim financial
information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of SEC Regulation S-X. Accordingly, we have not included in
this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant
intercompany balances and transactions have been eliminated. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules
and regulations pursuant to the American Institute of Certified Public Accountants (AICPA) Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another
investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments,
consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and six months ended September 30, 2019 are not
necessarily indicative of results that ultimately may be achieved for the fiscal year ending March 31, 2020 or any future interim period. The interim financial statements and notes thereto should be read in conjunction with the financial
statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended March 31, 2019, as filed with the SEC on May 13, 2019.  19




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




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The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value and whether
it is reasonable in light of the Policy and other relevant facts and circumstances before determining fair value. Valuation Techniques In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:  

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

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

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

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




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Fair value measurements of our investments may involve subjective judgments and estimates and, due to the
uncertainty inherent in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be
materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other
events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other
restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded. Refer to Note 3  Investments for additional information regarding fair value measurements and our application of ASC 820. Revenue Recognition Interest Income Recognition Interest income, adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the
accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we
will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain
contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid and, in managements judgment, are likely to remain current, or, due to a
restructuring, the interest income is deemed to be collectible. As of September 30, 2019, certain of our loans to Meridian Rack & Pinion, Inc. (Meridian), The Mountain Corporation (The Mountain), PSI Molded
Plastics, Inc. (PSI), and SOG Specialty Knives & Tools, LLC (SOG) were on non-accrual status, with an aggregate debt cost basis of $56.4 million, or 13.0% of the cost
basis of all debt investments in our portfolio, and an aggregate fair value of $29.0 million, or 7.1% of the fair value of all debt investments in our portfolio. As of March 31, 2019, certain of our loans to
B-Dry, LLC, Meridian, The Mountain, PSI, and SOG were on non-accrual status, with an aggregate debt cost basis of $68.3 million, or 15.4% of the cost basis of all
debt investments in our portfolio, and an aggregate fair value of $21.9 million, or 5.4% of the fair value of all debt investments in our portfolio. Paid-in-kind (PIK) interest, computed at the contractual rate
specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. As of September 30, 2019 and March 31, 2019, we did not have any loans with a PIK interest component. Success Fee Income Recognition We record success fees as
income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale, and are
non-recurring. Dividend Income Recognition We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to
collect such amounts in cash or other consideration. Restricted Cash and Cash Equivalents Restricted cash and cash equivalents are generally cash and cash equivalents held in escrow received as part of an investment exit. Restricted cash and cash
equivalents are carried at cost, which approximates fair value. Deferred Financing and Offering Costs Deferred financing and offering costs consist of costs incurred to obtain financing, including lender fees and legal fees. Certain costs associated with our
revolving line of credit are deferred and amortized using the straight-line method, which approximates the effective interest method, over the term of the revolving line of credit. Costs associated with the issuance of our mandatorily redeemable
preferred stock are presented as discounts to the liquidation value of the mandatorily redeemable preferred stock and are amortized using the straight-line method, which approximates the effective interest method, over the term of the respective
series of preferred stock. Refer to Note 5  BorrowingsandNote 6  Mandatorily Redeemable Preferred Stock for further discussion.  22




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Related Party Fees We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the
Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the
terms of the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (the Credit Facility). We are also party to
the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services. Refer to Note 4  Related Party Transactionsfor additional information regarding these related party fees and agreements. Recent Accounting Pronouncements In July 2019, the FASB
issued Accounting Standards Update 2019-07, Codification Updates to SEC SectionsAmendments to SEC Paragraphs Pursuant to SEC Final Rule Releases
No.33-10532, Disclosure Update and Simplification, and Nos. 33-10231 and 33-10442, Investment Company
Reporting Modernization and Miscellaneous Updates (SEC Update) (ASU 2019-07). ASU 2019-07 aligns the guidance in various SEC sections of the
Codification with the requirements of certain SEC final rules. ASU 2019-07 is effective immediately. The adoption of ASU 2019-07 did not have a material impact on our
financial position, results of operations or cash flows. In August 2018, the FASB issued Accounting Standards Update
2018-13, Fair Value Measurement (Topic 820): Disclosure FrameworkChanges to the Disclosure Requirements for Fair Value (ASU
2018-13), which modifies the disclosure requirements in ASC 820. We are currently assessing the impact of ASU 2018-13 and do not anticipate a material impact
on our disclosures. ASU 2018-13 is effective for annual reporting periods beginning after December 15, 2019, including interim periods within those fiscal years, with early adoption permitted. NOTE 3. INVESTMENTS Fair Value In accordance with ASC 820, we determine the fair value of our investments to be the price that would be received for an investment in a current sale, which
assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use
of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.  

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

Level2  inputs to the valuation methodology include quoted prices for similar
financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are 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  

Level3  inputs to the valuation methodology are unobservable and significant to
the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants would use when pricing the financial instrument and can include the Valuation Teams assumptions based upon the best available
information. When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such
determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable (or Level 3) inputs, observable
inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the
fair value measurement.  23




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##### Table of Contents

As of September 30, 2019 and March 31, 2019, all of our investments were valued using Level 3
inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (Funko), which was valued using Level 2 inputs. We transfer investments in and out of Level 1, 2 and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of
observable and unobservable inputs utilized to perform the valuation for the period. There were no transfers in or out of Level 1, 2 and 3 during the six months ended September 30, 2019 and September 30, 2018, respectively. As of September 30, 2019 and March 31, 2019, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair
value hierarchy:  Fair Value MeasurementsFair Value


Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)


SignificantOtherObservableInputs(Level 2)


SignificantUnobservableInputs(Level 3)As of September 30, 2019:Secured first lien debt

$
300,864


$



$



$
300,864Secured second lien debt


106,744











106,744Preferred equity


183,531











183,531Common equity/equivalents


17,197







170
(A)


17,027Total Investments at September 30, 2019

$
608,336


$



$
170


$
608,166  Fair Value MeasurementsFair Value


Quoted Prices inActive Marketsfor IdenticalAssets(Level 1)


SignificantOtherObservableInputs(Level 2)


SignificantUnobservableInputs(Level 3)As of March 31, 2019:Secured first lien debt

$
331,090


$



$



$
331,090Secured second lien debt


75,293











75,293Preferred equity


195,377











195,377Common equity/equivalents


22,412







401
(A)


22,011Total Investments at March 31, 2019

$
624,172


$



$
401


$
623,771  (A)
Fair value was determined based on the closing market price of shares of Funko, Inc. (our units in Funko can be
converted into common shares of Funko, Inc.) at the reporting date less a discount for lack of marketability, as our investment was subject to certain restrictions.  24




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The following table presents our investments, valued using Level 3 inputs within the ASC 820 fair value
hierarchy, and carried at fair value as of September 30, 2019 and March 31, 2019, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:  Total Recurring Fair Value MeasurementsReported inConsolidated Statementsof Assets and
LiabilitiesValued Using Level 3 InputsSeptember 30, 2019


March 31, 2019Non-Control/Non-Affiliate
InvestmentsSecured first lien debt

$
178,228


$
156,044Secured second lien debt


30,436



30,383Preferred equity


120,584



106,462Common equity/equivalents(A)


17,027



20,460Total
Non-Control/Non-Affiliate Investments


346,275



313,349Affiliate InvestmentsSecured first lien debt


122,636



175,046Secured second lien debt


66,308



34,910Preferred equity


60,886



85,606Common equity/equivalents






1,551Total Affiliate Investments


249,830



297,113Control InvestmentsSecured first lien debt






Secured second lien debt


10,000



10,000Preferred equity


2,061



3,309Common equity/equivalents






Total Control Investments


12,061



13,309Total investments at fair value using Level 3 inputs

$
608,166


$
623,771  (A)
Excludes our investment in Funko with a fair value of $0.2 million and $0.4 million as of
September 30, 2019 and March 31, 2019, respectively, which was valued using Level 2 inputs.  25




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##### Table of Contents

In accordance with ASC 820, the following table provides quantitative information about our investments
valued using Level 3 fair value measurements as of September 30, 2019 and March 31, 2019. The table below is not intended to be all-inclusive, but rather provides information on the significant
Level 3 inputs as they relate to our fair value measurements. The weighted-average calculations in the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations
for the particular input.  Quantitative Information about Level 3 Fair Value MeasurementsFair Value as of


ValuationTechnique/Methodology

Unobservable Input

Range / Weighted-Average as ofSeptember 30,2019


March 31,2019


September 30, 2019

March 31, 2019Secured first lien debt(A)

$
288,856


$
313,440


TEV

EBITDA multiple

3.0x  8.4x / 6.4x

5.0x  8.6x / 6.4xEBITDA

$830  $24,639 /
$6,356

$1,303  $20,691 /$7,355Revenue multiple

0.6x  0.8x / 0.7x

0.6x  1.0x / 0.8xRevenue

$16,034  $23,484 / $21,856

$12,574  $24,857 /$17,78512,008



17,650


Yield Analysis

Discount Rate

14.3%  14.8% / 14.4%

14.6%  23.1% /18.5%Secured second lien debt


89,608



45,110


TEV

EBITDA multiple

5.5x  6.7x / 6.0x

5.9x  6.9x / 6.6xEBITDA

$3,475  $8,300 / $6,536

$4,156  $6,059 /$5,258Revenue multiple

0.8x  0.8x / 0.8x

0.8x  0.8x / 0.8xRevenue

$16,034  $16,034 / $16,034

$16,717  $16,717 /$16,71717,136



30,183


Yield Analysis

Discount Rate

10.2%  11.8% / 10.6%

7.3%  11.4% /9.5%Preferred equity(B)


183,531



195,377


TEV

EBITDA multiple

5.4x  8.3x / 6.5x

5.0x  8.6x / 7.3xEBITDA

$830  $24,639 / $6,226

$2,382  $20,691 /$7,183Revenue multiple

0.6x  0.8x / 0.7x

0.6x  1.0x / 0.7xRevenue

$16,034  $23,484 / $20,933

$12,574  $24,857 /$20,103Common equity/equivalents(C)(D)


17,027



22,011


TEV

EBITDA multiple

3.0x  7.9x / 4.7x

5.5x  8.1x / 7.0xEBITDA

$1,217  $18,182 / $5,963

$1,303  $17,310 /$11,459Revenue multiple

0.8x  0.8x / 0.8x

0.8x  0.8x / 0.8xRevenue

$16,034  $16,034 / $16,034

$16,717  $16,717 /$16,717Total

$
608,166


$
623,771  (A)
Fair value as of March 31, 2019 includes two proprietary debt investments for a combined
$14.2 million, which were valued at the expected payoff amount as the unobservable input. (B)
Fair value as of March 31, 2019 includes two proprietary equity investments for a combined
$6.8 million, which were valued at the expected payoff amount as the unobservable input. (C)
Fair value as of March 31, 2019 includes two proprietary equity investments for a combined
$2.6 million, which were valued at the expected payoff amount as the unobservable input. (D)
Fair value as of both September 30, 2019 and March 31, 2019 excludes our investment in Funko with a
fair value of $0.2 million and $0.4 million, respectively, which was valued using Level 2 inputs. Fair value
measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments.
Generally, an increase/(decrease) in discount rates or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase in the fair value of certain of our investments.  26




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##### Table of Contents

Changes in Level 3 Fair Value Measurements of Investments The following tables provide our portfolios changes in fair value, broken out by security type, during the three months and six months ended
September 30, 2019 and 2018 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs. Fair Value Measurements Using Significant Unobservable Inputs (Level 3)  SecuredFirst LienDebt


SecuredSecond LienDebt


PreferredEquity


CommonEquity/Equivalents


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

$
338,586


$
76,475


$
188,639


$
27,099


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










2,788



17,576



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


(1,532
)


(2,503
)


1,178



(1,202
)


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






67



(2,672
)


(10,029
)


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


12,450



5,005



1,500



1,200



20,155Settlements / repayments


(7,640
)


(13,300
)










(20,940
)Sales










(7,902
)


(17,617
)


(25,519
)Transfers(D)


(41,000
)


41,000











Fair value as of September 30, 2019

$
300,864


$
106,744


$
183,531


$
17,027


$
608,166  SecuredFirst LienDebt


SecuredSecond LienDebt


PreferredEquity


CommonEquity/Equivalents


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

$
331,090


$
75,293


$
195,377


$
22,011


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










1,533



19,295



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


(1,700
)


(1,325
)


(9,367
)


6,451



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






67



(2,121
)


(11,748
)


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


53,100



5,009



12,080



1,200



71,389Settlements / repayments


(40,626
)


(13,300
)










(53,926
)Sales










(13,971
)


(20,182
)


(34,153
)Transfers(D)


(41,000
)


41,000











Fair value as of September 30, 2019

$
300,864


$
106,744


$
183,531


$
17,027


$
608,166  SecuredFirst LienDebt


SecuredSecond LienDebt


PreferredEquity


CommonEquity/Equivalents


TotalThree months ended September 30, 2018:Fair value as of June 30, 2018

$
316,325


$
97,026


$
200,252


$
15,003


$
628,606Total gain (loss):Net realized loss(A)










(3,600
)






(3,600
)Net unrealized appreciation
(depreciation)(B)


(509
)


(2,093
)


33,875



3,661



34,934Reversal of previously recorded depreciation upon realization(B)










3,600







3,600New investments, repayments and
settlements(C):Issuances / originations


50



105



750







905Settlements / repayments


















Sales


















Transfers


















Fair value as of September 30, 2018

$
315,866


$
95,038


$
234,877


$
18,664


$
664,445  27




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##### Table of Contents

SecuredFirst LienDebt


SecuredSecond LienDebt


PreferredEquity


CommonEquity/Equivalents


TotalSix months ended September 30, 2018:Fair value as of March 31, 2018

$
305,856


$
97,339


$
167,150


$
28,608


$
598,953Total gain (loss):Net realized gain (loss)(A)










(3,600
)


13,786



10,186Net unrealized appreciation
(depreciation)(B)


(354
)


(2,661
)


65,453



4,801



67,239Reversal of previously recorded (appreciation) depreciation upon realization(B)


(74
)






3,600



(14,681
)


(11,155
)New investments, repayments and
settlements(C):Issuances / originations


24,952



360



5,650







30,962Settlements / repayments


(14,514
)














(14,514
)Sales










(3,376
)


(13,850
)


(17,226
)Transfers


















Fair value as of September 30, 2018

$
315,866


$
95,038


$
234,877


$
18,664


$
664,445  (A)
Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of
Operations for the respective periods ended September 30, 2019 and 2018. (B)
Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated
Statements of Operations for the respective periods ended September 30, 2019 and 2018. (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)
Transfers represent (1) secured first lien debt of B-Dry, LLC with
a cost basis of $11.9 million and a fair value of $0, which was converted into equity during the three months ended June 30, 2019 and (2) secured first lien debt of J.R. Hobbs Co.  Atlanta, LLC, with a total cost basis and fair
value of $41.0 million, that was converted into secured second lien debt during the three months ended September 30, 2019. Investment Activity During the six months ended
September 30, 2019, the following significant transactions occurred:  

In April 2019, we sold our investment in Tread Corporation, which resulted in a realized loss of
$2.7 million. In connection with the sale, we received net cash proceeds of $4.9 million, including the repayment of our debt investment of $3.2 million at par.  

In April 2019, we sold our investment in Jackrabbit Inc., which resulted in dividend income of $2.1 million
and a realized gain of $3.2 million. In connection with the sale, we received net cash proceeds of $19.8 million, including the repayment of our debt investment of $11.0 million at par.  

In April and May 2019, we extended a line of credit to J.R. Hobbs Co.  Atlanta, LLC (J.R.
Hobbs) with a total commitment amount of $10.0 million, which matures in October 2024.  

In May 2019, our $15.8 million debt investment in Old World Christmas, Inc. was repaid at par. In connection
with the repayment, we received success fee income of $0.2 million.  

In June 2019, we invested $38.8 million in Horizon Facilities Services, Inc. (Horizon) through a
combination of secured first lien debt and preferred equity. Horizon, headquartered in Allentown, Pennsylvania, is a leading provider of outsourced services to the rental car industry.  

In August 2019, we sold our investment in Alloy Die Casting Co., which resulted in success fee income of
$1.9 million and a realized gain of $20.4 million. In connection with the sale, we received net cash proceeds of $38.8 million, including the repayment of our debt investment of $13.3 million at par.  

In September 2019, we invested $4.4 million in Phoenix Door Systems, Inc (Phoenix) through a
combination of secured first lien debt and common equity. Phoenix, headquartered in Mason, Ohio, manufactures high impact traffic doors for the commercial and industrial market and architectural doors for the municipal market.  

In September 2019, we invested an additional $8.5 million in Bassett Creek Restoration, Inc. in the form of
first lien debt.  28




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##### Table of Contents

Investment Concentrations As of September 30, 2019, our investment portfolio consisted of investments in 29 portfolio companies located in 17 states across 14 different industries
with an aggregate fair value of $608.3 million. Our investments in Nth Degree, Inc., J.R. Hobbs, Counsel Press, Inc., Brunswick Bowling Products, Inc., and Horizon represented our five largest portfolio investments at fair value as of
September 30, 2019, and collectively comprised $241.4 million, or 39.8%, of our total investment portfolio at fair value. The following table
summarizes our investments by security type as of September 30, 2019 and March 31, 2019:  September 30, 2019


March 31, 2019Cost


Fair Value


Cost


Fair ValueSecured first lien debt

$
310,556



52.3
%

$
300,864



49.5
%

$
350,965



59.5
%

$
331,090



53.0
%Secured second lien debt


124,560



21.0



106,744



17.5



91,851



15.6



75,293



12.1Total debt


435,116



73.3



407,608



67.0



442,816



75.1



406,383



65.1Preferred equity


156,147



26.3



183,531



30.2



144,622



24.5



195,377



31.3Common equity/equivalents


2,491



0.4



17,197



2.8



2,251



0.4



22,412



3.6Total equity/equivalents


158,638



26.7



200,728



33.0



146,873



24.9



217,789



34.9Total investments

$
593,754



100.0
%

$
608,336



100.0
%

$
589,689



100.0
%

$
624,172



100.0
% Investments at fair value consisted of the following industry classifications as of September 30, 2019 and March 31,
2019:  September 30, 2019


March 31, 2019Fair Value


Percentage ofTotal Investments


Fair Value


Percentage ofTotal InvestmentsDiversified/Conglomerate Services

$
271,190



44.6
%

$
212,817



34.1
%Home and Office Furnishings, Housewares, and Durable Consumer Products


82,830



13.6



102,271



16.4Personal and Non-Durable Consumer Products
(Manufacturing Only)


36,746



6.0



40,130



6.4Leisure, Amusement, Motion Pictures, and Entertainment


36,276



6.0



40,912



6.6Healthcare, Education, and Childcare


27,907



4.6



30,022



4.8Diversified/Conglomerate Manufacturing


27,704



4.6



41,235



6.6Machinery (Non-agriculture, Non-construction, and Non-electronic)


26,875



4.4



28,905



4.6Containers, Packaging, and Glass


21,852



3.6



22,009



3.5Cargo Transport


15,840



2.6



15,490



2.5Telecommunications


15,785



2.6



15,225



2.4Chemicals, Plastics, and Rubber


15,505



2.5



16,641



2.7Beverage, Food, and Tobacco


13,645



2.2



11,937



1.9Aerospace and Defense


12,061



2.0



13,309



2.1Automobile


4,120



0.7



9,716



1.6Farming and Agriculture










19,197



3.1Other < 2.0%










4,356



0.7Total investments

$
608,336



100.0
%

$
624,172



100.0
% Investments at fair value were included in the following geographic regions of the U.S. as of September 30, 2019 and
March 31, 2019:  September 30, 2019


March 31, 2019Location

Fair Value


Percentage ofTotal Investments


Fair Value


Percentage ofTotal InvestmentsSouth

$
261,457



43.0
%

$
262,386



42.0
%West


163,699



26.9



177,599



28.5Northeast


126,591



20.8



129,430



20.7Midwest


56,589



9.3



54,757



8.8Total investments

$
608,336



100.0
%

$
624,172



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




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##### Table of Contents

Investment Principal Repayments The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments,
as of September 30, 2019:  AmountFor the remaining six months ending March 31:

2020

$
33,160For the fiscal years ending March 31:

2021


55,3462022


53,3812023


97,4892024


84,118Thereafter


111,680Total contractual repayments


$435,174Adjustments to cost basis of debt investments


(58
)Investments in equity securities


158,638Total cost basis of investments held as of September 30, 2019:

$
593,754 Receivables from Portfolio Companies Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies.
Such receivables, net of any allowance for uncollectible receivables, are included in Other assets, net on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables
from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon managements judgment, that the portfolio company is unable to pay its obligations. We
write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of September 30, 2019 and March 31, 2019, we had gross receivables from
portfolio companies of $1.3 million and $1.3 million, respectively. The allowance for uncollectible receivables was $0.6 million and $0.8 million as of September 30, 2019 and March 31, 2019, respectively. NOTE 4. RELATED PARTY TRANSACTIONS Transactions
with the Adviser We pay the Adviser certain fees as compensation for its services, such fees consisting of a base management fee and an incentive fee,
as described in the Advisory Agreement, and a loan servicing fee for the Advisers role as servicer pursuant to the Credit Facility, each as described below. On July 9, 2019, our Board of Directors, including a majority of the directors
who are not parties to the Advisory Agreement or interested persons of either party, approved the renewal of the Advisory Agreement through August 31, 2020. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating
officer) serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by Mr. Gladstone. David Dullum (our president) is also an executive managing director of the Adviser.  30




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##### Table of Contents

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


Six Months Ended September 30,2019


2018


2019


2018Average total assets subject to base management
fee(A)

$
628,790


$
655,000


$
631,500


$
638,600Multiplied by prorated annual base management fee of 2.0%


0.5
%


0.5
%


1.0
%


1.0
%Base management fee(B)


3,144



3,275



6,315



6,386Credits to fees from
Adviserother(B)


(608
)


(565
)


(1,830
)


(1,525
)Net base management fee

$
2,536


$
2,710


$
4,485


$
4,861Loan servicing fee(B)


1,593



1,674



3,345



3,414Credits to base management feeloan servicing fee(B)


(1,593
)


(1,674
)


(3,345
)


(3,414
)Net loan servicing fee

$



$



$



$
Incentive fee  income-based

$
742


$



$
2,823


$
1,078Incentive fee  capital
gains-based(C)


858



7,125



346



13,633Total incentive fee(B)

$
1,600


$
7,125


$
3,169


$
14,711Credits to fees from
Adviserother(B)














Net incentive fee

$
1,600


$
7,125


$
3,169


$
14,711  (A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share
issuances or repurchases during the periods. (B)
Reflected as a line item on our accompanying Consolidated Statement of Operations. (C)
The capital gains-based incentive fee is not yet contractually due under the terms of the Advisory Agreement. Base Management Fee The base
management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 2.0%, computed on the basis of the value of our average gross assets at the end of the two most recently completed quarters
(inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the
respective period and adjusted appropriately for any share issuances or repurchases during the period. Additionally, pursuant to the requirements of the
1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than
managerial assistance. Such services may include: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial
relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in
interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser non-contractually, unconditionally,
and irrevocably credits 100% of any fees received for such services against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of
such fees, totaling $37 and $87 for the three and six months ended September 30, 2019, respectively, and $47 and $118 for the three and six months ended September 30, 2018, respectively, was retained by the Adviser in the form of
reimbursement, at cost, for tasks completed by personnel of the Adviser, primarily related to the valuation of portfolio companies. Loan Servicing Fee The Adviser also services the loans held by our wholly-owned subsidiary, Business Investment (the borrower under the Credit Facility), in return for
which the Adviser receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans pledged under the Credit Facility. Since Business Investment is a consolidated subsidiary of ours, coupled with the fact that the total base
management fee paid to the Adviser pursuant to the Advisory Agreement cannot exceed 2.0% of total assets (less any uninvested cash or cash equivalents resulting from borrowings) during any given calendar year, we treat payment of the loan servicing
fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100%
non-contractually, unconditionally, and irrevocably credited back to us by the Adviser.  31




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##### Table of Contents

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

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

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

20.0% of the amount of our pre-incentive fee net investment income, if
any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter. The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or
upon termination of the Advisory Agreement, as of the termination date), and equals 20.0% of our realized capital gains, less any realized capital losses and unrealized depreciation, calculated as of the end of the preceding calendar year. The
capital gains-based incentive fee payable to the Adviser is calculated based on (i) cumulative aggregate realized capital gains since our inception, less (ii) cumulative aggregate realized capital losses since our inception, less
(iii) the entire portfolios aggregate unrealized capital depreciation, if any, as of the date of the calculation. If this number is positive at the applicable calculation date, then the capital gains-based incentive fee for such year
equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. For calculation purposes, cumulative aggregate realized capital gains, if any, equals the sum of
the excess between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the deficit between the net sales price of each
investment, when sold, and the original cost of such investment since our inception. The entire portfolios aggregate unrealized capital depreciation, if any, equals the sum of the deficit between the fair value of each investment security as
of the applicable calculation date and the original cost of such investment security. We have not incurred capital gains-based incentive fees from inception through September 30, 2019, as aggregate unrealized capital depreciation has exceeded
cumulative realized capital gains net of cumulative realized capital losses. In accordance with GAAP, accrual of the capital gains-based incentive fee is
determined as if our investments had been liquidated at their fair values as of the end of the reporting period. Therefore, GAAP requires that the capital gains-based incentive fee accrual consider the aggregate unrealized capital appreciation in
the calculation, as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that any such unrealized capital appreciation will be realized in the future. Accordingly, a
GAAP accrual is calculated at the end of the reporting period based on (i) cumulative aggregate realized capital gains since our inception, plus (ii) the entire portfolios aggregate unrealized capital appreciation, if any, less
(iii) cumulative aggregate realized capital losses since our inception, less (iv) the entire portfolios aggregate unrealized capital depreciation, if any. If such amount is positive at the end of a reporting period, a capital
gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of capital gains-based incentive fees accrued in all prior years, is recorded, regardless of whether such amount is contractually due under the terms of the Advisory
Agreement. If such amount is negative, then there is no accrual for such period. During the three and six months ended September 30, 2019, we recorded a capital gains-based incentive fees of $0.9 million and $0.3 million,
respectively. During the three and six months ended September 30, 2018, we recorded capital gains-based incentive fees of $7.1 million and $13.6 million, respectively. Such amounts are not yet contractually due under the terms of the
Advisory Agreement. Transactions with the Administrator We reimburse the Administrator pursuant to the Administration Agreement for our allocable portion of the Administrators expenses incurred while
performing services to us, which are primarily rent and salaries and benefits expenses of the Administrators employees, including: our chief financial officer and treasurer, chief valuation officer, chief compliance officer, and general
counsel and secretary (who also serves as the Administrators president, general counsel, and secretary), and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee
Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone.  32




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##### Table of Contents

Our allocable portion of the Administrators expenses is generally derived by multiplying the
Administrators total expenses by the approximate percentage of time during the current quarter the Administrators employees performed services for us in relation to their time spent performing services for all companies serviced by the
Administrator. On July 9, 2019, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the renewal of the Administration Agreement
through August 31, 2020. Other Transactions Gladstone Securities, LLC (Gladstone Securities), which is 100% indirectly owned and controlled by Mr. Gladstone, our chairman and chief
executive officer, is a privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. From time to time, Gladstone Securities provides other services, such as
investment banking and due diligence services, to certain of our portfolio companies, for which it receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. During the three and six months ended September 30, 2019, the fees received by Gladstone Securities from portfolio
companies totaled $0.0 million and $0.4 million, respectively. During the three and six months ended September 30, 2018, the fees received by Gladstone Securities from portfolio companies totaled $0.0 million and
$0.3 million, respectively. Related Party Fees Due Amounts due to related parties on our accompanying Consolidated Statements of Assets and Liabilities were as follows:  As of September 30,


As of March 31,2019


2019Base management and loan servicing fee due to Adviser, net of credits

$
1,359


$
1,143Incentive fee due to Adviser(A)


23,322



23,548Other due to Adviser


59



33Total fees due to Adviser

$
24,740


$
24,724Fee due to Administrator

$
423


$
344Total related party fees due

$
25,163


$
25,068  (A)
Includes a capital gains-based incentive fee of $22.6 million and $22.2 million as of
September 30, 2019 and March 31, 2019, respectively, recorded in accordance with GAAP requirements and which is not contractually due under the terms of the Advisory Agreement. Refer to Note 4  Related Party Transactions Transactions with the Adviser Incentive Fee for additional information. Net expenses receivable from
Gladstone Capital Corporation, one of our affiliated funds, for reimbursement purposes, which includes certain co-investment expenses, totaled $0 and $12 as of September 30, 2019 and March 31, 2019,
respectively. These amounts are generally settled in the quarter subsequent to being incurred and have been included in Other assets, net on the accompanying Consolidated Statements of Assets and Liabilitiesas of September 30, 2019 and
March 31, 2019, respectively. NOTE 5. BORROWINGS Revolving Line of Credit On August 22, 2018, we,
through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 4 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended, with KeyBank National
Association (KeyBank) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to August 22, 2021, and if not renewed or
extended by such date, all principal and interest will be due and payable on August 22, 2023 (two years after the revolving period end date). As of September 30, 2019, the Credit Facility provided a
one-year extension option that may be exercised on or before the second anniversary of the August 22, 2018 amendment date, subject to approval by all lenders. Additionally, the Credit Facility commitment
amount was increased from $165.0 million to $200.0 million and, subject to certain terms and conditions, can be expanded to a total facility amount of $300.0 million through additional commitments from existing or new lenders.  33




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##### Table of Contents

Advances under the Credit Facility generally bear interest at 30-day
London Interbank Offered Rate (LIBOR) plus 2.85% per annum until August 21, 2021, with the margin then increasing to 3.10% for the period from August 22, 2021 to August 21, 2022, and increasing further to 3.35% thereafter.
The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the
average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment
amount. The following tables summarize noteworthy information related to the Credit Facility:  As of September 30,2019


As of March 31,2019Commitment amount

$
200,000


$
200,000Borrowings outstanding at cost


46,800



53,000Availability(A)


153,200



147,000  For the Three Months EndedSeptember 30,


For the Six Months EndedSeptember 30,2019


2018


2019


2018Weighted-average borrowings outstanding

$
57,120


$
100,960


$
49,935


$
112,056Effective interest rate(B)


7.8
%


5.7
%


8.4
%


5.5
%Commitment (unused) fees incurred

$
364


$
116


$
763


$
170  (A)
Availability is subject to various constraints, characteristics and applicable advance rates based on
collateral quality under the Credit Facility, which equated to an adjusted availability of $126.9 million and $137.5 million as of September 30, 2019 and March 31, 2019, respectively. (B)
Excludes the impact of deferred financing costs and includes unused commitment fees. Among other things, the Credit Facility contains a performance guaranty that requires us to maintain (i) a minimum net worth (defined in the Credit
Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or retired
after November 16, 2016, which equated to $218.7 million as of September 30, 2019, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in
Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of September 30, 2019, and as defined in the performance guaranty of the
Credit Facility, we had a net worth of $534.3 million, asset coverage on our senior securities representing indebtedness of 1,103.8%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as
a BDC and RIC. As of September 30, 2019, we were in compliance with all covenants under the Credit Facility. Secured Borrowing In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our secured second lien term debt investment in
Ginsey Home Solutions, Inc. (Ginsey). In May 2014, we amended the agreement with the third-party to include an additional $0.1 million. ASC Topic 860, Transfers and Servicing requires us to treat the participation
as a financing-type transaction. Specifically, the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual
rate established at origination. Therefore, our accompanying Consolidated Statements of Assets and Liabilities reflects the entire secured second lien term debt investment in Ginsey and a corresponding $5.1 million secured borrowing
liability. The secured borrowing has a stated fixed interest rate of 7.0% and a maturity date of January 3, 2021. Fair Value We elected to apply the fair value option of ASC Topic 825, Financial Instruments, to the Credit Facility, which was consistent with our
application of ASC 820 to our investments. Generally, the fair value of the Credit Facility is determined using a yield analysis, which includes a DCF calculation and also takes into account the assumptions the Valuation Team believes market
participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. As of September 30, 2019, the discount rate used to
determine the fair value of our Credit Facility was 30-day LIBOR, plus 2.65% per annum, plus a 1.0% unused commitment fee. As of March 31, 2019, the discount rate used to determine the fair value of our
Credit Facility was 30-day LIBOR, plus 2.85% per annum, plus a 1.0% unused commitment fee. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding
decrease or  34




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##### Table of Contents

increase, respectively, in the fair value of the Credit Facility. At each of September 30, 2019 and March 31, 2019, the Credit Facility was valued using Level 3 inputs and any
changes in its fair value are recorded in Net unrealized depreciation of other on our accompanying Consolidated Statements of Operations. The
following tables provide relevant information and disclosures about the Credit Facility as of September 30, 2019 and March 31, 2019, and for the three and six months ended September 30, 2019 and 2018, as required by ASC 820:  Level 3  BorrowingsRecurring Fair Value MeasurementsReported inConsolidatedStatements of Assets and LiabilitiesUsing SignificantUnobservable Inputs (Level 3)September 30, 2019


March 31, 2019Credit Facility

$
46,964


$
53,000  Fair Value Measurements of
Borrowings Using SignificantUnobservable Inputs (Level 3) Reported inConsolidated Statements of Assets and LiabilitiesCreditFacilityThree months ended September 30, 2019:Fair value at June 30, 2019

$
73,795Borrowings


25,500Repayments


(52,200
)Unrealized depreciation


(131
)Fair value at September 30, 2019

$
46,964Six months ended September 30, 2019:Fair value at March 31, 2019

$
53,000Borrowings


100,000Repayments


(106,200
)Unrealized appreciation


164Fair value at September 30, 2019

$
46,964  Fair Value Measurements of
Borrowings Using SignificantUnobservable Inputs (Level 3) Reported inConsolidated Statements of Assets and LiabilitiesCreditFacilityThree months ended September 30, 2018:Fair value at June 30, 2018

$
102,907Borrowings


91,300Repayments


(78,100
)Unrealized depreciation


(407
)Fair value at September 30, 2018

$
115,700Six months ended September 30, 2018:Fair value at March 31, 2018

$
107,500Borrowings


129,200Repayments


(120,500
)Unrealized depreciation


(500
)Fair value at September 30, 2018

$
115,700 The fair value of the collateral under the Credit Facility was $558.2 million and $536.3 million as of
September 30, 2019 and March 31, 2019, respectively.  35




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##### Table of Contents

NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK The following tables summarize our 6.250% Series D Cumulative Term Preferred Stock (our Series D Term Preferred Stock or Series D), and
our 6.375% Series E Cumulative Term Preferred Stock (our Series E Term Preferred Stock or Series E) outstanding as of September 30, 2019 and March 31, 2019: As of September30, 2019:  Class ofTermPreferredStock

TickerSymbol


Date Issued

MandatoryRedemptionDate(A)

InterestRate


SharesOutstanding


LiquidationPreferenceper Share


TotalLiquidationPreferenceSeries D


GAINM


September 26, 2016

September 30, 2023


6.250
%


2,300,000


$
25.00


$
57,500Series E


GAINL


August 22, 2018

August 31, 2025


6.375
%


2,990,000



25.00



74,750Term preferred stock,
gross(A)



5,290,000


$
25.00


$
132,250Less: Discounts











(3,429
)Term preferred stock,
net(B)










$
128,821 As of March31, 2019:  Class ofTermPreferredStock

TickerSymbol


Date Issued

MandatoryRedemptionDate(A)

InterestRate


SharesOutstanding


LiquidationPreferenceper Share


TotalLiquidationPreferenceSeries D


GAINM


September 26, 2016

September 30, 2023


6.250
%


2,300,000


$
25.00


$
57,500Series E


GAINL


August 22, 2018

August 31, 2025


6.375
%


2,990,000



25.00



74,750Term preferred stock,
gross(A)



5,290,000


$
25.00


$
132,250Less: Discounts











(3,768
)Term preferred stock,
net(B)










$
128,482  (A)
As of September 30, 2019 and March 31, 2019, asset coverage on our senior securities that are stock,
calculated pursuant to Sections 18 and 61 of the 1940 Act, was 316.4% and 309.1%, respectively. (B)
Reflected as a line item on our accompanying Consolidated Statement of Assets and Liabilitiespursuant to the
adoption of Accounting Standard Update 2015-03, Simplifying the Presentation of Debt Issuance Costs. The following tables summarize dividends declared by our Board of Directors and paid by us on our 6.750% Series B Cumulative Term Preferred Stock (our
Series B Term Preferred Stock or Series B), our 6.500% Series C Cumulative Term Preferred Stock (our Series C Term Preferred Stock or Series C), our Series D Term Preferred Stock and our Series E Term
Preferred Stock during the six months ended September 30, 2019 and 2018: For the Six Months Ended September30, 2019:  Declaration Date

RecordDate

Payment
Date

Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare
ofSeries E TermPreferred Stock(A)April 9, 2019

April 22, 2019

April 30, 2019

$
0.13020833


$
0.13281250April 9, 2019

May 22, 2019

May 31, 2019


0.13020833



0.13281250April 9, 2019

June 19, 2019

June 28, 2019


0.13020833



0.13281250July 9, 2019

July 22, 2019

July 31, 2019


0.13020833



0.13281250July 9, 2019

August 20, 2019

August 30, 2019


0.13020833



0.13281250July 9, 2019

September 17, 2019

September 30, 2019


0.13020833



0.13281250Total

$
0.78124998


$
0.79687500  36




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##### Table of Contents

For the Six Months Ended September30, 2018:  DeclarationDate

RecordDate

Payment
Date

Dividend perShare ofSeries B TermPreferredStock(B)


Dividend perShare ofSeries C TermPreferredStock(B)


Dividend perShare ofSeries D TermPreferredStock


Dividend perShare ofSeries E TermPreferredStock(A)April 10, 2018

April 20, 2018

April 30, 2018

$
0.140625


$
0.135417


$
0.13020833


$
April 10, 2018

May 22, 2018

May 31, 2018


0.140625



0.135417



0.13020833



April 10, 2018

June 20, 2018

June 29, 2018


0.140625



0.135417



0.13020833



July 10, 2018

July 20, 2018

July 31, 2018


0.140625



0.135417



0.13020833



July 10, 2018

August 21, 2018

August 31, 2018


0.140625



0.135417



0.13020833



July 10, 2018

September 19, 2018

September 28, 2018










0.13020833



September 6, 2018

September 19, 2018

September 28, 2018














0.17265625
(C)Total

$
0.703125


$
0.677085


$
0.78124998


$
0.17265625  (A)
We issued our Series E Term Preferred Stock on August 22, 2018. (B)
We voluntarily redeemed all outstanding shares of our Series B Term Preferred Stock and Series C Term Preferred
Stock on August 31, 2018. (C)
Represents a combined dividend for the prorated month of August 2018, based upon the issuance date of our
Series E Term Preferred Stock, combined with the full month of September 2018. The federal income tax characteristics of dividends paid
to our preferred stockholders generally constitute ordinary income or capital gains to the extent of our current and accumulated earnings and profits and is reported after the end of the calendar year based on tax information for the full fiscal
year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. If we
determined the tax characterization of dividends paid to preferred stockholders in the current calendar year as of September 30, 2019, 27.3% would be from ordinary income and 72.7% would be from capital gains. In accordance with ASC Topic 480, Distinguishing Liabilities from Equity, mandatorily redeemable financial instruments should be classified
as liabilities on the balance sheet. Our mandatorily redeemable preferred stock is recorded at the liquidation preference, less discounts, on our accompanyingConsolidated Statements of Assets and Liabilities as of September 30, 2019 and
March 31, 2019. The related dividend payments to preferred stockholders are treated as dividend expense on our accompanyingConsolidated Statements of Operations on the ex-dividend date. The following table summarizes the fair value of each of our series of mandatorily redeemable preferred stock based on the last reported closing sale price as
of September 30, 2019 and March 31, 2019, each of which we consider to be a Level 1 input within the fair value hierarchy:  Fair Value as ofSeptember 30, 2019


March 31, 2019Series D Term Preferred Stock

$
58,213


$
58,535Series E Term Preferred Stock


78,338



76,395Total

$
136,551


$
134,930 NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS Registration Statement On June 14, 2019, we filed a
registration statement on Form N-2 (File No. 333-232124), which the SEC declared effective on July 24, 2019. The registration statement permits us to issue,
through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common  37




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##### Table of Contents

stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such
securities.As of September 30, 2019, we had the ability to issue all $300.0 million of the securities registered under the registration statement. Common Equity Offering In February 2018, we entered into
equity distribution agreements with Cantor Fitzgerald & Co. (Cantor), Ladenburg Thalmann & Co., Inc., and Wedbush Securities, Inc. (each a Sales Agent), under which we have the ability to issue and sell
shares of our common stock, from time to time, through the Sales Agents, up to an aggregate offering price of $35.0 million in what is commonly referred to as an
at-the-market (ATM) program. As of September 30, 2019, we had remaining capacity to sell up to an additional $31.8 million of common
stock under the ATM program. During the three months ended June 30, 2018, we sold 168,824 shares of our common stock under the ATM program with
Cantor at a weighted-average gross price of $11.09 per share and raised approximately $1.9 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $10.87 and resulted
in total net proceeds of approximately $1.8 million. Certain of these sales were below our then-current estimated NAV per share during the sales period, with a discount of $0.002 per share, when comparing the sales price per share, after
deducting commissions, to the then-current estimated NAV per share; however, the net dilutive effect (after commissions and offering costs borne by us) of these sales was $0.00 per common share as a result of the small number of shares sold at a
slight discount to NAV per share and resulting rounding. In aggregate, the sales during the three months ended June 30, 2018 were above our then-current estimated NAV per share. We did not sell any shares of our common stock under the ATM
program during the six months ended September 30, 2019. NOTE 8. NET INCREASE (DECREASE) IN NET ASSETS RESULTING FROM OPERATIONS PER
WEIGHTED-AVERAGE COMMON SHARE The following table sets forth the computation of basic and diluted Net increase in net assets resulting from operations
per weighted-average common share for the three and six months ended September 30, 2019 and 2018:  Three Months Ended September 30,


Six Months Ended September 30,2019


2018


2019


2018Numerator: net increase in net assets resulting from operations

$
11,004


$
30,364


$
17,050


$
62,691Denominator: basic and diluted weighted-average common shares


32,822,459



32,822,459



32,822,459



32,792,816Basic and diluted net increase in net assets resulting from operations per weighted-average
common share

$
0.34


$
0.93


$
0.52


$
1.91 NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our
taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income). The amount to be paid out as distributions to our common stockholders is determined by our
Board of Directors quarterly and is based upon managements estimate of Investment Company Taxable Income and net long-term capital gains, as well as amounts to be distributed in accordance with Section 855(a) of the Code. Based on that
estimate, our Board of Directors declares monthly distributions, and supplemental distributions, as appropriate, to common stockholders each quarter and deemed distributions of long-term capital gains annually as of the end of the fiscal year, as
applicable. The U.S. federal income tax characteristics of distributions paid to our common stockholders generally are reported to stockholders on IRS
Form 1099 after the end of each calendar year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of distributions for the full year. Estimates made on a quarterly basis are
updated as of each interim reporting date. If we determined the tax characterization of distributions paid to common stockholders in the current calendar year as of September 30, 2019, 67.9% would be from ordinary income and 32.1% would be from
capital gains.  38




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##### Table of Contents

We paid the following monthly and supplemental cash distributions to our common stockholders for the six
months ended September 30, 2019 and 2018:  Fiscal Year

DeclarationDate

Record Date

Payment Date

Distributionper Common Share2020

April 9, 2019

April 22, 2019

April 30, 2019

$
0.068April 9, 2019

May 22, 2019

May 31, 2019


0.068April 9, 2019

June 5, 2019

June 14, 2019


0.090
(A)April 9, 2019

June 19, 2019

June 28, 2019


0.068July 9, 2019

July 22, 2019

July 31, 2019


0.068July 9, 2019

August 20, 2019

August 30, 2019


0.068July 9, 2019

September 4, 2019

September 13, 2019


0.030
(A)July 9, 2019

September 17, 2019

September 30, 2019


0.068Six months ended September 30, 2019:

$
0.528  Fiscal Year

Declaration Date

Record Date

Payment Date

Distributionper Common Share2019

April 10, 2018

April 20, 2018

April 30, 2018

$
0.067April 10, 2018

May 22, 2018

May 31, 2018


0.067April 10, 2018

June 6, 2018

June 15, 2018


0.060
(A)April 10, 2018

June 20, 2018

June 29, 2018


0.067July 10, 2018

July 20, 2018

July 31, 2018


0.067July 10, 2018

August 21, 2018

August 31, 2018


0.067July 10, 2018

September 19, 2018

September 28, 2018


0.067Six months ended September 30, 2018:

$
0.462  (A)
Represents a supplemental distribution to common stockholders. Aggregate cash distributions to our common stockholders declared quarterly and paid were $17.3 million and $15.2 million for the six months ended
September 30, 2019 and 2018, respectively, and were declared based on estimates of Investment Company Taxable Income and net long-term capital gains for the respective periods, as well as amounts to be distributed in accordance with
Section 855(a) of the Code. For the fiscal year ended March 31, 2019, Investment Company Taxable Income exceeded distributions declared and
paid and, in accordance with Section 855(a) of the Code, we elected to treat $16.0 million of the first distributions paid subsequent to fiscal year-end, as having been paid in the prior year. In
addition, for the fiscal year ended March 31, 2019, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $13.2 million of the first distributions paid
subsequent to fiscal year-end as having been paid in the prior year. For the three and six months ended
September 30, 2019, we recorded $0.9 million and $1.3 million, respectively, of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in
excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed (Overdistributed) net investment income for both periods on our accompanying Consolidated Statements of Assets and Liabilities. For the three and six months ended September 30, 2018, we recorded $2.5 million and $2.7 million, respectively, of net adjustments for
estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and increased Overdistributed net investment income and Accumulated net realized gain in excess
of distributions for both periods on our accompanying Consolidated Statements of Assets and Liabilities. We may distribute our net long-term
capital gains, if any, in cash or elect to retain some or all of such gains, pay taxes at the U.S. federal corporate-level income tax rate on the amount retained, and designate the retained amount as a deemed distribution. If we elect to
retain net long-term capital gains and deem them distributed, each U.S. common stockholder will be treated as if they received a distribution of their pro rata share of the retained net long-term capital gain and the U.S. federal income tax paid. As
a result, each U.S. common stockholder will (i) be required to report their pro rata share of the retained gain on their tax return as long-term capital gain, (ii) receive a refundable tax credit for their pro rata share of federal tax
paid by us on the retained gain, and (iii) increase the tax basis of their shares of common stock by an amount equal to the deemed distribution less the tax credit. In order to use the deemed distribution approach, we must provide written
notice to our common stockholders prior to the expiration of 60 days after the close of the relevant taxable year. For the year ended March 31, 2019, we elected to retain $50.0 million, or $1.52 per common share, of long-term capital gains
and to treat them as deemed distributions to common stockholders. We incurred $10.5 million, or $0.32 per common share, of federal taxes  39




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##### Table of Contents

on behalf of common stockholders, which was included in Taxes on deemed distribution of long-term capital gains on our Consolidated Statements of Operations for the year ended
March 31, 2019 and in Other liabilities on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2019. In
addition, we recorded a reserve for uncertain tax positions related to potential Virginia state tax exposure related to the deemed distribution of $3.0 million for the year ended March 31, 2019, which was included in Taxes on deemed
distribution of long-term capital gains on our Consolidated Statements of Operations for the year ended March 31, 2019 and in Other liabilities on our accompanyingConsolidated Statements of Assets and Liabilitiesas of
September 30, 2019 and March 31, 2019. We have requested clarification of the treatment of deemed distributions with respect to Virginia state taxes from the Virginia Department of Revenue. We expect to obtain such clarification during our
fiscal year ending March 31, 2020. NOTE 10. COMMITMENTS AND CONTINGENCIES Legal Proceedings We are party to certain legal
proceedings incidental to the normal course of our business. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both
probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our
financial condition, results of operation or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of September 30, 2019 and March 31, 2019, we
had no established reserves for such loss contingencies. Escrow Holdbacks From time to time, we enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used
to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow
receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable
that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves and holdbacks against escrow amounts were $3.0 million and $1.7 million as of September 30, 2019 and
March 31, 2019, respectively. Financial Commitments and Obligations We have lines of credit commitments to certain of our portfolio companies that have not been fully drawn. Since these line of credit commitments have
expiration dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the unused line of credit commitments as of
September 30, 2019 and March 31, 2019 to be immaterial. We have also extended a guaranty on behalf of one of our portfolio companies. As of
September 30, 2019, we have not been required to make any payments on this guaranty, or any guaranties that existed in previous periods, and we consider the credit risk to be remote and the fair value of the guaranty as of September 30,
2019 and March 31, 2019 to be immaterial. As of September 30, 2019, the following guaranty was outstanding:  

A $1.0 million continuing guaranty of a wholesale financing facility agreement (the Floor Plan
Facility) between DLL Finance LLC (f/k/a Agricredit Acceptance, LLC) and Country Club Enterprises, LLC (CCE). The Floor Plan Facility provides CCE with financing to bridge the time and cash flow gap between the order and delivery
of golf carts to customers. The following table summarizes the principal balances of unused line of credit commitments and guaranties
as of September 30, 2019 and March 31, 2019, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:  September 30, 2019


March 31, 2019Unused line of credit commitments

$
4,415


$
1,259Guaranties


1,000



1,000Total

$
5,415


$
2,259  40




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##### Table of Contents

NOTE 11. FINANCIAL HIGHLIGHTS  Three Months Ended September 30,


Six Months Ended September 30,2019


2018


2019


2018Per Common Share Data:Net asset value at beginning of
period(A)

$
12.29


$
11.57


$
12.40


$
10.85Income from investment
operations(B)Net investment income (loss)


0.20



(0.12
)


0.47



(0.12
)Net realized gain (loss) on investments and other


0.65



(0.14
)


0.66



0.29Net unrealized (depreciation) appreciation of investments and other


(0.51
)


1.19



(0.61
)


1.74Total from investment operations


0.34



0.93



0.52



1.91Effect of equity capital
activity(B)Cash distributions to common stockholders from net investment income(C)


(0.16
)


(0.20
)


(0.36
)


(0.41
)Cash distributions to common stockholders from realized gains(C)


(0.07
)






(0.17
)


(0.05
)Discounts, commissions, and offering costs














Net dilutive effect of equity
offering(D)














Total from equity capital activity


(0.23
)


(0.20
)


(0.53
)


(0.46
)Other, net(B)(E)


(0.01
)










Net asset value at end of
period(A)

$
12.39


$
12.30


$
12.39


$
12.30Per common share market value at beginning of period

$
11.23


$
11.77


$
11.60


$
10.10Per common share market value at end of period


12.34



11.43



12.34



11.43Total investment return(F)


12.07
%


(0.61
)%


11.26
%


17.77
%Common stock outstanding at end of
period(A)


32,822,459



32,822,459



32,822,459



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

$
406,830


$
403,574


$
406,830


$
403,574Average net assets(G)


407,970



386,747



407,929



375,487Senior Securities Data:Total borrowings, at cost

$
51,896


$
120,796


$
51,896


$
120,796Mandatorily redeemable preferred stock(H)


132,250



132,250



132,250



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


9.86
%


17.67
%


9.07
%


17.33
%Ratio of net investment income to average net assets  annualized(J)


6.45



(4.13
)


7.57



(2.10
)  (A)
Based on actual shares of common stock outstanding at the beginning or end of the corresponding period, as
appropriate. (B)
Based on weighted-average basic common share data for the corresponding period. (C)
The tax character of distributions is determined based on taxable income calculated in accordance with income
tax regulations, which may differ from amounts determined under GAAP. For further information on the estimated character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9 
Distributions to Common Stockholders. (D)
During the three and six months ended September 30, 2018, the net dilutive effect of issuing common shares
was $0.00 per common share as a result of the small number of shares sold at a slight discount to NAV per share and resulting rounding. (E)
Represents the impact of the different share amounts (weighted-average basic common shares outstanding for the
corresponding period and actual common shares outstanding at the end of the period) in the Per Common Share Data calculations and rounding impacts. (F)
Total return equals the change in the market value of our common stock from the beginning of the period, taking
into account dividends reinvested in accordance with the terms of our dividend reinvestment plan. Total return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated
character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9  Distributions to Common Stockholders. (G)
Calculated using the average balance of net assets at the end of each month of the reporting period. (H)
Represents the total liquidation preference of our mandatorily redeemable preferred stock. (I)
Ratio of net expenses to average net assets is computed using total expenses, net of any non-contractual, unconditional, and irrevocable credits of fees from the Adviser. Had we not received any non-contractual, unconditional, and irrevocable credits of fees due
to the Adviser, the ratio of expenses to average net assetsannualized would have been 12.01% and 19.99% for the three months ended September 30, 2019 and 2018, respectively, and 11.61% and 19.96% for the six months ended
September 30, 2019 and 2018, respectively. (J)
Had we not received any non-contractual, unconditional, and irrevocable
credits of fees from the Adviser, the ratio of net investment income (loss) to average net assetsannualized would have been 4.30% and (6.45)% for the three months ended September 30, 2019 and 2018, respectively, and 5.03% and (4.73)% for
the six months ended September 30, 2019 and 2018, respectively.  41




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##### Table of Contents

NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES In accordance with the SECs Regulation S-X, we do not consolidate portfolio company investments. Further, in
accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to
the investment company or its consolidated subsidiaries. We did not have any unconsolidated subsidiaries that met any of the significance conditions under Rule 1-02(w) of the SECs Regulation S-X as of or during either of the six month periods ended September 30, 2019 and 2018. NOTE 13. SUBSEQUENT
EVENTS Distributions and Dividends In October
2019, our Board of Directors declared the following monthly and supplemental distributions to common stockholders and monthly dividends to holders of our Series D Term Preferred Stock and Series E Term Preferred Stock:  Record Date

Payment Date

Distribution perCommon Share


Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare ofSeries E TermPreferred StockOctober 22, 2019

October 31, 2019

$
0.068


$
0.13020833


$
0.13281250November 19, 2019

November 29, 2019


0.068



0.13020833



0.13281250December 3, 2019

December 13, 2019


0.090
(A)






December 19, 2019

December 31, 2019


0.068



0.13020833



0.13281250Total for the Quarter:

$
0.294


$
0.39062499


$
0.39843750  (A)
Represents a supplemental distribution to common stockholders. Investment Activity In October 2019, we exited our
investment in B-Dry, LLC, with a fair value of $0 as of September 30, 2019, and recorded a realized loss of $14.7 million.  42




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##### Table of Contents

ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS All statements contained herein, other than historical facts, may constitute forward-looking statements.
These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation (the
Adviser) and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In
some cases, you can identify forward-looking statements by terminology such as estimate, may, might, believe, will, provided, anticipate, future,
could, growth, plan, project, intend, expect, should, would, if, seek, possible, potential,
likely or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity,
performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include: (1) changes in the economy and the
capital markets; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, David Dullum, or Terry Lee Brubaker;
(4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates, regulation
or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (9) changes in governmental regulation, tax rates and similar matters; (10) our
ability to exit investments in a timely manner; (11) our ability to maintain our qualification as a regulated investment company and as a business development company; and (12) those factors described in Item 1A.Risk Factorsherein and the Risk Factors sections of our Annual Report on Form 10-K for the fiscal year ended
March 31, 2019, filed with the U.S. Securities and Exchange Commission (SEC) on May 13, 2019 (the Annual Report). We caution readers not to place undue reliance on any such forward-looking statements. Actual results
could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this
Quarterly Report on Form 10-Q (the Quarterly Report). Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise, after the date of this Quarterly Report. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future
events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including subsequent annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this Quarterly Report
are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended. In this Quarterly Report, the Company, we, us, and our refer to Gladstone Investment Corporation and its
wholly-owned subsidiaries unless the context otherwise indicates. Dollar amounts, except per share amounts, are in thousands, unless otherwise indicated. The following analysis of our financial condition and results of operations should be read in conjunction with our accompanyingConsolidated
Financial Statementsand the notes thereto contained elsewhere in this Quarterly Report and in our Annual Report. Historical financial condition and results of operations and percentage relationships among any amounts in the financial
statements are not necessarily indicative of financial condition or results of operations for any future periods. OVERVIEW General We were incorporated under the General Corporation Law of the State of Delaware on February 18, 2005. On June 22, 2005, we completed our
initial public offering and commenced operations. We operate as an externally managed, closed-end, non-diversified management investment company and have elected to be
treated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). For U.S. federal income tax purposes, we have elected to be treated as a regulated investment company
(RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). To continue to qualify as a RIC for U.S. federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain
requirements, including certain minimum distribution requirements. From our initial public offering in 2005 through September 30, 2019, we have paid 171 consecutive monthly distributions to common stockholders.  43




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##### Table of Contents

We are externally managed by the Adviser, an affiliate of ours and an
SEC-registered investment adviser, pursuant to an investment advisory and management agreement (the Advisory Agreement). We have also entered into an administration agreement (the
Administration Agreement) with Gladstone Administration, LLC (the Administrator), an affiliate of ours and the Adviser. Each of the Adviser and the Administrator are privately-held companies that are indirectly owned and
controlled by David Gladstone, our chairman and chief executive officer. Additionally, Gladstone Securities, LLC (Gladstone Securities), a
privately-held broker-dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, which is indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive
officer, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do
not impact the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. For additional information refer to Note 4  Related Party
Transactions in the accompanying Notes to Consolidated Financial Statements. We were established for the purpose of investing in debt and
equity securities of established private businesses operating in the United States (U.S.). Our investment objectives are to: (i) achieve and grow current income by investing in debt securities of established businesses that we
believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness, and make distributions to our stockholders that grow over time; and (ii) provide our stockholders with
long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our
equity investments for capital gains. To achieve our objectives, our investment strategy is to invest in several categories of debt and equity securities, with individual investments generally totaling up to $30 million, although investment
size may vary depending upon our total assets or available capital at the time of investment. We intend that our investment portfolio over time will consist of approximately 75% in debt securities and 25% in equity securities, at cost. As of
September 30, 2019, our investment portfolio was made up of 73.3% in debt securities and 26.7% in equity securities, at cost. We focus on investing
in lower middle market private businesses (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (EBITDA) of $3 million to $20 million) (Lower Middle Market) in
the U.S. that meet certain criteria, including: the sustainability of the business free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in
the portfolio company, reasonable capitalization of the portfolio company, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples, and the potential to realize appreciation and gain liquidity in our
equity position, if any. We anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the portfolio company, a public offering of the portfolio companys stock, or, to a lesser extent, by exercising
our right to require the portfolio company to repurchase our warrants, though there can be no assurance that we will always have these rights. We invest in portfolio companies that need funds for growth capital or to finance acquisitions or
recapitalize or, to a lesser extent, refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises. We
invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us an exemptive order (the Co-Investment
Order) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Capital Corporation (Gladstone Capital) and any future business
development company or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the
foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Capital pursuant to the
Co-Investment Order. We believe the Co-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies. If we
are participating in an investment with one or more co-investors, whether or not an affiliate of ours, our investment is likely to be smaller than if we were investing alone. Our shares of common stock, 6.25% Series D Cumulative Term Preferred Stock (Series D Term Preferred Stock) and 6.375% Series E Cumulative Term
Preferred Stock (Series E Term Preferred Stock) are traded on the Nasdaq Global Select Market under the trading symbols GAIN, GAINM, and GAINL, respectively. Business Portfolio Activity While the business environment remains competitive, we continue to see new investment opportunities consistent with our investment strategy of providing a
combination of debt and equity in support of management and independent sponsor-led buyouts of Lower Middle Market companies in the U.S. During the six months ended September 30, 2019, we exited three
portfolio companies with a combined fair value prior to their exits of $54.7 million and invested $43.2 million in two new portfolio companies, resulting in a net reduction of one company in our portfolio, which was comprised of 29
companies as of September 30, 2019. From our initial public offering in June 2005 through September 30, 2019, we made investments in 51 companies, excluding investments in syndicated loans, for a total of over $1 billion, before
giving effect to principal repayments and divestitures.  44




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##### Table of Contents

The majority of the debt securities in our portfolio have a success fee component, which enhances the yield
on our debt investments. Unlike paid-in-kind (PIK) income, we generally do not recognize success fees as income until payment has been received. Due to the
contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of September 30, 2019, we had unrecognized, contractual
success fees of $33.3 million, or $1.02 per common share. Consistent with accounting principles generally accepted in the U.S. (GAAP), we have not recognized success fee receivables and related income in our Consolidated
Financial Statements until earned. From inception through September 30, 2019, we completed sales of 19 portfolio companies that we acquired
under our buyout strategy (which excludes investments in syndicated loans). In the aggregate, these sales have generated $198.9 million in net realized gains and $27.4 million in other income upon exit, for a total increase to our net
assets of $226.3 million. We believe, in aggregate, these transactions were equity-oriented investment successes and exemplify our investment strategy of striving to achieve returns through current income on the debt portion of our investments
and capital gains from the equity portion. The 19 liquidity events have offset any realized losses since inception, which were primarily incurred during the recession in connection with the sale of performing syndicated loans at a realized loss to
pay off a former lender. These successful exits, in part, enabled us to increase the monthly distribution by 70.0% from March 2011 through September 30, 2019, and allowed us to declare and pay a $0.03 per common share supplemental distribution
in fiscal year 2012, a $0.05 per common share supplemental distribution in November 2013, a $0.05 per common share supplemental distribution in December 2014, a $0.06 per common share supplemental distribution in each of June 2017, December 2017,
June 2018, and December 2018, a $0.09 per common share supplemental distribution in June 2019, and a $0.03 per common share supplemental distribution in September 2019. Capital Raising Efforts We have been able to meet
our capital needs through extensions of and increases to the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended (the Credit Facility), and by accessing the capital markets in the form of public offerings of
common and preferred stock. We have successfully extended the Credit Facilitys revolving period multiple times, most recently to August 2021, and currently have a total commitment amount of $200.0 million (with a potential total
commitment of $300.0 million through additional commitments from new or existing lenders). During the year ended March 31, 2019, we sold 168,842 shares of our common stock under our at-the-market program for gross proceeds of approximately $1.9 million. Additionally, we issued 3.0 million shares of our Series E Term Preferred Stock for gross proceeds of $74.8 million in
August 2018. Refer to Liquidity and Capital Resources  Revolving Line of Credit for further discussion of the Credit Facility and Liquidity and Capital Resources  Equity  Common Stock and
Liquidity and Capital Resources  Equity  Term Preferred Stock for further discussion of our common stock and mandatorily redeemable preferred stock. Although we have been able to access the capital markets historically, market conditions may continue to affect the trading price of our common stock and thus
our ability to finance new investments through the issuance of common equity. On September 30, 2019, the closing market price of our common stock was $12.34 per share, representing a 0.4% discount to our net asset value (NAV) of
$12.39 per share as of September 30, 2019. When our common stock trades below NAV, our ability to issue additional equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock at an
issuance price below the then-current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering. At our 2019 Annual Meeting of Stockholders held on August 15, 2019, our stockholders approved a proposal authorizing us to issue and sell shares of our
common stock at a price below our then-current NAV per share, subject to certain limitations, including that the number of common shares issued and sold pursuant to such authority does not exceed 25.0% of our then-outstanding common stock
immediately prior to each such sale, provided that our board of directors (Board of Directors) makes certain determinations prior to any such sale. This August 2019 stockholder authorization is in effect for one year from the date of
stockholder approval. We sought and obtained stockholder approval concerning similar proposals at each Annual Meeting of Stockholders since 2008, and with our Board of Directors subsequent approval, we issued shares of our common stock in
three offerings at a price below the then-current NAV per share, once in May 2017, once in March 2015, and once in October 2012. Certain sales under the at-the-market
program in March and April 2018 were also below the then-current estimated NAV per share. The resulting proceeds, in part, have allowed us to (i) grow our portfolio by making new investments, (ii) generate additional income through these
new investments, (iii) ensure continued compliance with regulatory tests and (iv) increase our debt capital while still complying with our applicable
debt-to-equity ratios. Refer to Liquidity and Capital Resources  Equity  Common Stock for further discussion of our common stock.  45




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##### Table of Contents

Regulatory Compliance Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage
limitations of the 1940 Act, which require us to have asset coverage (as defined in Sections 18 and 61 of the 1940 Act), of at least 150% on each of our senior securities representing indebtedness and our senior securities that are stock (such as
our two series of term preferred stock). On April 10, 2018, our Board of Directors, including a required majority (as such term is
defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act, as amended by the Small Business Credit Availability Act. As a result, the Companys
asset coverage requirements for senior securities changed from 200% to 150%, effective as of April 10, 2019, one year after the date of the Board of Directors approval. Under the 200% asset coverage standard in effect prior to
April 10, 2019, we were able to borrow debt or issue senior securities in the amount of $1.00 for every $1.00 of equity in the Company. Since April 10, 2019, under the 150% asset coverage standard, we may now incur debt or issue senior
securities in the amount of $2.00 for every $1.00 of equity in the Company. Notwithstanding the modified asset coverage requirement under the 1940 Act described above, we are separately subject to a minimum asset coverage requirement of 200% with
respect to our Series D Term Preferred Stock. As of September 30, 2019, our asset coverage ratio on our senior securities representing indebtedness
was 1,103.8% and our asset coverage on our senior securities that are stock was 316.4%. Investment Highlights During the six months ended September 30, 2019, and inclusive of non-cash transactions, we invested
$43.2 million in two new portfolio companies, received $89.0 million in proceeds from repayments and sales, and extended $28.2 million of follow-on investments to existing portfolio companies
through revolver draws, term loans, and preferred equity. Investment Activity During the six months ended September 30, 2019, the following significant transactions occurred:  

In April 2019, we sold our investment in Tread Corporation (Tread), which resulted in a realized loss
of $2.7 million. In connection with the sale, we received net cash proceeds of $4.9 million, including the repayment of our debt investment of $3.2 million at par.  

In April 2019, we sold our investment in Jackrabbit Inc. (Jackrabbit), which resulted in dividend
income of $2.1 million and a realized gain of $3.2 million. In connection with the sale, we received net cash proceeds of $19.8 million, including the repayment of our debt investment of $11.0 million at par.  

In April and May 2019, we extended a line of credit to J.R. Hobbs Co.  Atlanta, LLC with a total commitment
amount of $10.0 million, which matures in October 2024.  

In May 2019, our $15.8 million debt investment in Old World Christmas, Inc. was repaid at par. In connection
with the repayment, we received success fee income of $0.2 million.  

In June 2019, we invested $38.8 million in Horizon Facilities Services, Inc. (Horizon) through a
combination of secured first lien debt and preferred equity. Horizon, headquartered in Allentown, Pennsylvania, is a leading provider of outsourced services to the rental car industry.  

In August 2019, we sold our investment in Alloy Die Casting Co. (ADC), which resulted in success fee
income of $1.9 million and a realized gain of $20.4 million. In connection with the sale, we received net cash proceeds of $38.8 million, including the repayment of our debt investment of $13.3 million at par.  

In September 2019, we invested $4.4 million in Phoenix Door Systems, Inc (Phoenix) through a
combination of secured first lien debt and common equity. Phoenix, headquartered in Mason, Ohio, manufactures high impact traffic doors for the commercial and industrial market and architectural doors for the municipal market.  

In September 2019, we invested an additional $8.5 million in Bassett Creek Restoration, Inc. in the form of
first lien debt.  46




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##### Table of Contents

The following significant investment activity occurred subsequent to September 30, 2019. Also refer to
Note 13 Subsequent Events in the accompanyingNotes to Consolidated Financial Statements. In October 2019, we exited
our investment in B-Dry, LLC, with a fair value of $0 as of September 30, 2019, and recorded a realized loss of $14.7 million. Recent Developments Distributions and
Dividends In October 2019, our Board of Directors declared the following monthly and supplemental distributions to common stockholders and monthly
dividends to holders of our Series D Term Preferred Stock and Series E Term Preferred Stock:  Record Date

Payment Date

Distribution perCommon Share


Dividend perShare ofSeries D TermPreferred Stock


Dividend perShare ofSeries E TermPreferred StockOctober 22, 2019

October 31, 2019

$
0.068


$
0.13020833


$
0.13281250November 19, 2019

November 29, 2019


0.068



0.13020833



0.13281250December 3, 2019

December 13, 2019


0.090
(A)






December 19, 2019

December 31, 2019


0.068



0.13020833



0.13281250Total for the Quarter:

$
0.294


$
0.39062499


$
0.39843750  (A)
Represents a supplemental distribution to common stockholders. LIBOR Transition In general, our investments in
debt securities have a term of five years, accrue interest at variable rates (based on the one-month London Interbank Offered Rate (LIBOR)) and, to a lesser extent, at fixed rates. LIBOR is
currently anticipated to be phased out during late 2021. LIBOR is currently expected to transition to a new standard rate, the Secured Overnight Financing Rate (SOFR), which will incorporate certain overnight repo market data collected
from multiple data sets. To attain an equivalent one month rate, we currently intend to adjust the SOFR to minimize the difference between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are
currently monitoring the transition and cannot assure you whether SOFR will become a standard rate for variable rate debt. However, we expect we will need to renegotiate certain loan documents with our portfolio companies that utilize LIBOR as
a factor in determining the interest rate to replace LIBOR with the new standard that is established and may also need to renegotiate certain provisions of the Credit Facility. Assuming that SOFR replaces LIBOR and is appropriately adjusted to
equate to one month LIBOR, we expect that there should be minimal impact on our operations.  47




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##### Table of Contents

RESULTS OF OPERATIONS Comparison of the Three Months Ended September 30, 2019 to the Three Months Ended September 30, 2018  For the Three Months Ended September 30,2019


2018


$ Change


% ChangeINVESTMENT INCOMEInterest income

$
14,143


$
11,895


$
2,248



18.9
%Dividend, success fee, and other income


2,493



1,196



1,297



108.4Total investment income


16,636



13,091



3,545



27.1EXPENSESBase management fee


3,144



3,275



(131
)


(4.0
)Loan servicing fee


1,593



1,674



(81
)


(4.8
)Incentive fee


1,600



7,125



(5,525
)


(77.5
)Administration fee


423



344



79



23.0Interest and dividend expense


3,297



3,843



(546
)


(14.2
)Amortization of deferred financing costs and discounts


373



497



(124
)


(24.9
)Other


1,824



2,566



(742
)


(28.9
)Expenses before credits from Adviser


12,254



19,324



(7,070
)


(36.6
)Credits to fees from Adviser


(2,201
)


(2,239
)


38



(1.7
)Total expenses, net of credits to fees


10,053



17,085



(7,032
)


(41.2
)NET INVESTMENT INCOME (LOSS)


6,583



(3,994
)


10,577



NMREALIZED AND UNREALIZED GAIN (LOSS)Net realized gain (loss) on investments


21,144



(2,856
)


24,000



NMNet realized loss on other






(1,687
)


1,687



(100.0
)Net unrealized (depreciation) appreciation of investments


(16,854
)


38,494



(55,348
)


(143.8
)Net unrealized depreciation of other


131



407



(276
)


(67.8
)Net realized and unrealized gain


4,421



34,358



(29,937
)


(87.1
)NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
11,004


$
30,364


$
(19,360
)


(63.8
)%BASIC AND DILUTED PER COMMON SHARE:Net investment income (loss)

$
0.20


$
(0.12
)

$
0.32



NMNet increase in net assets resulting from operations

$
0.34


$
0.93


$
(0.59
)


(63.4
)% NM = Not Meaningful Investment Income Total investment income increased
27.1% for the three months ended September 30, 2019, as compared to the prior year period. The increase was due to an increase in interest income as well as dividend, success fee, and other income. Interest income from our investments in debt securities increased 18.9% for the three months ended September 30, 2019, as compared to the prior year
period. During the three months ended September 30, 2019, we received $2.1 million of past due interest upon the exit of our investment in ADC. Generally, the level of interest income from investments is directly related to the principal
balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted-average yield. The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended
September 30, 2019 was $374.1 million, compared to $365.5 million for the prior year period. This increase was primarily due to the origination of $51.9 million of new debt investments and $57.1 million of follow-on debt investments to existing portfolio companies, partially offset by the pay-off or restructure of $84.6 million of debt investments and $9.7 million of
loans placed on non-accrual status after September 30, 2018 and their respective impact on the weighted-average principal balance when considering timing of new investments,
pay-offs, restructures, and non-accruals, as applicable. The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts
recorded as dividend, success fee, and other income, was 15.0% for the three months ended September 30, 2019, compared to 12.9% for the prior year period. The weighted-average yield may vary from period to period, based on the current stated
interest rate on interest-bearing investments.  48




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##### Table of Contents

At September 30, 2019, certain of our loans to four portfolio companies, Meridian Rack &
Pinion, Inc. (Meridian), The Mountain Corporation (The Mountain), PSI Molded Plastics, Inc. (PSI Molded), and SOG Specialty Knives & Tools, LLC (SOG), were on
non-accrual status, with an aggregate debt cost basis of $56.4 million. At September 30, 2018, certain of our loans to four portfolio companies, B-Dry, LLC (B-Dry), The Mountain, PSI Molded, and SOG, were on non-accrual status, with an aggregate debt cost basis of $73.5 million. Dividend, success fee, and other income for the three months ended September 30, 2019 increased 108.4% from the prior year period. During the three
months ended September 30, 2019, dividend, success fee, and other income consisted of $0.6 million of dividend income and $1.9 million of success fee income. During the three months ended September 30, 2018, dividend, success
fee, and other income consisted of $1.2 million of dividend income. As of September 30, 2019, Nth Degree, Inc. represented 11.7% of the total
investment portfolio at fair value. As of March 31, 2019, no single investment represented greater than 10% of the total investment portfolio at fair value. Expenses Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 41.2% during the three months ended September 30, 2019, as compared to the prior year period, primarily due to a decrease in
the capital gains-based incentive fee, interest and dividend expense, and other expenses, partially offset by an increase in the income-based incentive fee. In accordance with GAAP, we recorded a capital gains-based incentive fee of $0.9 million during the three months ended September 30, 2019, compared
to a capital gains-based incentive fee of $7.1 million during the three months ended September 30, 2018. The capital gains-based incentive fee was a result of the net impact of net realized gains (losses) and net unrealized appreciation
(depreciation) on investments during the respective periods. Such amounts are not yet contractually due under the terms of the Advisory Agreement. The income-based incentive fee increased by $0.7 million for the three months ended
September 30, 2019, as compared to the prior year period, as the increase in pre-incentive fee net investment income more than offset the increase in net assets, which drives the hurdle rate. The base management fee, loan servicing fee, incentive fee, and their related non-contractual, unconditional, and
irrevocable credits are computed quarterly, as described under Transactions with the Adviserin Note 4  Related Party Transactions in the accompanying Notes to Consolidated Financial Statements and are
summarized in the following table:  Three Months Ended September 30,2019


2018Average total assets subject to base management fee(A)

$
628,790


$
655,000Multiplied by prorated annual base management fee of 2.0%


0.5
%


0.5
%Base management fee(B)


3,144



3,275Credits to fees from
Adviserother(B)


(608
)


(565
)Net base management fee

$
2,536


$
2,710Loan servicing fee(B)


1,593



1,674Credits to base management feeloan servicing fee(B)


(1,593
)


(1,674
)Net loan servicing fee

$



$
Incentive fee  income-based

$
742


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


858



7,125Total incentive fee(B)

$
1,600


$
7,125Credits to fees from
Adviserother(B)






Net incentive fee

$
1,600


$
7,125  (A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share
issuances or repurchases during the periods. (B)
Reflected as a line item on our Consolidated Statement of Operations. (C)
The capital gains-based incentive fee is not yet contractually due under the terms of the Advisory Agreement. Interest and dividend expense decreased 14.2% during the three months ended September 30, 2019, as compared to the prior year
period, due to a lower weighted-average balance outstanding on the Credit Facility, partially offset by an increase in the effective interest rate. The weighted-average balance outstanding on the Credit Facility during the three months ended
September 30, 2019 was $57.1 million, as compared to $101.0 million in the prior year period. The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the three months ended
September 30, 2019 was 7.8%, as compared to 5.7% in the prior year period. This increase in the effective interest rate on the Credit Facility was primarily a result of the unused commitment fee on  49




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##### Table of Contents

the undrawn portion of the Credit Facility. Refer to Liquidity and Capital Resources  Revolving Line of Credit for further discussion of the Credit Facility. Refer to
Liquidity and Capital Resources  Equity  Term Preferred Stock for further discussion of the mandatorily redeemable preferred stock. Other expenses decreased 28.9% during the three months ended September 30, 2019, as compared to the prior year period, primarily due to a decrease in bad
debt expense, partially offset by an increase in professional fees and tax expense. Realized and Unrealized Gain (Loss) Net Realized Gain (Loss) on Investments During the three
months ended September 30, 2019, we recorded net realized gains on investments of $21.1 million, primarily related to a $20.4 million realized gain from the exit of ADC. During the three months ended September 30, 2018, we
recorded net realized losses on investments of $2.9 million, primarily related to a $3.6 million realized loss from the exit of NDLI, Inc. (NDLI), partially offset by $0.7 million of realized gains from the sale of a
portion of our investment in Funko Acquisition Holdings, LLC (Funko). Net Realized Loss on Other During the three months ended September 30, 2018, we recorded a net realized loss on other of $1.7 million, which primarily related to unamortized
deferred issuance costs written off upon the redemption of our 6.750% Series B Cumulative Term Preferred Stock (our Series B Term Preferred Stock) and 6.500% Series C Cumulative Term Preferred Stock (our Series C Term Preferred
Stock) in August 2018. There were no realized gains or losses on other during the three months ended September 30, 2019. Net Unrealized
Appreciation (Depreciation) of Investments During the three months ended September 30, 2019, we recorded net unrealized depreciation of
investments of $16.9 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2019 were as follows:  Three Months Ended September 30, 2019Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


Net Gain(Loss)Alloy Die Casting Co.

$
20,355


$



$
(12,634
)

$
7,721Nth Degree, Inc.






7,328







7,328Counsel Press, Inc.






3,766







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






2,730







2,730ImageWorks Display and Marketing Group, Inc.






2,602







2,602Old World Christmas, Inc.






2,004







2,004Galaxy Tool Holding Corporation






1,532







1,532Schylling, Inc.






1,269







1,269SBS Industries, LLC






(1,232
)






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






(1,443
)






(1,443
)PSI Molded Plastics, Inc.






(2,416
)






(2,416
)Ginsey Home Solutions, Inc.






(2,718
)






(2,718
)Pioneer Square Brands, Inc.






(3,163
)






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






(4,570
)






(4,570
)J.R. Hobbs Co.Atlanta, LLC






(9,530
)






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


789



(248
)


(131
)


410Total

$
21,144


$
(4,089
)

$
(12,765
)

$
4,290 The primary drivers of net unrealized depreciation of $16.9 million for the three months ended September 30, 2019
were the reversal of previously recorded unrealized appreciation of our investment in ADC upon its exit, a decline in performance of certain of our other portfolio companies, and a decrease in comparable multiples used to estimate the fair value of
certain of our portfolio companies, which were partially offset by increased performance of certain of our portfolio companies.  50




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##### Table of Contents

During the three months ended September 30, 2018, we recorded net unrealized appreciation of
investments of $38.5 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended September 30, 2018 were as follows:  Three Months Ended September 30, 2018Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


Net Gain(Loss)Cambridge Sound Management, Inc.

$



$
12,979


$



$
12,979Nth Degree, Inc.






9,012







9,012Star Seed, Inc.






3,750







3,750SBS Industries, LLC






2,995







2,995ImageWorks Display and Marketing Group, Inc.






2,779







2,779Logo Sportswear, Inc.






2,099







2,099Alloy Die Casting Co.






1,804







1,804Brunswick Bowling Products, Inc.






1,698







1,698Jackrabbit, Inc.






1,441







1,441Ginsey Home Solutions, Inc.






1,258







1,258Galaxy Tool Holding Corporation






1,038







1,038Old World Christmas, Inc.






855







855Counsel Press, Inc.






716







716Funko Acquisition Holdings, LLC


745



316



(356
)


705Pioneer Square Brands, Inc.






353







353Tread Corporation






276







276NDLI, Inc.


(3,601
)






3,600



(1
)Head Country, Inc.






(253
)






(253
)SOG Specialty Knives & Tools, LLC






(273
)






(273
)D.P.M.S., Inc.






(432
)






(432
)Meridian Rack & Pinion, Inc.






(483
)






(483
)PSI Molded Plastics, Inc.






(750
)






(750
)The Mountain Corporation






(2,779
)






(2,779
)J.R. Hobbs Co.Atlanta, LLC






(3,304
)






(3,304
)Other, net (<$250 Net)






155







155Total

$
(2,856
)

$
35,250


$
3,244


$
35,638 The primary drivers of net unrealized appreciation of $38.5 million for the three months ended September 30, 2018,
were increased performance of certain of our portfolio companies, an increase in comparable multiples used to estimate the fair value of certain of our portfolio companies, and the reversal of previously recorded unrealized depreciation upon the
exit of our investment in NDLI, which were partially offset by a decline in performance of certain of our other portfolio companies. Across our entire
investment portfolio, we recorded $4.0 million of net unrealized depreciation on our debt positions and $12.9 million of net unrealized depreciation on our equity positions for the three months ended September 30, 2019. As of
September 30, 2019, the fair value of our investment portfolio was greater than our cost basis by $14.6 million, as compared to $31.5 million as of June 30, 2019, representing net unrealized depreciation of $16.9 million for
the three months ended September 30, 2019. Our entire portfolio had a fair value of 102.5% of cost as of September 30, 2019. Net Unrealized
(Appreciation) Depreciation on Other During the three months ended September 30, 2019 and 2018, we recorded net unrealized depreciation of other
of $0.1 million and $0.4 million, respectively, related to the Credit Facility recorded at fair value.  51




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##### Table of Contents

Comparison of the Six Months Ended September 30, 2019 to the Six Months Ended September 30,
2018  For the Six Months Ended September 30,2019


2018


$ Change


% ChangeINVESTMENT INCOMEInterest income

$
26,018


$
25,209


$
809



3.2
%Dividend, success fee, and other income


7,928



3,386



4,542



134.1Total investment income


33,946



28,595



5,351



18.7EXPENSESBase management fee


6,315



6,386



(71
)


(1.1
)Loan servicing fee


3,345



3,414



(69
)


(2.0
)Incentive fee


3,169



14,711



(11,542
)


(78.5
)Administration fee


737



629



108



17.2Interest and dividend expense


6,446



7,836



(1,390
)


(17.7
)Amortization of deferred financing costs and discounts


746



864



(118
)


(13.7
)Other


2,925



3,630



(705
)


(19.4
)Expenses before credits from Adviser


23,683



37,470



(13,787
)


(36.8
)Credits to fees from Adviser


(5,175
)


(4,939
)


(236
)


4.8Total expenses, net of credits to fees


18,508



32,531



(14,023
)


(43.1
)NET INVESTMENT INCOME (LOSS)


15,438



(3,936
)


19,374



NMREALIZED AND UNREALIZED GAIN (LOSS)Net realized gain on investments


21,677



11,252



10,425



92.7Net realized loss on other






(1,687
)


1,687



(100.0
)Net unrealized (depreciation) appreciation of investments


(19,901
)


56,562



(76,463
)


(135.2
)Net unrealized (appreciation) depreciation of other


(164
)


500



(664
)


(132.8
)Net realized and unrealized gain


1,612



66,627



(65,015
)


(97.6
)NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

$
17,050


$
62,691


$
(45,641
)


(72.8
)%BASIC AND DILUTED PER COMMON SHARE:Net investment income (loss)

$
0.47


$
(0.12
)

$
0.59



NMNet increase in net assets resulting from operations

$
0.52


$
1.91


$
(1.39
)


(72.8
)% NM = Not Meaningful Investment Income Total investment income increased
18.7% for the six months ended September 30, 2019, as compared to the prior year period. The increase was due to an increase in dividend, success fee, and other income as well as an increase in interest income. Interest income from our investments in debt securities increased 3.2% for the six months ended September 30, 2019, as compared to the prior year period.
During the six months ended September 30, 2019, we received $2.1 million of past due interest upon the exit of our investment in ADC. Generally, the level of interest income from investments is directly related to the principal balance of
our interest-bearing investment portfolio outstanding during the period multiplied by the weighted-average yield. The weighted-average principal balance of our interest-bearing investment portfolio during the six months ended September 30, 2019
was $369.0 million, compared to $385.9 million for the prior year period. This decrease was primarily due to the pay-off or restructure of $84.6 million of debt investments and $9.7 million
of loans placed on non-accrual status after September 30, 2018, partially offset by the origination of $51.9 million of new debt investments and $57.1 million of
follow-on debt investments to existing portfolio companies and their respective impact on the weighted-average principal balance when considering timing of new investments,
pay-offs, restructures, and non-accruals, as applicable. The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts
recorded as dividend, success fee, and other income, was 14.1% for the six months ended September 30, 2019, compared to 13.0% for the prior year period. The weighted-average yield may vary from period to period, based on the current stated
interest rate on interest-bearing investments. At September 30, 2019, certain of our loans to four portfolio companies, Meridian, The Mountain, PSI
Molded, and SOG, were on non-accrual status, with an aggregate debt cost basis of $56.4 million. At September 30, 2018, certain of our loans to four portfolio companies, B-Dry, The Mountain, PSI Molded, and SOG, were on non-accrual status, with an aggregate debt cost basis of $73.5 million.  52




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##### Table of Contents

Dividend, success fee, and other income for the six months ended September 30, 2019 increased 134.1%
from the prior year period. During the six months ended September 30, 2019, dividend, success fee, and other income consisted of $5.8 million of dividend income and $2.1 million of success fee income. During the six months ended
September 30, 2018, dividend, success fee and other income consisted of $2.1 million of success fee income and $1.3 million of dividend income. As of September 30, 2019, Nth Degree, Inc. represented 11.7% of the total investment portfolio at fair value. As of March 31, 2019, no single
investment represented greater than 10% of the total investment portfolio at fair value. Expenses Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 43.1%
during the six months ended September 30, 2019, as compared to the prior year period, primarily due to a decrease in the capital gains-based incentive fee, interest and dividend expense, and other expenses, partially offset by an increase in
the income-based incentive fee. In accordance with GAAP, we recorded a capital gains-based incentive fee of $0.3 million during the six months ended
September 30, 2019, compared to a capital gains-based incentive fee of $13.6 million during the six months ended September 30, 2018. The capital gains-based incentive fee was a result of the net impact of net realized gains (losses)
and net unrealized appreciation (depreciation) on investments during the respective periods. Such amounts are not yet contractually due under the terms of the Advisory Agreement. The income-based incentive fee increased by $1.7 million for the
six months ended September 30, 2019, as compared to the prior year period, as the increase in pre-incentive fee net investment income more than offset the increase in net assets, which drives the hurdle
rate. The base management fee, loan servicing fee, incentive fee, and their related non-contractual,
unconditional, and irrevocable credits are computed quarterly, as described under Transactions with the Adviserin Note 4  Related Party Transactions in the accompanying Notes to Consolidated Financial
Statements and are summarized in the following table:  Six Months Ended September 30,2019


2018Average total assets subject to base management fee(A)

$
631,500


$
638,600Multiplied by prorated annual base management fee of 2.0%


1.0
%


1.0
%Base management fee(B)


6,315



6,386Credits to fees from
Adviserother(B)


(1,830
)


(1,525
)Net base management fee

$
4,485


$
4,861Loan servicing fee(B)


3,345



3,414Credits to base management feeloan servicing fee(B)


(3,345
)


(3,414
)Net loan servicing fee

$



$
Incentive fee  income-based

$
2,823


$
1,078Incentive fee  capital
gains-based(C)


346



13,633Total incentive fee(B)

$
3,169


$
14,711Credits to fees from
Adviserother(B)






Net incentive fee

$
3,169


$
14,711  (A)
Average total assets subject to the base management fee is defined in the Advisory Agreement as total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share
issuances or repurchases during the periods. (B)
Reflected as a line item on our Consolidated Statement of Operations. (C)
The capital gains-based incentive fee is not yet contractually due under the terms of the Advisory Agreement. Interest and dividend expense decreased 17.7% during the six months ended September 30, 2019, as compared to the prior year
period, due to a lower weighted-average balance outstanding on the Credit Facility, partially offset by an increase in the effective interest rate. The weighted-average balance outstanding on the Credit Facility during the six months ended
September 30, 2019 was $49.9 million, as compared to $112.1 million in the prior year period. The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the six months ended
September 30, 2019 was 8.4%, as compared to 5.5% in the prior year period. This increase in the effective interest rate on the Credit Facility was primarily a result of the unused commitment fee on the undrawn portion of the Credit Facility and
an increase in LIBOR. Refer to Liquidity and Capital Resources  Revolving Line of Credit for further discussion of the Credit Facility. Refer to Liquidity and Capital Resources  Equity  Term Preferred
Stock for further discussion of the mandatorily redeemable preferred stock. Other expenses decreased 19.4% during the six months ended
September 30, 2019, as compared to the prior year period, primarily due to a decrease in bad debt expense, partially offset by an increase in professional fees and tax expense.  53




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##### Table of Contents

Realized and Unrealized Gain (Loss) Net Realized Gain on Investments During the six months
ended September 30, 2019, we recorded net realized gains on investments of $21.7 million, primarily related to a $20.4 million realized gain from the exit of ADC and a $3.2 million realized gain from the exit of Jackrabbit, which
were partially offset by a $2.7 million realized loss from the exit of Tread. During the six months ended September 30, 2018, we recorded net realized gains on investments of $11.3 million, primarily related to a $13.8 million
realized gain from the exit of Drew Foam Companies, Inc. and $0.7 million of realized gains from the sale of a portion of our investment in Funko, partially offset by a $3.6 million realized loss from the exit of NDLI. Net Realized Loss on Other During the six months ended
September 30, 2018, we recorded a net realized loss on other of $1.7 million, which primarily related to unamortized deferred issuance costs written off upon the redemption of our Series B Term Preferred Stock and Series C Term Preferred
Stock in August 2018. There were no realized gains or losses on other during the six months ended September 30, 2019. Net Unrealized Appreciation
(Depreciation) of Investments During the six months ended September 30, 2019, we recorded net unrealized depreciation of investments of
$19.9 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2019 were as follows:  Six Months Ended September 30, 2019Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


Net Gain(Loss)Alloy Die Casting Co.

$
20,355


$
8,823


$
(12,634
)

$
16,544Nth Degree, Inc.






10,763







10,763Counsel Press, Inc.






5,170







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






3,681







3,681ImageWorks Display and Marketing Group, Inc.






1,861







1,861Head Country, Inc.






1,708







1,708Old World Christmas, Inc.






1,202







1,202Tread Corporation


(2,726
)






3,380



654Horizon Facilities Services, Inc.






623







623PSI Molded Plastics, Inc.






(1,135
)






(1,135
)Galaxy Tool Holding Corporation






(1,248
)






(1,248
)Brunswick Bowling Products, Inc.






(1,319
)






(1,319
)Jackrabbit, Inc.


3,198







(4,547
)


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






(1,947
)






(1,947
)SBS Industries, LLC






(2,030
)






(2,030
)Educators Resource, Inc.






(2,116
)






(2,116
)Pioneer Square Brands, Inc.






(2,786
)






(2,786
)Ginsey Home Solutions, Inc.






(3,555
)






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






(5,536
)






(5,536
)J.R. Hobbs Co.Atlanta, LLC






(17,822
)






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


850



(305
)


(132
)


413Total

$
21,677


$
(5,968
)

$
(13,933
)

$
1,776 The primary drivers of net unrealized depreciation of $19.9 million for the six months ended September 30, 2019 were
a decline in performance of certain portfolio companies, the reversal of previously recorded unrealized appreciation of our investments in ADC and Jackrabbit upon their exit, and a decrease in comparable multiples used to estimate the fair value of
certain of our portfolio companies, which were partially offset by the reversal of previously recorded unrealized depreciation of our investment in Tread upon its exit and increased performance of certain of our other portfolio companies.  54




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##### Table of Contents

During the six months ended September 30, 2018, we recorded net unrealized appreciation of investments
of $56.6 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the six months ended September 30, 2018 were as follows:  Six Months Ended September 30, 2018Portfolio Company

RealizedGain(Loss)


UnrealizedAppreciation(Depreciation)


Reversal ofUnrealized(Appreciation)Depreciation


Net Gain(Loss)Cambridge Sound Management, Inc.

$



$
25,533


$



$
25,533Nth Degree, Inc.






13,604







13,604Brunswick Bowling Products, Inc.






5,633







5,633Star Seed, Inc.






5,400







5,400Galaxy Tool Holding Corporation






4,277







4,277Alloy Die Casting Co.






3,799







3,799SBS Industries, LLC






2,874







2,874Logo Sportswear, Inc.






2,796







2,796ImageWorks Display and Marketing Group, Inc.






2,768







2,768Jackrabbit, Inc.






2,327







2,327Schylling, Inc.






2,317







2,317Pioneer Square Brands, Inc.






2,162







2,162Counsel Press, Inc.






2,112







2,112Edge Adhesives Holdings, Inc.






2,084







2,084Ginsey Home Solutions, Inc.






1,547







1,547Tread Corporation






1,491







1,491Old World Christmas, Inc.






1,420







1,420Funko Acquisition Holdings, LLC


745



834



(356
)


1,223D.P.M.S., Inc.






384







384Behrens Manufacturing, LLC


322











322NDLI, Inc.


(3,601
)






3,600



(1
)Head Country, Inc.






(309
)






(309
)Diligent Delivery Systems






(633
)






(633
)B-Dry, LLC






(852
)






(852
)Drew Foam Companies, Inc.


13,786







(14,755
)


(969
)Meridian Rack & Pinion, Inc.






(1,575
)






(1,575
)J.R. Hobbs Co.Atlanta, LLC






(2,753
)






(2,753
)PSI Molded Plastic, Inc.






(3,766
)






(3,766
)The Mountain, Inc.






(5,338
)






(5,338
)Other, net (<$250 Net)






(63
)






(63
)Total

$
11,252


$
68,073


$
(11,511
)

$
67,814 The primary drivers of net unrealized appreciation of $56.6 million for the six months ended September 30, 2018,
were increased performance of certain of our portfolio companies, an increase in comparable multiples used to estimate the fair value of certain of our portfolio companies, and the reversal of previously recorded unrealized depreciation upon the
exit of our investment in NDLI, which were partially offset by the reversal of previously recorded unrealized appreciation upon the exit of our investment in Drew Foam and a decline in performance of certain of our other portfolio companies. Across our entire investment portfolio, we recorded $3.0 million of net unrealized depreciation on our debt positions and $16.9 million of net
unrealized depreciation on our equity positions for the six months ended September 30, 2019. As of September 30, 2019, the fair value of our investment portfolio was greater than our cost basis by $14.6 million, as compared to
$34.5 million as of March 31, 2019, representing net unrealized depreciation of $19.9 million for the six months ended September 30, 2019. Our entire portfolio had a fair value of 102.5% of cost as of September 30, 2019. Net Unrealized (Appreciation) Depreciation on Other During the six months ended September 30, 2019, we recorded net unrealized appreciation of other of $0.2 million related to the Credit Facility
recorded at fair value. During the six months ended September 30, 2018, we recorded net unrealized depreciation of other of $0.5 million related to the Credit Facility recorded at fair value.  55




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##### Table of Contents

LIQUIDITY AND CAPITAL RESOURCES Operating Activities Net cash provided by
operating activities for the six months ended September 30, 2019 was $24.0 million, as compared to net cash provided by operating activities of $15.1 million for the six months ended September 30, 2018. This change was primarily
due to an increase in net proceeds from the sale of investments and principal repayments of investments, partially offset by purchases of investments and a decrease in other liabilities. Purchases of investments were $71.4 million during the six months ended September 30, 2019, compared to $31.0 million during the six months
ended September 30, 2018. Principal repayments and net proceeds from the sale of investments totaled $88.5 million during the six months ended September 30, 2019, compared to $32.8 million during the six months ended
September 30, 2018. As of September 30, 2019, we had equity investments in or loans to 29 portfolio companies with an aggregate cost basis of
$593.8 million. As of September 30, 2018, we had equity investments in or loans to 32 portfolio companies with an aggregate cost basis of $594.3 million. The following table summarizes our total portfolio investment activity during
the six months ended September 30, 2019 and 2018:  Six Months Ended September 30,2019


2018Beginning investment portfolio, at fair value

$
624,172


$
599,147New investments


43,180



29,202Disbursements to existing portfolio companies


28,200



1,750Unscheduled principal repayments


(53,926
)


(14,514
)Net proceeds from sales of investments


(34,413
)


(17,969
)Net realized gain on investments


21,015



10,930Net unrealized (depreciation) appreciation of investments


(5,967
)


68,073Reversal of net unrealized appreciation of investments


(13,934
)


(11,511
)Amortization of premiums, discounts, and acquisition costs, net


9



9Ending investment portfolio, at fair value

$
608,336


$
665,117 The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year,
assuming no voluntary prepayments, as of September 30, 2019:  AmountFor the remaining six months ending March 31:

2020

$
33,160For the fiscal years ending March 31:

2021


55,3462022


53,3812023


97,4892024


84,118Thereafter


111,680Total contractual repayments


$435,174Adjustments to cost basis of debt investments


(58
)Investments in equity securities


158,638Total cost basis of investments held as of September 30, 2019:

$
593,754 Financing Activities Net cash used in financing activities for the six months ended September 30, 2019 was $23.7 million, which consisted primarily of $17.3 million
in distributions to common stockholders and $6.2 million of net repayments on the Credit Facility. Net cash used in financing activities for the six
months ended September 30, 2018 was $15.8 million, which was primarily a result of the redemption of our Series B Term Preferred Stock and Series C Term Preferred Stock of $81.7 million and $15.2 million in distributions to
common stockholders, partially offset by $72.1 million of net proceeds from the issuance of our Series E Term Preferred Stock, $8.7 million of net borrowings on the Credit Facility, and $1.8 million of net proceeds from the issuance
of common stock under the ATM program (as defined below).  56




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##### Table of Contents

Distributions and Dividends to Stockholders Common Stock Distributions To qualify to be taxed
as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders, we are required, among other requirements, to distribute to our stockholders on an annual basis at least 90% of our taxable ordinary income
plus the excess of our net short-term capital gains over net long-term capital losses (Investment Company Taxable Income), determined without regard to the dividends paid deduction. Additionally, the Credit Facility generally restricts
the amount of distributions to stockholders that we can pay out to be no greater than the sum of certain amounts, including our net investment income, plus net capital gains, plus amounts elected by the Company to be considered as having been paid
during the prior fiscal year in accordance with Section 855(a) of the Code. In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.068 per common share for each of the three months
from April through September 2019, a supplemental distribution of $0.09 per common share in June 2019, and a supplemental distribution of $0.03 per common share in September 2019. For the fiscal year ended March 31, 2019, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with
Section 855(a) of the Code, we elected to treat $16.0 million of the first distributions paid after fiscal year-end as having been paid in the prior year. In addition, for the fiscal year ended
March 31, 2019, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $13.2 million of the first distributions paid after fiscal year-end as having been paid in the prior year. For the year ended March 31, 2019, we recorded $16.1 million of net adjustments for estimated permanent book-tax
differences to reflect tax character, which decreased Capital in excess of par value and increased Accumulated net realized gain in excess of distributions and (Overdistributed) underdistributed net investment income. For the six months ended
September 30, 2019, we recorded $1.3 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Accumulated
net realized gain in excess of distributions and increased Underdistributed net investment income. Preferred Stock Dividends Our Board of Directors declared and we paid monthly cash dividends of (i) $0.13020833 per share to holders of our Series D Term Preferred Stock for each of the
six months from April through September 2019 and (ii) $0.1328125 per share to holders of our Series E Term Preferred Stock for each of the six months from April through September 2019. In accordance with GAAP, we treat these monthly dividends as an
operating expense. Dividend Reinvestment Plan Our common stockholders who hold their shares through our transfer agent, Computershare, Inc. (Computershare), have the option to participate in a
dividend reinvestment plan offered by Computershare, as the plan agent. This is an opt in dividend reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional
shares of our common stock. Common stockholders who do not make such election will receive their distributions in cash. Any distributions reinvested under the plan will be taxable to a common stockholder to the same extent, and with the same
character, as if the common stockholder had received the distribution in cash. The common stockholder generally will have an adjusted basis in the additional common shares purchased through the plan equal to the dollar amount that would have been
received if the U.S. stockholder had received the dividend or distribution in cash. The additional common shares will have a new holding period commencing on the day following the date on which the shares are credited to the common
stockholders account. Computershare purchases shares in the open market in connection with the obligations under the plan. The Computershare dividend reinvestment plan is not open to holders of our preferred stock. Equity Registration Statement On June 14, 2019, we filed a registration statement on Form N-2 (File
No. 333-232124), which the SEC declared effective on July 24, 2019. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in
securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities.As
of September 30, 2019, we had the ability to issue up to an additional $300.0 million in securities under the registration statement.  57




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##### Table of Contents

Common Stock In February 2018, we entered into equity distribution agreements with Cantor Fitzgerald & Co. (Cantor), Ladenburg Thalmann & Co.,
Inc., and Wedbush Securities, Inc. (each a Sales Agent), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Sales Agents, up to an aggregate offering price of $35.0 million
in what is commonly referred to as an at-the-market (ATM) program. As of September 30, 2019, we had remaining capacity to sell up to an
additional $31.8 million of common stock under the ATM program. During the three months ended June 30, 2018, we sold 168,824 shares of our
common stock under the ATM program with Cantor at a weighted-average gross price of $11.09 per share and raised approximately $1.9 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering
costs borne by us, was $10.87 and resulted in total net proceeds of approximately $1.8 million. Certain of these sales were below our then-current estimated NAV per share during the sales period, with a discount of $0.002 per share, when
comparing the sales price per share, after deducting commissions, to the then-current estimated NAV per share; however, the net dilutive effect (after commissions and offering costs borne by us) of these sales was $0.00 per common share as a result
of the small number of shares sold at a slight discount to NAV per share and resulting rounding. In aggregate, the sales during the three months ended June 30, 2018 were above our then-current estimated NAV per share. We did not sell any shares
of our common stock under the ATM program during the six months ended September 30, 2019. We anticipate issuing equity securities to obtain
additional capital in the future. However, we cannot determine the timing or terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. When our common stock is trading at a price below NAV
per share, the 1940 Act places regulatory constraints on our ability to obtain additional capital by issuing common stock. Generally, the 1940 Act provides that we may not issue and sell our common stock at a price below our NAV per common share,
other than to our then-existing common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors and meeting other stated requirements. On September 30, 2019, the closing
market price of our common stock was $12.34 per share, representing a 0.4% discount to our NAV per share of $12.39 as of September 30, 2019. At our 2019 Annual Meeting of Stockholders held on August 15, 2019, our stockholders approved a
proposal authorizing us to issue and sell shares of our common stock at a price below our then-current NAV per share, subject to certain limitations, including that the number of common shares issued and sold pursuant to such authority does not
exceed 25.0% of our then-outstanding common stock immediately prior to each such sale, provided that our Board of Directors makes certain determinations prior to any such sale. This August 2019 stockholder authorization is in effect for one year
from the date of stockholder approval. Term Preferred Stock In August 2018, we completed a public offering of 2,990,000 shares of our Series E Term Preferred Stock at a public offering price of $25.00 per share. Gross
proceeds totaled $74.8 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were $72.1 million. Total underwriting discounts and offering costs related to this offering were $2.7 million,
which have been recorded as discounts to the liquidation value on our Consolidated Statements of Assets and Liabilities and are being amortized over the period ending August 31, 2025, the mandatory redemption date. Our Series E Term Preferred Stock is not convertible into our common stock or any other security and provides for a fixed dividend equal to 6.375% per year,
payable monthly (which equates to $4.8 million per year). We are required to redeem all shares of our outstanding Series E Term Preferred Stock on August 31, 2025, for cash at a redemption price equal to $25.00 per share, plus an amount
equal to accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. In addition, two other potential mandatory redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a
change in control of us, we would be required to redeem all of our outstanding Series E Term Preferred Stock, and (2) if we fail to maintain asset coverage as required by Sections 18 and 61 of the 1940 Act (which is currently 150%) and are
unable to correct such failure within a specific amount of time, we are required to redeem a portion of our outstanding Series E Term Preferred Stock or otherwise cure the asset coverage redemption trigger (we may also redeem additional securities
to cause asset coverage to be up to 200%). We may also voluntarily redeem all or a portion of our Series E Term Preferred Stock at our sole option at the redemption price at any time on or after August 31, 2020. In August 2018, we used the proceeds from the issuance of our Series E Term Preferred Stock, along with borrowings under the Credit Facility, to voluntarily
redeem all outstanding shares of our Series B Term Preferred Stock and our Series C Term Preferred Stock, each of which had a liquidation preference of $25.00 per share. In connection with the voluntary redemption of our Series B Term Preferred
Stock and Series C Term Preferred Stock, we incurred a loss on extinguishment of debt of $1.7 million, which was recorded in Realized loss on other in our Consolidated Statements of Operations and which was primarily comprised of
unamortized deferred issuance costs at the time of redemption.  58




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##### Table of Contents

In September 2016, we completed a public offering of 2,300,000 shares of our Series D Term Preferred Stock
at a public offering price of $25.00 per share. Gross proceeds totaled $57.5 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were $55.4 million. Total underwriting discounts and offering
costs related to this offering were $2.1 million, which have been recorded as discounts to the liquidation value on our Consolidated Statements of Assets and Liabilities and are being amortized over the period ending September 30,
2023, the mandatory redemption date. Our Series D Term Preferred Stock is not convertible into our common stock or any other security. Our Series D Term
Preferred Stock provides for a fixed dividend equal to 6.25% per year, payable monthly (which equates to $3.6 million per year). We are required to redeem all shares of our outstanding Series D Term Preferred Stock on September 30, 2023,
for cash at a redemption price equal to $25.00 per share, plus an amount equal to accumulated but unpaid dividends, if any, to, but excluding, the date of redemption. In addition, two other potential mandatory redemption triggers are as follows:
(1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of our outstanding Series D Term Preferred Stock, and (2) if we fail to maintain asset coverage of at least 200%
and are unable to correct such failure within a specific amount of time, we are required to redeem a portion of our outstanding Series D Term Preferred Stock or otherwise cure the asset coverage redemption trigger (and we may also redeem additional
securities to cause the asset coverage to be 240%). We may also voluntarily redeem all or a portion of our Series D Term Preferred Stock at our sole option at the redemption price at any time on or after September 30, 2018. Each series of our mandatorily redeemable preferred stock has a preference over our common stock with respect to dividends, whereby no distributions are
payable on our common stock unless the stated dividends, including any accrued and unpaid dividends, on the mandatorily redeemable preferred stock have been paid in full. The Series D Term Preferred Stock and Series E Term Preferred Stock are
considered liabilities in accordance with GAAP and, as such, affect our asset coverage, exposing us to additional leverage risks. The asset coverage on our senior securities that are stock (our Series D Term Preferred Stock and Series E Term
Preferred Stock) as of September 30, 2019 was 316.4%, calculated pursuant to Sections 18 and 61 of the 1940 Act. Revolving Line of Credit On August 22, 2018, we, through our wholly-owned subsidiary, Gladstone Business Investment, LLC ( Business Investment), entered
into Amendment No. 4 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended, with KeyBank National Association (KeyBank) as administrative agent, lead arranger,
managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to August 22, 2021, and if not renewed or extended by such date, all principal and interest will be due and payable
on August 22, 2023 (two years after the revolving period end date). As of September 30, 2019, the Credit Facility provided a one-year extension option that may be exercised on or before the second
anniversary of the August 22, 2018 amendment date, subject to approval by all lenders. Additionally, the Credit Facility commitment amount was increased from $165.0 million to $200.0 million and, subject to certain terms and
conditions, can be expanded to a total facility amount of $300.0 million through additional commitments from existing or new lenders. Advances under
the Credit Facility generally bear interest at 30-day LIBOR plus 2.85% per annum until August 21, 2021, with the margin then increasing to 3.10% for the period from August 22, 2021 to August 21,
2022, and increasing further to 3.35% thereafter. The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the
total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the
period is greater than 65% of the total commitment amount. We incurred fees of approximately $1.6 million in connection with this amendment. Interest is payable monthly during the term of the Credit Facility. Available borrowings are subject to various constraints and applicable advance rates,
which are generally based on the size, characteristics, and quality of the collateral pledged by Business Investment. The Credit Facility also requires that any interest and principal payments on pledged loans be remitted directly by the borrower
into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once a month. Among other
things, the Credit Facility contains covenants that require Business Investment to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions)
and restrict certain material changes to our credit and collection policies without the lenders consent. The Credit Facility also generally seeks to restrict distributions to stockholders to the sum of (i) our net investment income,
(ii) net capital gains, and (iii) amounts deemed by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code. Loans eligible to be pledged as collateral are subject to
certain limitations, including, among other things, restrictions on geographic concentrations, industry concentrations, loan size, payment frequency and status, average life, portfolio company leverage, and lien property. The Credit Facility also
requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of  59




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##### Table of Contents

obligors required in the borrowing base. Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the
Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised minus 50% of any equity or subordinated debt redeemed or
retired after November 16, 2016, which equated to $218.7 million as of September 30, 2019, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in
Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of September 30, 2019, and as defined in the performance guaranty of the
Credit Facility, we had a net worth of $534.3 million, asset coverage on our senior securities representing indebtedness of 1,103.8%, calculated in accordance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as
a BDC and RIC. As of September 30, 2019, we had availability, after adjustments for various constraints based on collateral quality, of $126.9 million under the Credit Facility and were in compliance with all covenants under the Credit
Facility. OFF-BALANCE SHEET ARRANGEMENTS Unlike PIK income, we generally do not recognize success fees as income until payment has been received. Due to the contingent nature of success fees, there
are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of September 30, 2019 and March 31, 2019, we had unrecognized, contractual off-balance sheet success fee receivables of $33.3 million and $30.1 million (or approximately $1.02 and $0.92 per common share), respectively, on our debt investments. Consistent with GAAP, we have not
recognized success fee receivables and related income in our Consolidated Financial Statements until earned. CONTRACTUAL OBLIGATIONS We have line of credit commitments to certain of our portfolio companies that have not been fully drawn. Since these line of credit commitments have expiration
dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused line of credit commitments as of
September 30, 2019 to be immaterial. As of September 30, 2019, we have also extended a guaranty on behalf of one of our portfolio companies,
Country Club Enterprises, LLC (CCE), whereby we have guaranteed $1.0 million of obligations of CCE. As of September 30, 2019, we have not been required to make payments on this or any previous guaranties, and we consider the
credit risks to be remote and the fair value of this guaranty to be immaterial. The following table shows our contractual obligations as of
September 30, 2019, at cost:  Payments Due by PeriodContractual
Obligations(A)

Total


Less than1 Year


1-3 Years


3-5 Years


More than5 YearsCredit Facility(B)

$
46,800


$



$



$
46,800


$
Mandatorily redeemable preferred stock


132,250











57,500



74,750Secured borrowing


5,096







5,096







Interest payments on obligations(C)


58,072



12,594



24,536



16,574



4,368Total

$
242,218


$
12,594


$
29,632


$
120,874


$
79,118  (A)
Excludes unused line of credit commitments and guaranties to our portfolio companies in the aggregate principal
amount of $5.4 million. (B)
Principal balance of borrowings outstanding under the Credit Facility, based on the maturity date following the
current contractual revolving period end date. (C)
Includes interest payments due on the Credit Facility and secured borrowing and dividend obligations on each
series of our mandatorily redeemable preferred stock. The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of September 30, 2019. Dividend obligations on our mandatorily
redeemable preferred stock assume quarterly declarations and monthly dividend payments through the date of mandatory redemption of each series. Critical Accounting Policies The preparation of
financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and
liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially from those estimates under different assumptions or conditions. We have identified our investment
valuation policy (which has been approved by our Board of Directors) as our most critical accounting policy, which is described in Note 2 Summary of Significant Accounting Policies in the Notes to Consolidated Financial
Statements included elsewhere in this Quarterly Report.  60




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##### Table of Contents

Additionally, refer to Note 3  Investments in the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information regarding
fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification Topic 820, Fair Value Measurements and Disclosures. We have also identified our revenue recognition policy as a
critical accounting policy, which is described in Note 2 Summary of Significant Accounting Policies in the Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report. Investment Valuation Credit
Monitoring and Risk Rating The Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio
companies to help us assess credit quality and portfolio performance and, in some instances, are used as inputs in our valuation techniques. Generally, we, through the Adviser, participate in periodic board meetings of our portfolio companies in
which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements. Using these statements or comparable information and board discussions, the Adviser calculates and evaluates certain credit
statistics. The Adviser risk rates all of our investments in debt securities. The Adviser does not risk rate equity securities. For loans that have been
rated by an SEC-registered Nationally Recognized Statistical Rating Organization (NRSRO), the Adviser generally uses the average of two corporate level NRSROs risk ratings for such security.
For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the NRSRO systems, we cannot provide any assurance that the Advisers risk rating system will provide the same risk rating as an
NRSRO for these securities. The Advisers risk rating system is used to estimate the probability of default on debt securities and the expected loss, if there is a default. The Advisers risk rating system uses a scale of 0 to >10, with
>10 being the lowest probability of default. It is the Advisers understanding that most debt securities of Lower Middle Market companies do not exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the Lower
Middle Market that would meet the definition of AAA, AA or A. Therefore, the Advisers scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a
>10 on the Advisers scale is equal to a BBB or Baa2 on an NRSRO scale. The Advisers risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold. The following table reflects risk ratings for all loans in our portfolio as of September 30, 2019 and March 31, 2019:  Rating

September 30, 2019

March 31, 2019Highest

9.0

9.0Average

6.8

6.7Weighted-Average

7.1

7.2Lowest

3.0

1.0 Tax Status We
intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for U.S. federal income tax purposes. As a RIC, we generally are not subject to federal income tax on the portion of our taxable income and gains distributed to
our stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain source-of-income and asset diversification requirements.
In addition, in order to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment Company Taxable Income, determined without regard to the dividends paid deduction. Our policy generally is to make distributions
to our stockholders in an amount up to 100% of Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to stockholders in cash. In an effort to limit federal excise taxes, we have to distribute to stockholders, during each calendar year, an amount close to the sum of: (1) 98%
of our ordinary income for the calendar year, (2) 98.2% of our net capital gains (both long-term and short-term), if any, for the one-year period ending on October 31 of the calendar year, and
(3) any income realized, but not distributed, in the preceding period (to the extent that income tax was not imposed on such amounts), less certain reductions, as applicable. Under the RIC Modernization Act, we are permitted to carryforward any
capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. Our capital loss carryforward balance was $0 as of both September 30,
2019 and March 31, 2019. Recent Accounting Pronouncements Refer to Note 2  Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included
elsewhere in this Quarterly Report for a description of recent accounting pronouncements.  61




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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 income is dependent upon the difference between the rates at which we borrow funds, such as under the Credit Facility (which is
variable) and our mandatorily redeemable preferred stock (which are fixed), and the rates at which we invest those funds. As a result, there can be no assurance that a significant change in market interest rates will not have a material adverse
effect on our net investment income. We use a combination of debt and equity capital to finance our investing activities. We may use interest rate risk management techniques to limit our exposure to interest rate fluctuations. Such techniques may
include various interest rate hedging activities to the extent permitted by the 1940 Act. We target to have approximately 10% of the loans in our
portfolio at fixed rates, with approximately 90% at variable rates or variables rates with a floor mechanism. As of September 30, 2019 and March 31, 2019, all of our variable-rate loans have rates associated with the current 30-day LIBOR rate and our total debt investment portfolio consisted of the following breakdown based on the principal balance:  Rates:

September 30, 2019


March 31, 2019Variable rates with a floor


97.4
%


97.4
%Fixed rates


2.6



2.6Total


100.0
%


100
% There have been no material changes in the quantitative and qualitative market risk disclosures during the six months ended
September 30, 2019 from that disclosed in our Annual Report. ITEM 4. CONTROLS AND PROCEDURES. a) Evaluation of Disclosure Controls and Procedures As of
September 30, 2019 (the end of the period covered by this report), we, including our chief executive officer and chief financial officer, evaluated the effectiveness, design and operation of our disclosure controls and procedures. Based on that
evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level in timely alerting management, including the chief
executive officer and chief financial officer, of material information about us required to be included in periodic SEC filings. However, in evaluation of the disclosure controls and procedures, management recognized that any controls and
procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. b) Changes in Internal Control over Financial Reporting There were no changes in internal controls for the three months ended September 30, 2019 that have materially affected, or are reasonably likely to
materially affect, our internal control over financial reporting.  62




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PART IIOTHER INFORMATION ITEM 1. LEGAL PROCEEDINGS. From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business.
Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters, if they arise, would materially affect our business,
financial condition, results of operations or cash flows, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources. Further, we are not named as a party to any
proceeding that involves a claim for damages that exceeds 10% of our consolidated current assets. ITEM 1A. RISK
FACTORS. Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of
operations and the trading price of our securities. For a discussion of these risks, please refer to the section captioned Item 1A. Risk Factors in Part I of our Annual Report on Form 10-K for the
fiscal year ended March 31, 2019, as filed with the SEC on May 13, 2019. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem
to be immaterial also may materially and adversely affect our business, financial condition and/or operating results. ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS. Not applicable. ITEM 3.
DEFAULTS UPON SENIOR SECURITIES. Not applicable. ITEM 4. MINE SAFETY DISCLOSURES. Not applicable. ITEM 5. OTHER INFORMATION. Not applicable.  63




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

Description3.1

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

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

Certificate of Designation of 6.375% Series E Cumulative Term Preferred Stock Due 2025, incorporated by reference to Exhibit 3.1 to the Current
 Report on Form 8-K (File No. 814-00704), filed August 16, 2018.3.2

Amended and Restated Bylaws, incorporated by reference to Exhibit 
b.2 to the Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 
333-123699), filed June 21, 2005.3.3

First Amendment to Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 
99.1 to the Current Report on Form 8-K (File No. 814-00704) filed July 10, 2007.4.1

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

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

Specimen 6.375% Series E Cumulative Term Preferred Stock Due 2025 Stock Certificate incorporated by reference to Exhibit 4.1 to the Current Report
on Form 8-K (File No. 814-00704), filed August 16, 2018.31.1*

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

Certification of Chief Financial Officer and Treasurer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.32.1

Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.32.2

Certification of Chief Financial Officer and Treasurer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.  *
Filed herewith 
Furnished herewith All other exhibits for which provision is made in the applicable regulations of the Securities and Exchange Commission are not required under the related
instruction or are inapplicable and therefore have been omitted.  64




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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/ Julia RyanJulia RyanChief Financial Officer and Treasurer(principal financial and accounting officer)
 Date: November 4, 2019  65