UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, D.C. 20549
 FORM 10-Q
 þ
    
    QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 FOR THE QUARTER ENDED JUNE 30, 2011
 o
    
    TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 COMMISSION FILE NUMBER: 000-51233
 GLADSTONE INVESTMENT CORPORATION
  DELAWARE
    
    83-0423116(State or other jurisdiction of incorporation or organization)
    
    (I.R.S. Employer Identification No.)
 1521 WESTBRANCH DRIVE, SUITE 200
MCLEAN, VIRGINIA 22102
 (703) 287-5800
  þ o
  o o
  Large accelerated filer o
    

Accelerated
filer þ
    
    Non-accelerated filer
o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
  o þ




---



##### 



GLADSTONE INVESTMENT CORPORATION
TABLE OF CONTENTS
 PART I. FINANCIAL INFORMATION:Item 1. Financial Statements (Unaudited)Condensed Consolidated Statements of Assets and Liabilities as of June 30, 2011 and March 31, 2011
    
    
    3Condensed Consolidated Statements of Operations for the three months ended June 30, 2011 and 2010
    
    
    4Condensed Consolidated Statements of Changes in Net Assets for the three months ended June 30,
2011 and 2010
    
    
    5Condensed Consolidated Statements of Cash Flows for the three months ended June 30, 2011 and 2010
    
    
    6Condensed Consolidated Schedules of Investments as of June 30, 2011 and March 31, 2011
    
    
    7Notes to Condensed Consolidated Financial Statements
    
    
    11Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations
    
    
    25Overview
    
    
    25Results of Operations
    
    
    29Liquidity and Capital Resources
    
    
    33Item 3. Quantitative and Qualitative Disclosures About Market Risk
    
    
    42Item 4. Controls and Procedures
    
    
    42PART II. OTHER INFORMATION:Item 1. Legal Proceedings
    
    
    43Item 1A. Risk Factors
    
    
    43Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
    
    
    43Item 3. Defaults Upon Senior Securities
    
    
    43Item 4. Removed and Reserved
    
    
    43Item 5. Other Information
    
    
    43Item 6. Exhibits
    
    
    43SIGNATURES
    
    
    44




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES
 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
 (UNAUDITED)
 June 30,
    
    
    March 31,2011
    
    
    2011ASSETSInvestments at fair valueControl investments (Cost of $139,913and $136,306, respectively)
    
    $
    99,717
    
    
    $
    104,062Affiliate investments (Cost of $59,186and $45,145, respectively)
    
    
    50,676
    
    
    
    34,556Non-Control/Non-Affiliate investments (Cost of $15,155and $15,741, respectively)
    
    
    14,902
    
    
    
    14,667Total investments (Cost of $214,254and $197,192, respectively)
    
    
    165,295
    
    
    
    153,285Cash and cash equivalents
    
    
    68,858
    
    
    
    80,580Restricted cash
    
    
    4,430
    
    
    
    4,499Interest receivable
    
    
    782
    
    
    
    737Due from custodian
    
    
    1,626
    
    
    
    859Deferred financing fees
    
    
    340
    
    
    
    373Prepaid assets
    
    
    268
    
    
    
    224Other assets
    
    
    533
    
    
    
    552TOTAL ASSETS
    
    $
    242,132
    
    
    $
    241,109LIABILITIESBorrowings at fair valueShort-term loan (Cost of $40,000)
    
    $
    40,000
    
    
    $
    40,000Credit Facility (Cost of $0)
    
    
    
    
    
    
    Total borrowings (Cost of $40,000)
    
    
    40,000
    
    
    
    40,000Accounts payable and accrued expenses
    
    
    384
    
    
    
    201Fees due to Adviser(A)
    
    
    308
    
    
    
    499Fee due to Administrator(A)
    
    
    151
    
    
    
    171Other liabilities
    
    
    1,254
    
    
    
    1,409TOTAL LIABILITIES
    
    
    42,097
    
    
    
    42,280NET ASSETS
    
    $
    200,035
    
    
    $
    198,829ANALYSIS OF NET ASSETSCommon stock, $0.001 par value per share, 100,000,000 shares authorized, 22,080,133
shares issued and outstanding at June 30, 2011 and March 31, 2011
    
    $
    22
    
    
    $
    22Capital in excess of par value
    
    
    257,190
    
    
    
    257,192Net unrealized depreciation of investment portfolio
    
    
    (48,959
    )
    
    
    (43,907
    )Net unrealized depreciation of other
    
    
    (37
    )
    
    
    (76
    )Undistributed net investment income
    
    
    684
    
    
    
    165Accumulated net realized losses
    
    
    (8,865
    )
    
    
    (14,567
    )TOTAL NET ASSETS
    
    $
    200,035
    
    
    $
    198,829NET ASSETS PER SHARE
    
    $
    9.06
    
    
    $
    9.00
 
 (A)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 3




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)
 (UNAUDITED)
 Three Months Ended June 30,2011
    
    
    2010INVESTMENT INCOMEInterest incomeControl investments
    
    $
    2,634
    
    
    $
    3,019Affiliate investments
    
    
    1,368
    
    
    
    1,082Non-Control/Non-Affiliate investments
    
    
    405
    
    
    
    405Cash and cash equivalents
    
    
    4
    
    
    
    1Total interest income
    
    
    4,411
    
    
    
    4,507Other incomeControl investments
    
    
    835
    
    
    
    2,741Non-Control/Non-Affiliate investments
    
    
    16
    
    
    
    Total other income
    
    
    851
    
    
    
    2,741Total investment income
    
    
    5,262
    
    
    
    7,248EXPENSESLoan servicing fee(A)
    
    
    677
    
    
    
    824Base management fee(A)
    
    
    331
    
    
    
    200Incentive fee(A)
    
    
    19
    
    
    
    1,052Administration fee(A)
    
    
    151
    
    
    
    178Interest expense
    
    
    132
    
    
    
    274Amortization of deferred financing fees
    
    
    108
    
    
    
    164Professional fees
    
    
    209
    
    
    
    124Stockholder related costs
    
    
    126
    
    
    
    104Other expenses
    
    
    224
    
    
    
    240Expenses before credits from Adviser
    
    
    1,977
    
    
    
    3,160Credits to fees from Adviser(A)
    
    
    (215
    )
    
    
    (119
    )Total expenses net of credits to fees
    
    
    1,762
    
    
    
    3,041NET INVESTMENT INCOME
    
    
    3,500
    
    
    
    4,207REALIZED AND UNREALIZED GAIN (LOSS)Net realized gain on sale of investments
    
    
    5,739
    
    
    
    16,976Net realized loss on other
    
    
    (39
    )
    
    
    Net unrealized depreciation of investment portfolio
    
    
    (5,052
    )
    
    
    (15,798
    )Net unrealized appreciation (depreciation) of other
    
    
    39
    
    
    
    (17
    )Net gain on investments and other
    
    
    687
    
    
    
    1,161NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    4,187
    
    
    $
    5,368NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER
COMMON SHAREBasic and diluted
    
    $
    0.19
    
    
    $
    0.24WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDINGBasic and diluted
    
    
    22,080,133
    
    
    
    22,080,133
 
 (A)
    
    Refer to Note 4Related Party Transactionsfor additional information. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 4




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS
 (DOLLAR AMOUNTS IN THOUSANDS)
 (UNAUDITED)
 Three Months Ended June 30,2011
    
    
    2010Operations:Net investment income
    
    $
    3,500
    
    
    $
    4,207Net realized gain on sale of investments
    
    
    5,739
    
    
    
    16,976Net realized loss on other
    
    
    (39
    )
    
    
    Net unrealized depreciation of investment portfolio
    
    
    (5,052
    )
    
    
    (15,798
    )Net unrealized appreciation (depreciation) of other
    
    
    39
    
    
    
    (17
    )Net increase in net assets from operations
    
    
    4,187
    
    
    
    5,368Capital transactions:Shelf offering registration costs, net
    
    
    
    
    
    
    10Distributions:Distributions to stockholders
    
    
    (2,981
    )
    
    
    (2,650
    )Total increase in net assets
    
    
    1,206
    
    
    
    2,728Net assets at beginning of period
    
    
    198,829
    
    
    
    192,978Net assets at end of period
    
    $
    200,035
    
    
    $
    195,706
 THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 5




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (DOLLAR AMOUNTS IN THOUSANDS)
 (UNAUDITED)
 Three Months Ended June 30,2011
    
    
    2010CASH FLOWS FROM OPERATING ACTIVITIESNet increase in net assets resulting from operations
    
    $
    4,187
    
    
    $
    5,368Adjustments to reconcile net increase in net assets resulting from operations to net cash
provided by operating activities:Purchase of investments
    
    
    (22,459
    )
    
    
    (1,354
    )Principal repayments of investments
    
    
    3,067
    
    
    
    39,585Proceeds from sales of investments
    
    
    8,069
    
    
    
    21,474Net realized gain on sales of investments
    
    
    (5,739
    )
    
    
    (16,976
    )Net realized loss on other
    
    
    39
    
    
    
    Net unrealized depreciation of investment portfolio
    
    
    5,052
    
    
    
    15,798Net unrealized (appreciation) depreciation of other
    
    
    (39
    )
    
    
    17Net amortization of premiums and discounts
    
    
    
    
    
    
    2Amortization of deferred financing fees
    
    
    108
    
    
    
    164Decrease in restricted cash
    
    
    69
    
    
    
    (Increase) decrease in interest receivable
    
    
    (45
    )
    
    
    392Increase in due from custodian
    
    
    (767
    )
    
    
    (16,427
    )Increase in prepaid assets
    
    
    (44
    )
    
    
    (40
    )Decrease (increase) in other assets
    
    
    19
    
    
    
    (4,008
    )Increase in accounts payable and accrued expenses
    
    
    183
    
    
    
    198(Decrease) increase in fees due to Adviser(A)
    
    
    (191
    )
    
    
    1,090(Decrease) increase in administration fee payable to Administrator(A)
    
    
    (20
    )
    
    
    29(Decrease) increase in other liabilities
    
    
    (155
    )
    
    
    1,019Net cash (used in) provided by operating activities
    
    
    (8,666
    )
    
    
    46,331CASH FLOWS FROM FINANCING ACTIVITIESShelf offering registration proceeds
    
    
    
    
    
    
    10Proceeds from short-term borrowings
    
    
    40,000
    
    
    
    75,000Repayments on short-term borrowings
    
    
    (40,000
    )
    
    
    (75,000
    )Borrowings from Credit Facility
    
    
    
    
    
    
    16,000Repayments on Credit Facility
    
    
    
    
    
    
    (27,300
    )Purchase of derivatives
    
    
    
    
    
    
    (41
    )Deferred financing fees
    
    
    (75
    )
    
    
    (749
    )Distributions paid
    
    
    (2,981
    )
    
    
    (2,650
    )Net cash used in financing activities
    
    
    (3,056
    )
    
    
    (14,730
    )NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
    
    
    (11,722
    )
    
    
    31,601CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD
    
    
    80,580
    
    
    
    87,717CASH AND CASH EQUIVALENTS, END OF PERIOD
    
    $
    68,858
    
    
    $
    119,318NON-CASH ACTIVITIES(B)
    
    $
    6
    
    
    $
    515
 
 (A)
    
    Refer to Note 4Related Party Transactionsfor additional information.(B)
    
    2011: Non-cash activities represent paid in-kind income from the
Companys syndicated loan to Survey Sampling, LLC.2010: Non-cash activities represent real property distributed to shareholders of A. Stucki
Holding Corp. prior to its sale in June 2010. This property is included in the Companys
Schedule of Investments under Neville Limited at June 30 and March 31, 2011, and its fair value
was recognized as other income on the Companys Statement of Operations during the three months
ended June 30, 2010. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 6




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS
 JUNE 30, 2011
 (DOLLAR AMOUNTS IN THOUSANDS)
 (UNAUDITED)
 Company(A)
    
    Industry
    
    Investment(B)
    
    Principal
    
    
    Cost
    
    
    Fair ValueCONTROL INVESTMENTS:Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    $
    14,500
    
    
    $
    14,500
    
    
    $
    14,500Preferred Stock (898,814 shares)(D)(G)
    
    
    
    
    
    
    6,984
    
    
    
    8,019Common Stock (418,072 shares)(D)(G)
    
    
    
    
    
    
    1,045
    
    
    
    Common Stock Warrants (452,683 shares)(D)(G)
    
    
    
    
    
    
    25
    
    
    
    22,554
    
    
    
    22,519ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $342 available (5.0%, Due 3/2013)(H)
    
    
    3,658
    
    
    
    3,616
    
    
    
    Senior Subordinated Term Debt (4.0%, Due 3/2013)(H)
    
    
    6,250
    
    
    
    6,060
    
    
    
    Preferred Stock (2,500 shares)(D)(G)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock (1 share)(D)(G)
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants (73,599 shares)(D)(G)
    
    
    
    
    
    
    4
    
    
    
    Guaranty ($750)12,180
    
    
    
    Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.3%, Due 11/2014)(E)
    
    
    8,000
    
    
    
    8,000
    
    
    
    2,400Preferred Stock (2,380,000 shares)(D)(G)
    
    
    
    
    
    
    3,725
    
    
    
    Guaranty ($3,914)11,725
    
    
    
    2,400Galaxy Tool Holding Corp.
    

Manufacturing
 aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due 8/2013)
    
    
    5,220
    
    
    
    5,220
    
    
    
    5,220Preferred Stock (4,111,907 shares)(D)(G)
    
    
    
    
    
    
    19,658
    
    
    
    1,195Common Stock (48,093 shares)(D)(G)
    
    
    
    
    
    
    48
    
    
    
    24,926
    
    
    
    6,415Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $1,750 available (10.0%, Due 3/2012)
    
    
    
    
    
    
    
    
    
    
    Senior Term Debt (10.0%, Due 3/2013)(E)
    
    
    2,375
    
    
    
    2,375
    
    
    
    2,342Senior Term Debt (12.0%, Due 3/2014)(E)
    
    
    3,727
    
    
    
    3,727
    
    
    
    3,639Senior Term Debt (2.5%, Due 3/2014)(E)(F)
    
    
    3,500
    
    
    
    3,500
    
    
    
    3,417Common Stock (37 shares)(D)(G)
    
    
    
    
    
    
    500
    
    
    
    Common Stock Warrants (21 shares)(D)(G)
    
    
    
    
    
    
    277
    
    
    
    10,379
    
    
    
    9,398Mitchell
Rubber Products,
Inc.
    
    Manufacturing  rubber compounds
    
    Subordinated Term Debt (13.0%, Due 10/2016)(E)
    
    
    13,560
    
    
    
    13,560
    
    
    
    13,509Preferred Stock (27,900 shares)(D)(G)(J)
    
    
    
    
    
    
    2,790
    
    
    
    2,790Common Stock (27,900 shares)(D)(G)(J)
    
    
    
    
    
    
    28
    
    
    
    2816,378
    
    
    
    16,327Neville Limited
    
    Real Estate  investments
    
    Common Stock (100 shares)(D)(G)
    
    
    
    
    
    
    610
    
    
    
    516610
    
    
    
    516Precision Southeast, Inc.
    
    Manufacturing  injection molding and plastics
    
    Revolving Credit Facility, $451 available (7.5%, Due 12/2011)
    
    
    549
    
    
    
    549
    
    
    
    549Senior Term Debt (14.0%, Due 12/2015)
    
    
    7,775
    
    
    
    7,775
    
    
    
    7,775Preferred Stock (19,091 shares)(D)(G)
    
    
    
    
    
    
    1,909
    
    
    
    1,901Common Stock (90,909 shares)(D)(G)
    
    
    
    
    
    
    91
    
    
    
    10,324
    
    
    
    10,225Tread Corp.
    
    Manufacturing  storage and transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(E)
    
    
    5,000
    
    
    
    5,000
    
    
    
    4,925Preferred Stock (832,765 shares)(D)(G)
    
    
    
    
    
    
    833
    
    
    
    929Common Stock (129,067 shares)(D)(G)
    
    
    
    
    
    
    1
    
    
    
    86Common Stock Warrants (1,022,727 shares)(D)(G)
    
    
    
    
    
    
    3
    
    
    
    6565,837
    
    
    
    6,596Venyu Solutions, Inc.
    
    Service  online servicing suite
    
    Senior Subordinated Term Debt (11.3%, Due 10/2015)
    
    
    7,000
    
    
    
    7,000
    
    
    
    7,000Senior Subordinated Term Debt (14.0%, Due 10/2015)
    
    
    12,000
    
    
    
    12,000
    
    
    
    12,000Preferred Stock (5,400 shares)(D)(G)
    
    
    
    
    
    
    6,000
    
    
    
    6,32125,000
    
    
    
    25,321Total Control Investments (represented 60.3% of total investments at fair value)
    
    
    
    
    
    $
    139,913
    
    
    $
    99,717
 7




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
JUNE 30, 2011
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(A)
    
    Industry
    
    Investment(B)
    
    Principal
    
    
    Cost
    
    
    Fair ValueAFFILIATE INVESTMENTS:Cavert II Holding Corp.(I)
    
    Manufacturing  bailing wire
    
    Senior Term Debt (10.0%, Due 4/2016)(E)(F)
    
    $
    2,150
    
    
    $
    2,150
    
    
    $
    2,161Senior Subordinated Term Debt (13.0%, Due 4/2016)(E)
    
    
    4,671
    
    
    
    4,671
    
    
    
    4,688Subordinated Term Debt (11.8%, Due 4/2016)(E)
    
    
    5,700
    
    
    
    5,700
    
    
    
    5,700Preferred Stock (18,446 shares)(G)
    
    
    
    
    
    
    1,844
    
    
    
    2,45114,365
    
    
    
    15,000Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $400 available (10.0%, Due 10/2011)(E)
    
    
    1,100
    
    
    
    1,100
    
    
    
    1,078Senior Term Debt (10.0%, Due 10/2012)(E)
    
    
    2,925
    
    
    
    2,925
    
    
    
    2,867Senior Term Debt (12.5%, Due 4/2013)(E)(F)
    
    
    8,938
    
    
    
    8,938
    
    
    
    8,714Preferred Stock (25 shares)(D)(G)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock Warrants (420 shares)(D)(G)
    
    
    
    
    
    
    2
    
    
    
    15,465
    
    
    
    12,659Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Senior Term Debt (9.2%, Due 12/2012)(E)
    
    
    7,227
    
    
    
    7,227
    
    
    
    5,240Senior Term Debt (10.5%, Due 12/2012)(E)
    
    
    3,650
    
    
    
    3,650
    
    
    
    2,646Senior Term Debt (10.5%, Due 12/2012)(E)(F)
    
    
    3,650
    
    
    
    3,650
    
    
    
    2,646Preferred Stock (1,075,000 shares)(D)(G)
    
    
    
    
    
    
    1,750
    
    
    
    3,529Common Stock (1,682,444 shares)(D)(G)
    
    
    
    
    
    
    1,682
    
    
    
    10417,959
    
    
    
    14,165Quench Holdings Corp.
    
    Service  sales, installation and service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(E)
    
    
    8,000
    
    
    
    8,000
    
    
    
    5,920Preferred Stock (388 shares)(D)(G)
    
    
    
    
    
    
    2,950
    
    
    
    2,932Common Stock (35,242 shares)(D)(G)
    
    
    
    
    
    
    447
    
    
    
    11,397
    
    
    
    8,852Total Affiliate Investments (represented 30.7% of total investments at fair value)
    
    
    
    
    
    $
    59,186
    
    
    $
    50,676NON-CONTROL/NON-AFFILIATE INVESTMENTS:Syndicated Loans:Survey Sampling, LLC
    
    Service  telecommunications-
based sampling
    
    Senior Term Debt (10.9%, Due 12/2012)(K)
    
    $
    2,293
    
    
    $
    2,294
    
    
    $
    2,293Subtotal  Syndicated Loans
    
    
    
    
    
    
    
    
    
    
    2,294
    
    
    
    2,293Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design  greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(C)
    
    
    3,043
    
    
    
    3,043
    
    
    
    3,155B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (11.0%, Due 5/2014)(E)
    
    
    6,528
    
    
    
    6,528
    
    
    
    6,455Senior Term Debt (11.5%, Due 5/2014)(E)
    
    
    2,990
    
    
    
    2,990
    
    
    
    2,956Common Stock Warrants (55 shares)(D)(G)
    
    
    
    
    
    
    300
    
    
    
    439,818
    
    
    
    9,454Total Non-Control/Non-Affiliate Investments (represented 9.0% of total investments at fair value)
    
    
    
    
    
    $
    15,155
    
    
    $
    14,902TOTAL INVESTMENTS
    
    
    
    
    
    $
    214,254
    
    
    $
    165,295
 
 (A)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.(B)
    
    Percentages represent the weighted average interest rates in effect at June 30, 2011, and due dates represent the contractual maturity date.(C)
    
    Valued based on the indicative bid price on or near June 30, 2011, offered by the respective syndication agents trading desk or secondary desk.(D)
    
    Security is non-income producing.(E)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. at June 30, 2011.(F)
    
    Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior
debt and before the senior subordinated debt.(G)
    
    Aggregates all shares of such class of stock owned by the Company without regard to specific series owned within such class, some series of
which may or may not be voting shares or aggregates all warrants to purchase shares of such class of stock owned by the Company without regard
to specific series of such class of stock such warrants allow the Company to purchase.(H)
    
    Debt security is on non-accrual.(I)
    
    In April 2011, the Company sold its common equity investment, received partial redemption of its preferred stock and invested new subordinated
debt in Cavert as part of a recapitalization. As a result of the recapitalization, Cavert has been reclassified as an Affiliate investment
during the three months ended June 30, 2011.(J)
    
    New proprietary portfolio investment valued at cost, as it was determined that the price paid by the Company through an orderly transaction
during the current quarter best represents fair value as of June 30, 2011.(K)
    
    Security was paid off, at par, subsequent to June 30, 2011, and was valued based on the payoff. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 8




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS
MARCH 31, 2011
(DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(A)
    
    Industry
    
    Investment(B)
    
    Principal
    
    
    Cost
    
    
    Fair ValueCONTROL INVESTMENTS:Acme Cryogenics, Inc.
    
    Manufacturing  manifolds and pipes for industrial gasses
    
    Senior Subordinated Term Debt (11.5%, Due 3/2012)
    
    $
    14,500
    
    
    $
    14,500
    
    
    $
    14,500Senior Subordinated Term Debt (12.5%, Due 12/2011)
    
    
    415
    
    
    
    415
    
    
    
    415Preferred Stock (898,814 shares)(D)(G)
    
    
    
    
    
    
    6,984
    
    
    
    4,991Common Stock (418,072 shares)(D)(G)
    
    
    
    
    
    
    1,045
    
    
    
    Common Stock Warrants (452,683 shares)(D)(G)
    
    
    
    
    
    
    24
    
    
    
    22,968
    
    
    
    19,906ASH Holdings Corp.
    
    Retail and Service  school buses and parts
    
    Revolving Credit Facility, $717 available (3.0%, Due 3/2013)(L)
    
    
    3,283
    
    
    
    3,241
    
    
    
    Senior Subordinated Term Debt (2.0%, Due 3/2013)(L)
    
    
    6,250
    
    
    
    6,060
    
    
    
    Preferred Stock (2,500 shares)(D)(G)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock (1 share)(D)(G)
    
    
    
    
    
    
    
    
    
    
    Common Stock Warrants (73,599 shares)(D)(G)
    
    
    
    
    
    
    4
    
    
    
    Guaranty ($750)11,805
    
    
    
    Cavert II Holding Corp.(J)
    
    Manufacturing  bailing wire
    
    Senior Term Debt (10.0%, Due 10/2012)(F)
    
    
    2,650
    
    
    
    2,650
    
    
    
    2,650Senior Subordinated Term Debt (13.0%, Due 10/2014)
    
    
    4,671
    
    
    
    4,671
    
    
    
    4,671Preferred Stock (41,102 shares)(D)(G)
    
    
    
    
    
    
    4,110
    
    
    
    5,354Common Stock (69,126 shares)(D)(G)
    
    
    
    
    
    
    69
    
    
    
    5,57711,500
    
    
    
    18,252Country Club Enterprises, LLC
    
    Service  golf cart distribution
    
    Senior Subordinated Term Debt (16.3%, Due 11/2014)(E)
    
    
    8,000
    
    
    
    8,000
    
    
    
    7,560Preferred Stock (2,380,000 shares)(D)(G)
    
    
    
    
    
    
    3,725
    
    
    
    Guaranty ($3,914)11,725
    
    
    
    7,560Galaxy Tool Holding Corp.
    
    Manufacturing  aerospace and plastics
    
    Senior Subordinated Term Debt (13.5%, Due 8/2013)
    
    
    5,220
    
    
    
    5,220
    
    
    
    5,220Preferred Stock (4,111,907 shares)(D)(G)
    
    
    
    
    
    
    19,658
    
    
    
    1,439Common Stock (48,093 shares)(D)(G)
    
    
    
    
    
    
    48
    
    
    
    24,926
    
    
    
    6,659Mathey Investments, Inc.
    
    Manufacturing  pipe-cutting and pipe-fitting equipment
    
    Revolving Credit Facility, $718 available (10.0%, Due 3/2012)(E)
    
    
    1,032
    
    
    
    1,032
    
    
    
    1,022Senior Term Debt (10.0%, Due 3/2013)(E)
    
    
    2,375
    
    
    
    2,375
    
    
    
    2,345Senior Term Debt (12.0%, Due 3/2014)(E)
    
    
    3,727
    
    
    
    3,727
    
    
    
    3,643Senior Term Debt (2.5%, Due 3/2014)(E)(F)
    
    
    3,500
    
    
    
    3,500
    
    
    
    3,421Common Stock (37 shares)(D)(G)
    
    
    
    
    
    
    500
    
    
    
    Common Stock Warrants (21 shares)(D)(G)
    
    
    
    
    
    
    277
    
    
    
    11,411
    
    
    
    10,431Neville Limited(I)
    
    Real Estate  investments
    
    Common Stock (100 shares)(D)(G)
    
    
    
    
    
    
    610
    
    
    
    534610
    
    
    
    534Precision Southeast, Inc.
    
    Manufacturing  injection molding and plastics
    
    Revolving Credit Facility, $251 available (7.5%, Due 12/2011)
    
    
    749
    
    
    
    749
    
    
    
    749Senior Term Debt (14.0%, Due 12/2015)
    
    
    7,775
    
    
    
    7,775
    
    
    
    7,775Preferred Stock (19,091 shares)(D)(G)
    
    
    
    
    
    
    1,909
    
    
    
    1,948Common Stock (90,909 shares)(D)(G)
    
    
    
    
    
    
    91
    
    
    
    30510,524
    
    
    
    10,777Tread Corp.(H)
    
    Manufacturing  storage and transport equipment
    
    Senior Subordinated Term Debt (12.5%, Due 5/2013)(E)
    
    
    5,000
    
    
    
    5,000
    
    
    
    4,931Preferred Stock (832,765 shares)(D)(G)
    
    
    
    
    
    
    833
    
    
    
    Common Stock (129,067 shares)(D)(G)
    
    
    
    
    
    
    1
    
    
    
    Common Stock Warrants (1,022,727 shares)(D)(G)
    
    
    
    
    
    
    3
    
    
    
    5,837
    
    
    
    4,931Venyu Solutions, Inc.
    
    Service  online servicing suite
    
    Senior Subordinated Term Debt (11.3%, Due 10/2015)
    
    
    7,000
    
    
    
    7,000
    
    
    
    7,000Senior Subordinated Term Debt (14.0%, Due 10/2015)
    
    
    12,000
    
    
    
    12,000
    
    
    
    12,000Preferred Stock (5,400 shares)(D)(G)
    
    
    
    
    
    
    6,000
    
    
    
    6,01225,000
    
    
    
    25,012Total Control Investments (represented 67.9% of total investments at fair value)
    
    
    
    
    
    $
    136,306
    
    
    $
    104,062
 9




---



##### 



GLADSTONE INVESTMENT CORPORATION
CONDENSED CONSOLIDATED SCHEDULES OF INVESTMENTS (Continued)
MARCH 31, 2011
 (DOLLAR AMOUNTS IN THOUSANDS)
(UNAUDITED)
 Company(A)
    
    Industry
    
    Investment(B)
    
    Principal
    
    
    Cost
    
    
    Fair ValueAFFILIATE INVESTMENTS:Danco Acquisition Corp.
    
    Manufacturing  machining and sheet metal work
    
    Revolving Credit Facility, $400 available (10.0%, Due 10/2011)(E)
    
    $
    1,100
    
    
    $
    1,100
    
    
    $
    1,084Senior Term Debt (10.0%, Due 10/2012)(E)
    
    
    2,925
    
    
    
    2,925
    
    
    
    2,881Senior Term Debt (12.5%, Due 4/2013)(E)
    
    
    8,961
    
    
    
    8,961
    
    
    
    8,781Preferred Stock (25 shares)(D)(G)
    
    
    
    
    
    
    2,500
    
    
    
    Common Stock Warrants (420 shares)(D)(G)
    
    
    
    
    
    
    2
    
    
    
    15,488
    
    
    
    12,746Noble Logistics, Inc.
    
    Service  aftermarket auto parts delivery
    
    Revolving Credit Facility, $300 available (4.3%, Due 6/2011)(E)
    
    
    300
    
    
    
    300
    
    
    
    206Senior Term Debt (9.2%, Due 12/2012)(E)
    
    
    7,227
    
    
    
    7,227
    
    
    
    4,951Senior Term Debt (10.5%, Due 12/2012)(E)
    
    
    3,650
    
    
    
    3,650
    
    
    
    2,500Senior Term Debt (10.5%, Due 12/2012)(E)(F)
    
    
    3,650
    
    
    
    3,650
    
    
    
    2,500Preferred Stock (1,075,000 shares)(D)(G)
    
    
    
    
    
    
    1,750
    
    
    
    3,026Common Stock (1,682,444 shares)(D)(G)
    
    
    
    
    
    
    1,683
    
    
    
    18,260
    
    
    
    13,183Quench Holdings Corp.
    
    Service  sales, installation and service of water coolers
    
    Senior Subordinated Term Debt (10.0%, Due 8/2013)(E)
    
    
    8,000
    
    
    
    8,000
    
    
    
    6,000Preferred Stock (388 shares)(D)(G)
    
    
    
    
    
    
    2,950
    
    
    
    2,627Common Stock (35,242 shares)(D)(G)
    
    
    
    
    
    
    447
    
    
    
    11,397
    
    
    
    8,627Total Affiliate Investments (represented 22.5% of total investments at fair value)
    
    
    
    
    
    $
    45,145
    
    
    $
    34,556NON-CONTROL/NON-AFFILIATE INVESTMENTS:Syndicated Loans:Fifth Third Processing Solutions, LLC(K)
    
    Service  electronic payment processing
    
    Senior Subordinated Term Debt (8.3%, Due 11/2017)(C)
    
    $
    500
    
    
    $
    495
    
    
    $
    509Survey Sampling, LLC
    
    Service  telecommunications-based sampling
    
    Senior Term Debt (10.7%, Due 12/2012)(C)
    
    
    2,306
    
    
    
    2,308
    
    
    
    1,499Subtotal  Syndicated Loans
    
    
    
    
    
    
    2,803
    
    
    
    2,008Non-syndicated Loans:American Greetings Corporation
    
    Manufacturing and design  greeting cards
    
    Senior Notes (7.4%, Due 6/2016)(C)
    
    
    3,043
    
    
    
    3,043
    
    
    
    3,073B-Dry, LLC
    
    Service  basement waterproofer
    
    Senior Term Debt (11.0%, Due 5/2014)(E)
    
    
    6,545
    
    
    
    6,545
    
    
    
    6,512Senior Term Debt (11.5%, Due 5/2014)(E)
    
    
    3,050
    
    
    
    3,050
    
    
    
    3,035Common Stock Warrants (55 shares)(D)(G)
    
    
    
    
    
    
    300
    
    
    
    399,895
    
    
    
    9,586Total Non-Control/Non-Affiliate Investments (represented 9.6% of total investments at fair value)
    
    
    
    
    
    $
    15,741
    
    
    $
    14,667TOTAL INVESTMENTS
    
    
    
    
    
    $
    197,192
    
    
    $
    153,285
 
 (A)
    
    Certain of the listed securities are issued by affiliate(s) of the indicated portfolio company.(B)
    
    Percentages represent the weighted average interest rates in effect at March 31, 2011, and due dates represent the contractual maturity date.(C)
    
    Valued based on the indicative bid price on or near March 31, 2011, offered by the respective syndication agents trading desk or secondary desk.(D)
    
    Security is non-income producing.(E)
    
    Fair value based on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. at March 31, 2011.(F)
    
    Last Out Tranche (LOT) of senior debt, meaning if the portfolio company is liquidated, the holder of the LOT is paid after the other senior
debt and before the senior subordinated debt.(G)
    
    Aggregates all shares of such class of stock owned by the Company without regard to specific series owned within such class, some series of
which may or may not be voting shares or aggregates all warrants to purchase shares of such class of stock owned by the Company without regard
to specific series of such class of stock such warrants allow the Company to purchase.(H)
    
    In June 2010, an additional equity investment increased the Companys fully-diluted ownership above 25%, resulting in the investment being
reclassified as Control during the quarter ended June 30, 2010.(I)
    
    In July 2010, Gladstone Neville Corp. changed its name to Neville Limited.(J)
    
    In April 2011, the Company sold its common equity investment, received partial redemption of its preferred stock and invested new subordinated
debt in Cavert II Holding Corp. as part of a recapitalization.(K)
    
    In May 2011, the Company received full repayment of its senior subordinated term debt investment in Fifth Third Processing Solutions, LLC.(L)
    
    Debt security is on non-accrual. THE ACCOMPANYING NOTES ARE AN INTEGRAL PART OF THESE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS.
 10




---



##### 



GLADSTONE INVESTMENT CORPORATION
 
 NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
 JUNE 30, 2011
 (DOLLAR AMOUNTS IN THOUSANDS, EXCEPT SHARE AND PER SHARE DATA AND AS OTHERWISE
INDICATED)
 NOTE 1. ORGANIZATION
    NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 Unaudited Interim Financial Statements and Basis of Presentation
  Condensed Consolidated Statement of Assets and Liabilities
 Investment Valuation Policy
    11




---



##### 



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




---



##### 



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




---



##### 



Consolidated Statements of Operations
 Recent Accounting Pronouncements
  NOTE 3. INVESTMENTS
  
    
    Level 1 inputs to the valuation methodology are quoted prices
(unadjusted) for identical assets or liabilities in active
markets;
    
    Level 2 inputs to the valuation methodology include quoted
prices for similar assets and liabilities in active markets and
inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the
financial instrument. Level 2 inputs are in those markets for
which there are few transactions, the prices are not current,
little public information exists or instances where prices vary
substantially over time or among brokered market makers and
    
    Level 3 inputs to the valuation methodology are unobservable and
significant to the fair value measurement. Unobservable inputs are
those inputs that reflect the Companys own assumptions that
market participants would use to price the asset or liability
based upon the best available information.
  Condensed Consolidated Statements of Assets and Liabilities
 As of June 30, 2011Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesControl InvestmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    17,722
    
    
    $
    17,722Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    59,554
    
    
    
    59,554Preferred equity
    
    
    
    
    
    
    
    
    
    
    21,155
    
    
    
    21,155Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    1,286
    
    
    
    1,286Total Control investments
    
    
    
    
    
    
    
    
    
    
    99,717
    
    
    
    99,717Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    25,351
    
    
    
    25,351Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    16,308
    
    
    
    16,308Preferred equity
    
    
    
    
    
    
    
    
    
    
    8,913
    
    
    
    8,913Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    104
    
    
    
    104Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    50,676
    
    
    
    50,676Non-Control/Non-Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    14,859
    
    
    
    14,859Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    43
    
    
    
    43Total Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    
    14,902
    
    
    
    14,902Total Investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    165,295
    
    
    $
    165,295Cash Equivalents
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    60,000Total Investments and Cash Equivalents
    
    $
    60,000
    
    
    $
    
    
    
    $
    165,295
    
    
    $
    225,295
 14




---



##### 



Condensed Consolidated Statements of Assets and Liabilities
 As of March 31, 2011Total Fair ValueReported in CondensedConsolidated Statement ofLevel 1
    
    
    Level 2
    
    
    Level 3
    
    
    Assets and LiabilitiesControl InvestmentsSenior term debt
    
    $
    
    
    
    $
    
    
    
    $
    21,605
    
    
    $
    21,605Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    56,297
    
    
    
    56,297Preferred equity
    
    
    
    
    
    
    
    
    
    
    19,745
    
    
    
    19,745Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    6,415
    
    
    
    6,415Total Control investments
    
    
    
    
    
    
    
    
    
    
    104,062
    
    
    
    104,062Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    22,903
    
    
    
    22,903Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    6,000
    
    
    
    6,000Preferred equity
    
    
    
    
    
    
    
    
    
    
    5,653
    
    
    
    5,653Total Affiliate investments
    
    
    
    
    
    
    
    
    
    
    34,556
    
    
    
    34,556Non-Control/Non-Affiliate InvestmentsSenior term debt
    
    
    
    
    
    
    
    
    
    
    14,119
    
    
    
    14,119Senior subordinated term debt
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    509Common equity/equivalents
    
    
    
    
    
    
    
    
    
    
    39
    
    
    
    39Total Non-Control/Non-Affiliate
Investments
    
    
    
    
    
    
    
    
    
    
    14,667
    
    
    
    14,667Total Investments at fair value
    
    $
    
    
    
    $
    
    
    
    $
    153,285
    
    
    $
    153,285Cash Equivalents
    
    
    60,000
    
    
    
    
    
    
    
    
    
    
    
    60,000Total Investments and Cash Equivalents
    
    $
    60,000
    
    
    $
    
    
    
    $
    153,285
    
    
    $
    213,285
 Changes in Level 3 Fair Value Measurements of Investments
  Fair value measurements using unobservable data inputs (Level 3)
 Period ended June 30, 2011:
 Non-Control/Control
    
    
    Affiliate
    
    
    Non-AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended June 30, 2011:Fair value as of March 31, 2011
    
    $
    104,062
    
    
    $
    34,556
    
    
    $
    14,667
    
    
    $
    153,285Net realized gains(A)
    
    
    5,734
    
    
    
    
    
    
    
    5
    
    
    
    5,739Net unrealized (depreciation) appreciation(B)
    
    
    (1,758
    )
    
    
    1,985
    
    
    
    834
    
    
    
    1,061Reversal of previously-recorded appreciation upon
realization(B)
    
    
    (6,193
    )
    
    
    94
    
    
    
    (14
    )
    
    
    (6,113
    )Issuances / Originations(C)
    
    
    16,753
    
    
    
    5,700
    
    
    
    6
    
    
    
    22,459Sales
    
    
    (8,069
    )
    
    
    
    
    
    
    
    
    
    
    (8,069
    )Settlements / Repayments(D)
    
    
    (1,647
    )
    
    
    (824
    )
    
    
    (596
    )
    
    
    (3,067
    )Transfers(E)
    
    
    (9,165
    )
    
    
    9,165
    
    
    
    
    
    
    
    Fair value as of June 30, 2011
    
    $
    99,717
    
    
    $
    50,676
    
    
    $
    14,902
    
    
    $
    165,295
 15




---



##### 



Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended June 30, 2011:Fair value as of March 31, 2011
    
    $
    58,627
    
    
    $
    62,806
    
    
    $
    25,398
    
    
    $
    6,454
    
    
    $
    153,285Net realized gains(A)
    
    
    
    
    
    
    5
    
    
    
    
    
    
    
    5,734
    
    
    
    5,739Net unrealized appreciation (depreciation)(B)
    
    
    1,357
    
    
    
    (5,655
    )
    
    
    4,832
    
    
    
    527
    
    
    
    1,061Reversal of previously-recorded appreciation upon
realization(B)
    
    
    95
    
    
    
    (14
    )
    
    
    (686
    )
    
    
    (5,508
    )
    
    
    (6,113
    )Issuances / Originations(C)
    
    
    6
    
    
    
    19,635
    
    
    
    2,790
    
    
    
    28
    
    
    
    22,459Sales
    
    
    
    
    
    
    
    
    
    
    (2,266
    )
    
    
    (5,803
    )
    
    
    (8,069
    )Settlements / Repayments(D)
    
    
    (2,153
    )
    
    
    (915
    )
    
    
    
    
    
    
    1
    
    
    
    (3,067
    )Fair value as of June 30, 2011
    
    $
    57,932
    
    
    $
    75,862
    
    
    $
    30,068
    
    
    $
    1,433
    
    
    $
    165,295
 Period ended June 30, 2010:
 Non-Control/Control
    
    
    Affiliate
    
    
    Non-AffiliateInvestments
    
    
    Investments
    
    
    Investments
    
    
    TotalThree months ended June 30, 2010:Fair value as of March 31, 2010
    
    $
    148,248
    
    
    $
    37,664
    
    
    $
    20,946
    
    
    $
    206,858Net realized gains(A)
    
    
    16,957
    
    
    
    
    
    
    
    19
    
    
    
    16,976Net unrealized (depreciation) appreciation(B)
    
    
    (55
    )
    
    
    1,237
    
    
    
    444
    
    
    
    1,626Reversal of previously-recorded appreciation upon
realization(B)
    
    
    (17,406
    )
    
    
    
    
    
    
    (18
    )
    
    
    (17,424
    )Issuances / Originations(C)
    
    
    1,354
    
    
    
    
    
    
    
    
    
    
    
    1,354Sales
    
    
    (21,474
    )
    
    
    
    
    
    
    
    
    
    
    (21,474
    )Settlements / Repayments(D)
    
    
    (31,803
    )
    
    
    (472
    )
    
    
    (7,312
    )
    
    
    (39,587
    )Transfers(F)
    
    
    5,753
    
    
    
    (5,753
    )
    
    
    
    
    
    
    Fair value as of June 30, 2010
    
    $
    101,574
    
    
    $
    32,676
    
    
    $
    14,079
    
    
    $
    148,329
 Senior
    
    
    
    
    
    
    CommonSenior
    
    
    Subordinated
    
    
    Preferred
    
    
    Equity/Term Debt
    
    
    Term Debt
    
    
    Equity
    
    
    Equivalents
    
    
    TotalThree months ended June 30, 2010:Fair value as of March 31, 2010
    
    $
    94,359
    
    
    $
    71,112
    
    
    $
    20,425
    
    
    $
    20,962
    
    
    $
    206,858Net realized gains(A)
    
    
    19
    
    
    
    
    
    
    
    
    
    
    
    16,957
    
    
    
    16,976Net unrealized appreciation (depreciation)(B)
    
    
    510
    
    
    
    (168
    )
    
    
    556
    
    
    
    728
    
    
    
    1,626Reversal of previously-recorded appreciation upon
realization(B)
    
    
    (19
    )
    
    
    
    
    
    
    (142
    )
    
    
    (17,263
    )
    
    
    (17,424
    )Issuances / Originations(C)
    
    
    
    
    
    
    685
    
    
    
    58
    
    
    
    611
    
    
    
    1,354Sales
    
    
    
    
    
    
    
    
    
    
    (4,387
    )
    
    
    (17,087
    )
    
    
    (21,474
    )Settlements / Repayments(D)
    
    
    (29,976
    )
    
    
    (9,611
    )
    
    
    
    
    
    
    
    
    
    
    (39,587
    )Fair value as of June 30, 2010
    
    $
    64,893
    
    
    $
    62,018
    
    
    $
    16,510
    
    
    $
    4,908
    
    
    $
    148,329
 
 (A)
    
    Included in the realized and unrealized gain (loss) section on the accompanying
Condensed Consolidated Statement of Operationsfor the periods ended June 30, 2011 and 2010.(B)
    
    Included in Net unrealized depreciation of investment portfolio on the accompanying
Condensed Consolidated Statement of Operationsfor the periods ended June 30, 2011 and 2010.(C)
    
    Includes PIK and other non-cash disbursements to portfolio
companies.(D)
    
    Includes amortization of premiums and discounts and other
cost-basis adjustments.(E)
    
    Transfer represents the cost basis of Cavert immediately after its
recapitalization in April 2011, which was reclassified from a Control to an Affiliate
investment during the three months ended June 30, 2011.(F)
    
    Transfer represents the cost basis as of March 31, 2010 of Tread Corporation,
which was reclassified from an Affiliate to a Control investment during the three months
ended June 30, 2010. Non-Proprietary Investment Activity
  16




---



##### 



Proprietary Investment Activity
  
    
    In April 2011, the Company recapitalized its investment in Cavert, from which the
Company received gross cash proceeds of $5.6 million from the sale of its common equity,
resulting in a realized gain of $5.5 million, $2.3 million in a partial redemption of its
preferred stock and $0.7 million in preferred dividends. At the same time, the Company
invested $5.7 million in new subordinated debt in Cavert. Cavert was reclassified from a
Control investment to an Affiliate investment during the three months ended June 30, 2011.
    
    In April 2011, the Company invested $16.4 million in a new Control investment, Mitchell
Rubber Products, Inc. (Mitchell), consisting of subordinated debt and preferred and
common equity. Mitchell, headquartered in Mira Loma, California, develops, mixes and molds
rubber compounds for specialized applications in the non-tire rubber market.
  Investment Concentrations
  June 30, 2011
    
    
    March 31, 2011Cost
    
    
    Fair Value
    
    
    Cost
    
    
    Fair ValueSenior term debt
    
    $
    62,421
    
    
    $
    57,932
    
    
    $
    64,566
    
    
    $
    58,627Senior subordinated term debt
    
    
    93,327
    
    
    
    75,862
    
    
    
    74,602
    
    
    
    62,806Preferred equity
    
    
    53,443
    
    
    
    30,068
    
    
    
    52,922
    
    
    
    25,398Common equity/Equivalents
    
    
    5,063
    
    
    
    1,433
    
    
    
    5,102
    
    
    
    6,454Total Investments
    
    $
    214,254
    
    
    $
    165,295
    
    
    $
    197,192
    
    
    $
    153,285
  June 30, 2011
    
    
    March 31, 2011Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsChemicals, plastics and rubber
    
    $
    38,846
    
    
    
    23.5
    %
    
    $
    19,906
    
    
    
    13.0
    %Electronics
    
    
    25,321
    
    
    
    15.3
    
    
    
    25,012
    
    
    
    16.3Containers, packaging and glass
    
    
    25,225
    
    
    
    15.3
    
    
    
    29,029
    
    
    
    19.0Cargo transport
    
    
    14,165
    
    
    
    8.6
    
    
    
    13,183
    
    
    
    8.6Diversified/Conglomerate manufacturing
    
    
    12,659
    
    
    
    7.7
    
    
    
    12,746
    
    
    
    8.3Buildings and real estate
    
    
    9,970
    
    
    
    6.0
    
    
    
    10,120
    
    
    
    6.6Machinery
    
    
    9,398
    
    
    
    5.7
    
    
    
    10,431
    
    
    
    6.8Home and office furnishings/Consumer products
    
    
    8,852
    
    
    
    5.3
    
    
    
    8,627
    
    
    
    5.6Oil and gas
    
    
    6,596
    
    
    
    4.0
    
    
    
    4,931
    
    
    
    3.2Aerospace and defense
    
    
    6,415
    
    
    
    3.9
    
    
    
    6,659
    
    
    
    4.4Printing and publishing
    
    
    3,155
    
    
    
    1.9
    
    
    
    3,073
    
    
    
    2.0Automobile
    
    
    2,400
    
    
    
    1.4
    
    
    
    7,560
    
    
    
    4.9Telecommunications
    
    
    2,293
    
    
    
    1.4
    
    
    
    1,499
    
    
    
    1.0Diversified/Conglomerate service
    
    
    
    
    
    
    
    
    
    
    509
    
    
    
    0.3Total Investments
    
    $
    165,295
    
    
    
    100.0
    %
    
    $
    153,285
    
    
    
    100.0
    %
  June 30, 2011
    
    
    March 31, 2011Percentage of
    
    
    
    
    
    
    Percentage ofFair Value
    
    
    Total Investments
    
    
    Fair Value
    
    
    Total InvestmentsSouth
    
    $
    106,486
    
    
    
    64.4
    %
    
    $
    92,172
    
    
    
    60.1
    %Northeast
    
    
    36,580
    
    
    
    22.1
    
    
    
    38,126
    
    
    
    24.9West
    
    
    12,659
    
    
    
    7.7
    
    
    
    12,746
    
    
    
    8.3Midwest
    
    
    9,570
    
    
    
    5.8
    
    
    
    10,241
    
    
    
    6.7Total Investments
    
    $
    165,295
    
    
    
    100.0
    %
    
    $
    153,285
    
    
    
    100.0
    %
  17




---



##### 



Investment Principal Repayments
  AmountFor the remaining nine months ending March 31:
    
    2012
    
    $
    16,949For the fiscal year ending March 31:
    
    2013
    
    
    31,5782014
    
    
    34,3312015
    
    
    17,2212016
    
    
    26,7752017
    
    
    29,124Thereafter
    
    
    Total contractual repayments
    
    $
    155,978Investments in equity securities
    
    
    58,506Adjustments to cost basis on debt securities
    
    
    (230
    )Total cost basis of investments held at June 30, 2011:
    
    $
    214,254
 Receivables from Portfolio Companies
  NOTE 4. RELATED PARTY TRANSACTIONS
 Investment Advisory and Management Agreement
  Condensed Consolidated Statements of Operations
 Three Months Ended June 30,2011
    
    
    2010Average total assets subject to base management fee(A)
    
    $
    201,600
    
    
    $
    204,800Multiplied by pro-rata annual base management fee of 2%
    
    
    0.5
    %
    
    
    0.5
    %Unadjusted base management fee
    
    $
    1,008
    
    
    $
    1,024Reduction for loan servicing fees(B)
    
    
    (677
    )
    
    
    (824
    )Base management fee(B)
    
    $
    331
    
    
    $
    200Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    
    
    
    
    (15
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (215
    )
    
    
    (104
    )Credit to base management fee from Adviser(B)
    
    
    (215
    )
    
    
    (119
    )Net base management fee
    
    $
    116
    
    
    $
    81Net incentive fee(B)
    
    $
    19
    
    
    $
    1,052
 
 (A)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any
uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted
appropriately for any share issuances or repurchases during the periods.(B)
    
    Reflected, in total, as a line item on the Condensed Consolidated Statement of Operations. 18




---



##### 



Base Management Fee
  
    
    Loan Servicing FeesThe Adviser also services the loans held by Business Investment, in return
for which it receives a 2.0% annual fee based on the monthly aggregate outstanding
balance of loans pledged under the Companys line of credit. Since the Company owns
these loans, all loan servicing fees paid to the Adviser are treated as reductions
directly against the 2.0% base management fee under the Advisory Agreement.
    
    Senior Syndicated Loan Fee WaiverThe Board of Directors accepted an unconditional and irrevocable voluntary
waiver from the Adviser to reduce the annual 2.0% base management fee on senior
syndicated loan participations to 0.5%, to the extent that proceeds resulting from
borrowings were used to purchase such senior syndicated loan participations, for the
three months ended June 30, 2011 and 2010.
    
    Portfolio Company FeesUnder the Advisory Agreement, the Adviser has also provided, and continues
to provide, managerial assistance and other services to the Companys portfolio
companies and may receive fees for services other than managerial assistance. 50% of
certain of these fees and 100% of other fees are credited against the base management
fee that the Company would otherwise be required to pay to the Adviser.
 Incentive Fee
  
    
    no incentive fee in any calendar quarter in which the Companys
pre-incentive fee net investment income does not exceed the hurdle rate (7.0%
annualized);
    
    100% of the Companys pre-incentive fee net investment income with respect
to that portion of such pre-incentive fee net investment income, if any, that exceeds
the hurdle rate but is less than 2.1875% in any calendar quarter (8.75% annualized); and
    
    20% of the amount of the Companys pre-incentive fee net investment income,
if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized).
   19




---



##### 



Administration Agreement
  Related Party Fees Due
 Condensed Consolidated Statements of Assets and
Liabilities
 As of June 30,
    
    
    As of March 31,2011
    
    
    2011Base management fee due to Adviser
    
    $
    116
    
    
    $
    341Loan servicing fee due to Adviser
    
    
    173
    
    
    
    157Incentive fee due to Adviser
    
    
    19
    
    
    
    Other
    
    
    
    
    
    
    1Total Fees due to Adviser
    
    
    308
    
    
    
    499Fee due to Administrator
    
    
    151
    
    
    
    171Total related party fees due
    
    $
    459
    
    
    $
    670
 NOTE 5. BORROWINGS
 Line of Credit
    20




---



##### 



Short-Term Loan
  Fair Value
 Condensed Consolidated Statements of Assets and Liabilities
 Level 3 - BorrowingsTotal Fair Value Reported in CondensedConsolidated Statements of Assets and LiabilitiesJune 30, 2011
    
    
    March 31, 2011Short-Term Loan
    
    $
    40,000
    
    
    $
    40,000Credit Facility
    
    
    
    
    
    
    Total
    
    $
    40,000
    
    
    $
    40,000
 Total Fair ValueReported in CondensedShort-Term
    
    
    Credit
    
    
    Consolidated StatementsLoan
    
    
    Facility
    
    
    of Assets and LiabilitiesThree months ended June 30, 2011:Fair value at March 31, 2011
    
    $
    40,000
    
    
    $
    
    
    
    $
    40,000Borrowings
    
    
    40,000
    
    
    
    
    
    
    
    40,000Repayments
    
    
    (40,000
    )
    
    
    
    
    
    
    (40,000
    )Fair value at June 30, 2011
    
    $
    40,000
    
    
    $
    
    
    
    $
    40,000Three months ended June 30, 2010:Fair value at March 31, 2010
    
    $
    75,000
    
    
    $
    27,812
    
    
    $
    102,812Borrowings
    
    
    75,000
    
    
    
    16,000
    
    
    
    91,000Repayments
    
    
    (75,000
    )
    
    
    (27,300
    )
    
    
    (102,300
    )Net unrealized appreciation(A)
    
    
    
    
    
    
    (12
    )
    
    
    (12
    )Fair value at June 30, 2010
    
    $
    75,000
    
    
    $
    16,500
    
    
    $
    91,500
 
 (A)
    
    Included in net unrealized appreciation (depreciation)
of other on the accompanying Condensed Consolidated Statements of
Operationsfor the period ended June 30, 2010. 21




---



##### 



NOTE 6. INTEREST RATE CAP AGREEMENTS
  Condensed Consolidated Statements of Operations
  NOTE 7. COMMON STOCK
 Registration Statement
 .
 NOTE 8. NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER SHARE
  Three Months Ended June 30,2011
    
    
    2010Numerator for basic and diluted net increase in net
assets resulting from operations per share
    
    $
    4,187
    
    
    $
    5,368Denominator for basic and diluted weighted average shares
    
    
    22,080,133
    
    
    
    22,080,133Basic and diluted net increase in net assets
resulting from operations per share
    
    $
    0.19
    
    
    $
    0.24
 NOTE 9. DISTRIBUTIONS
  DistributionFiscal Year
    
    Declaration Date
    
    
    Record Date
    
    
    Payment Date
    
    
    per Share2012
    
    April 12, 2011
    
    April 22, 2011
    
    April 29, 2011
    
    $
    0.045April 12, 2011
    
    May 20, 2011
    
    May 31, 2011
    
    
    0.045April 12, 2011
    
    June 20, 2011
    
    June 30, 2011
    
    
    0.045Three months ended June 30, 2011:
    
    $
    0.1352011
    
    April 7, 2010
    
    April 22, 2010
    
    April 30, 2010
    
    $
    0.040April 7, 2010
    
    May 20, 2010
    
    May 28, 2010
    
    
    0.040April 7, 2010
    
    June 22, 2010
    
    June 30, 2010
    
    
    0.040Three months ended June 30, 2010:

    
    $
    0.120
 22




---



##### 



NOTE 10. COMMITMENTS AND CONTINGENCIES
     23




---



##### 



NOTE 11. FINANCIAL HIGHLIGHTS
 Three Months Ended June 30,2011
    
    
    2010Per Share Data(A)Net asset value at beginning of period
    
    $
    9.00
    
    
    $
    8.74Income from investment operations:Net investment income(B)
    
    
    0.16
    
    
    
    0.19Realized gain on sale of investments(B)
    
    
    0.26
    
    
    
    0.77Net unrealized depreciation of investments(B)
    
    
    (0.23
    )
    
    
    (0.72
    )Total from investment operations
    
    
    0.19
    
    
    
    0.24Distributions from:Net investment income
    
    
    (0.13
    )
    
    
    (0.12
    )Total distributions(C)
    
    
    (0.13
    )
    
    
    (0.12
    )Net asset value at end of period
    
    $
    9.06
    
    
    $
    8.86Per share market value at beginning of period
    
    $
    7.79
    
    
    $
    6.01Per share market value at end of period
    
    
    7.14
    
    
    
    5.83Total return(D)
    
    
    (6.67)
    %
    
    
    (0.99)
    %Shares outstanding at end of period
    
    
    22,080,133
    
    
    
    22,080,133Statement of Assets and Liabilities Data:Net assets at end of period
    
    $
    200,035
    
    
    $
    195,706Average net assets(E)
    
    
    198,324
    
    
    
    193,094Senior Securities Data:Total borrowings
    
    $
    40,000
    
    
    $
    91,500Asset coverage ratio(F)
    
    
    537
    %
    
    
    301
    %Average coverage per unit(G)
    
    $
    5,371
    
    
    $
    3,006Ratios/Supplemental Data:Ratio of expenses to average net assets(H)(I)
    
    
    3.99
    %
    
    
    6.55
    %Ratio of net expenses to average net assets(H)(J)
    
    
    3.55
    
    
    
    6.30Ratio of net investment income to average net assets(H)
    
    
    7.06
    
    
    
    8.71
 
 (A)
    
    Based on actual shares outstanding at the end of the corresponding period.(B)
    
    Based on weighted average basic per share data.(C)
    
    Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from
amounts determined under GAAP.(D)
    
    Total return equals the change in the market value of the Companys common stock from the beginning of the period, taking into
account dividends reinvested in accordance with the terms of the Companys dividend reinvestment plan.(E)
    
    Calculated using the average of the balance of net assets at the end of each month of the reporting period.(F)
    
    As a BDC, the Company is generally required to maintain an asset coverage ratio of at least 200% of total consolidated assets,
less all liabilities and indebtedness not represented by senior securities, to total borrowings and guaranty commitments. Asset
coverage ratio is the ratio of the carrying value of the Companys total consolidated assets, less all liabilities and
indebtedness not represented by senior securities, to the aggregate amount of senior securities representing indebtedness.(G)
    
    Asset coverage per unit is the asset coverage ratio expressed in terms of dollar amounts per one thousand dollars of indebtedness.(H)
    
    Amounts are annualized.(I)
    
    Ratio of expenses to average net assets is computed using expenses before credits from the Adviser.(J)
    
    Ratio of net expenses to average net assets is computed using total expenses net of credits to the management fee. NOTE 12. SUBSEQUENT EVENTS
 Portfolio Activity
  Short-Term Loan
  Distributions
  Distribution perRecord Date
    
    Payment Date
    
    ShareJuly 22, 2011
    
    July 29, 2011
    
    $
    0.05August 19, 2011
    
    August 31, 2011
    
    
    0.05September 22, 2011
    
    September 30, 2011
    
    
    0.05
 24




---



##### 



ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
(dollar amounts in thousands, except per share data and as otherwise indicated).
 All statements contained herein, other than historical facts, may constitute forward-looking
statements. These statements may relate to, among other things, future events or our future
performance or financial condition. In some cases, you can identify forward-looking statements by
terminology such as may, might, believe, will, provided, anticipate, future, could,
growth, plan, intend, expect, should, would, if, seek, possible, potential,
likely, estimate or the negative of such terms or comparable terminology. These forward-looking
statements involve known and unknown risks, uncertainties and other factors that may cause our
actual results, levels of activity, performance or achievements to be materially different from any
future results, levels of activity, performance or achievements expressed or implied by such
forward-looking statements. We caution readers not to place undue reliance on any such
forward-looking statements. We undertake no obligation to publicly update or revise any
forward-looking statements, whether as a result of new information, future events or otherwise,
after the date of this Form 10-Q
 The following analysis of our financial condition and results of operations should be read in
conjunction with our condensed consolidated financial statements and the notes thereto contained
elsewhere in this report and in our Annual Report on Form 10-K for the fiscal year ended March 31,
2011.
 
 OVERVIEW
 General
  Business Environment
    25




---



##### 



26




---



##### 



Investment Highlights
  Recent Developments
 Portfolio Activity
  
    
    In April 2011, we recapitalized our investment in Cavert in which we received gross cash
proceeds of $5.6 million from the sale of our common equity, resulting in a realized gain
of $5.5 million, $2.3 million in a partial redemption of our preferred stock and $0.7
million in preferred dividends. At the same time, we invested $5.7 million in new
subordinated debt in Cavert. Due to the recapitalization, Cavert was reclassified from a
Control investment to an Affiliate investment during the three months ended June 30, 2011.
 27




---



##### 




    
    In April 2011, we invested $16.4 million in a new Control investment, Mitchell,
consisting of subordinated debt and preferred and common equity. Mitchell, headquartered
in Mira Loma, California, develops, mixes and molds rubber compounds for specialized
applications in the non-tire rubber market.
    
    In May 2011, we received full repayment of our syndicated loan to Fifth Third Processing
Solutions, LLC, resulting in net cash proceeds received of $0.5 million.
 Condensed Consolidated Financial Statements
 Short-Term Loan
  28




---



##### 



RESULTS OF OPERATIONS
 Comparison of the three months ended June 30, 2011, to the three months ended June 30, 2010
 Three Months Ended June 30,2011
    
    
    2010
    
    
    $ Change
    
    
    % ChangeINVESTMENT INCOMEInterest income
    
    $
    4,411
    
    
    $
    4,507
    
    
    $
    (96
    )
    
    
    (2.1
    )%Other income
    
    
    851
    
    
    
    2,741
    
    
    
    (1,890
    )
    
    
    (69.0
    )Total investment income
    
    
    5,262
    
    
    
    7,248
    
    
    
    (1,986
    )
    
    
    (27.4
    )EXPENSESLoan servicing fee
    
    
    677
    
    
    
    824
    
    
    
    (147
    )
    
    
    (17.8
    )Base management fee
    
    
    331
    
    
    
    200
    
    
    
    131
    
    
    
    65.5Incentive fee
    
    
    19
    
    
    
    1,052
    
    
    
    (1,033
    )
    
    
    (98.2
    )Administration fee
    
    
    151
    
    
    
    178
    
    
    
    (27
    )
    
    
    (15.2
    )Interest expense
    
    
    132
    
    
    
    274
    
    
    
    (142
    )
    
    
    (51.8
    )Amortization of deferred financing fees
    
    
    108
    
    
    
    164
    
    
    
    (56
    )
    
    
    (34.1
    )Other
    
    
    559
    
    
    
    468
    
    
    
    91
    
    
    
    19.4Expenses before credits from Adviser
    
    
    1,977
    
    
    
    3,160
    
    
    
    (1,183
    )
    
    
    (37.4
    )Credits to fees
    
    
    (215
    )
    
    
    (119
    )
    
    
    (96
    )
    
    
    80.7Total expenses net of credits to fee
    
    
    1,762
    
    
    
    3,041
    
    
    
    (1,279
    )
    
    
    (42.1
    )NET INVESTMENT INCOME
    
    
    3,500
    
    
    
    4,207
    
    
    
    (707
    )
    
    
    (16.8
    )REALIZED AND UNREALIZED GAIN (LOSS) ON:Net realized gain on sale of investments
    
    
    5,739
    
    
    
    16,976
    
    
    
    (11,237
    )
    
    
    (66.2
    )Net realized loss on other
    
    
    (39
    )
    
    
    
    
    
    
    (39
    )
    
    NMNet unrealized depreciation on investments
    
    
    (5,052
    )
    
    
    (15,798
    )
    
    
    10,746
    
    
    
    (68.0
    )Net unrealized appreciation (depreciation) on other
    
    
    39
    
    
    
    (17
    )
    
    
    56
    
    
    NMNet gain on investments and other
    
    
    687
    
    
    
    1,161
    
    
    
    (474
    )
    
    
    (40.8
    )NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
    
    $
    4,187
    
    
    $
    5,368
    
    
    $
    (1,181
    )
    
    
    (22.0
    )%
 NM = Not Meaningful
 Investment Income
    29




---



##### 



As of June 30, 2011
    
    
    Three Months Ended June 30, 2011% of TotalInvestment
    
    InvestmentCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Income
    
    IncomeVenyu Solutions, Inc.
    
    $
    25,321
    
    
    
    15.3
    %
    
    
    $
    624
    
    
    
    11.8
    %Acme Cryogenics, Inc.
    
    
    22,519
    
    
    
    13.6
    
    
    
    
    430
    
    
    
    8.2Mitchell Rubber Products, Inc.
    
    
    16,327
    
    
    
    9.9
    
    
    
    
    411
    
    
    
    7.8Cavert II Holding Corp.
    
    
    15,000
    
    
    
    9.1
    
    
    
    
    1,076
    
    
    
    20.4Noble Logistics, Inc.
    
    
    14,165
    
    
    
    8.6
    
    
    
    
    382
    
    
    
    7.3Subtotalfive largest investments
    
    
    93,332
    
    
    
    56.5
    
    
    
    
    2,923
    
    
    
    55.5Other portfolio companies
    
    
    71,963
    
    
    
    43.5
    
    
    
    
    2,339
    
    
    
    44.5Total investment portfolio
    
    $
    165,295
    
    
    
    100.0
    %
    
    
    $
    5,262
    
    
    
    100.0
    %
 As of June 30, 2010
    
    
    Three Months Ended June 30, 2010% of TotalInvestment
    
    InvestmentCompany
    
    Fair Value
    
    % of Portfolio
    
    
    Income
    
    IncomeA. Stucki Holding Corp.(1)
    
    $
    
    
    
    
    
    %
    
    
    $
    3,287
    
    
    
    45.3
    %Chase II Holdings Corp.
    
    
    29,073
    
    
    
    19.6
    
    
    
    
    596
    
    
    
    8.2Galaxy Tool Holding Corp.
    
    
    17,213
    
    
    
    11.6
    
    
    
    
    592
    
    
    
    8.2Cavert II Holding Corp.
    
    
    16,501
    
    
    
    11.1
    
    
    
    
    245
    
    
    
    3.4Acme Cryogenics, Inc.
    
    
    14,020
    
    
    
    9.5
    
    
    
    
    428
    
    
    
    5.9Subtotalfive largest investments
    
    
    76,807
    
    
    
    51.8
    
    
    
    
    5,148
    
    
    
    71.0Other portfolio companies
    
    
    71,522
    
    
    
    48.2
    
    
    
    
    2,100
    
    
    
    29.0Total investment portfolio
    
    $
    148,329
    
    
    
    100.0
    %
    
    
    $
    7,248
    
    
    
    100.0
    %
 
 (1)
    
    A. Stucki was sold on June 29, 2010.   Operating Expenses
    30




---



##### 



Condensed Consolidated Financial Statements
 Three Months Ended June 30,2011
    
    
    2010Average total assets subject to base management fee(1)
    
    $
    201,600
    
    
    $
    204,800Multiplied by pro-rata annual base management fee of 2%
    
    
    0.5
    %
    
    
    0.5
    %Unadjusted base management fee
    
    $
    1,008
    
    
    $
    1,024Reduction for loan servicing fees(2)
    
    
    (677
    )
    
    
    (824
    )Base management fee(2)
    
    $
    331
    
    
    $
    200Credits to base management fee from Adviser:Fee reduction for the waiver of 2.0% fee on senior syndicated loans to 0.5%
    
    
    
    
    
    
    (15
    )Credit for fees received by Adviser from the portfolio companies
    
    
    (215
    )
    
    
    (104
    )Credit to base management fee from Adviser(2)
    
    
    (215
    )
    
    
    (119
    )Net base management fee
    
    $
    116
    
    
    $
    81Net incentive fee(2)
    
    $
    19
    
    
    $
    1,052
 
 (1)
    
    Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents
resulting from borrowings, valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.(2)
    
    Reflected, in total, as a line item on the Condensed Consolidated Statement of Operations. ,
 Realized and Unrealized Gain (Loss) on Investments
 Realized Gains
  Unrealized Appreciation and Depreciation
  Three Months Ended June 30, 2011Reversal ofUnrealized
    
    
    UnrealizedInvestment
    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Acme Cryogenics, Inc.
    
    Control
    
    $
    
    
    
    $
    3,028
    
    
    $
    
    
    
    $
    3,028Tread Corp.
    
    Control
    
    
    
    
    
    
    1,665
    
    
    
    
    
    
    
    1,665Noble Logistics, Inc.
    
    Affiliate
    
    
    
    
    
    
    1,189
    
    
    
    95
    
    
    
    1,284Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    807
    
    
    
    
    
    
    
    807Venyu Solutions, Inc.
    
    Control
    
    
    
    
    
    
    309
    
    
    
    
    
    
    
    309A. Stucki Corp.
    
    Control
    
    
    247
    
    
    
    
    
    
    
    
    
    
    
    247Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    226
    
    
    
    
    
    
    
    226Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    (245
    )
    
    
    
    
    
    
    (245
    )Precision Southeast, Inc.
    
    Control
    
    
    
    
    
    
    (352
    )
    
    
    
    
    
    
    (352
    )ASH Holdings Corp.
    
    Control
    
    
    
    
    
    
    (375
    )
    
    
    
    
    
    
    (375
    )Cavert II Holding Corp.
    
    Affiliate
    
    
    5,508
    
    
    
    76
    
    
    
    (6,194
    )
    
    
    (610
    )Country Club Enterprises, LLC
    
    Control
    
    
    
    
    
    
    (5,160
    )
    
    
    
    
    
    
    (5,160
    )Other, net (<$100 Net)
    
    Various
    
    
    (16
    )
    
    
    (107
    )
    
    
    (14
    )
    
    
    (137
    )Total
    
    
    
    $
    5,739
    
    
    $
    1,061
    
    
    $
    (6,113
    )
    
    $
    687
 31




---



##### 



Three Months Ended June 30, 2010Reversal ofUnrealized
    
    
    UnrealizedInvestment
    
    Realized
    
    
    Appreciation
    
    
    (Appreciation)
    
    
    Net GainPortfolio Company
    
    Classification
    
    Gain (Loss)
    
    
    (Depreciation)
    
    
    Depreciation
    
    
    (Loss)Cavert II Holding Corp.
    
    Control
    
    $
    
    
    
    $
    645
    
    
    $
    
    
    
    $
    645Survey Sampling, LLC
    
    Non-Control/Non-Affiliate
    
    
    
    
    
    
    367
    
    
    
    
    
    
    
    367Chase II Holding Corp.
    
    Control
    
    
    
    
    
    
    287
    
    
    
    
    
    
    
    287Quench Holdings Corp.
    
    Affiliate
    
    
    
    
    
    
    276
    
    
    
    
    
    
    
    276Galaxy Tool Holding Corp.
    
    Control
    
    
    
    
    
    
    (156
    )
    
    
    
    
    
    
    (156
    )A. Stucki Corp.
    
    Control
    
    
    16,957
    
    
    
    
    
    
    
    (17,405
    )
    
    
    (448
    )Other, net (<$100 Net)
    
    Various
    
    
    19
    
    
    
    207
    
    
    
    (19
    )
    
    
    207Total
    
    
    
    $
    16,976
    
    
    $
    1,626
    
    
    $
    (17,424
    )
    
    $
    1,178
   Net Increase in Net Assets Resulting from Operations
  32




---



##### 



LIQUIDITY AND CAPITAL RESOURCES
 Operating Activities
   Three Months Ended June 30,2011
    
    
    2010Beginning investment portfolio, at fair value
    
    $
    153,285
    
    
    $
    206,858New investments
    
    
    16,378
    
    
    
    95Disbursements to existing investments
    
    
    6,075
    
    
    
    744Scheduled principal repayments
    
    
    (370
    )
    
    
    (836
    )Unscheduled principal repayments
    
    
    (2,697
    )
    
    
    (38,594
    )Amortization of premiums and discounts
    
    
    
    
    
    
    (2
    )Proceeds from sales
    
    
    (8,069
    )
    
    
    (21,474
    )Net realized gain
    
    
    5,739
    
    
    
    16,976Net unrealized appreciation
    
    
    1,061
    
    
    
    1,626Reversal of net unrealized appreciation
    
    
    (6,113
    )
    
    
    (17,424
    )Other cash activity, net
    
    
    
    
    
    
    (155
    )Other non-cash activity, net
    
    
    6
    
    
    
    515Ending investment portfolio, at fair value
    
    $
    165,295
    
    
    $
    148,329
  AmountFor the remaining nine months ending March 31:
    
    2012
    
    $
    16,949For the fiscal year ending March 31:
    
    2013
    
    
    31,5782014
    
    
    34,3312015
    
    
    17,2212016
    
    
    26,7752017
    
    
    29,124Thereafter
    
    
    Total contractual repayments
    
    $
    155,978Investments in equity securities
    
    
    58,506Adjustments to cost basis on debt securities
    
    
    (230
    )Total cost basis of investments held at June 30, 2011:
    
    $
    214,254
  Financing Activities
  33




---



##### 



Distributions
  Section 19(a) Notices
 Section 19(a) Notices
  Equity
    Future Capital Resources
  34




---



##### 



Revolving Credit Facility
          35




---



##### 



Short-Term Note
  Contractual Obligations and Off-Balance Sheet Arrangements
   Condensed Consolidated Statements of Assets and Liabilities
 As of June 30,
    
    
    As of March 31,2011
    
    
    2011Unused line of credit commitments
    
    $
    2,943
    
    
    $
    2,386Guarantees
    
    
    4,664
    
    
    
    4,664Total
    
    $
    7,607
    
    
    $
    7,050
  Payments Due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    After 5Contractual Obligations(1)
    
    1 Year
    
    
    1-3 Years
    
    
    4-5 Years
    
    
    Years
    
    
    TotalBorrowings:Short-term loan(2)
    
    $
    40,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,000Credit Facility
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total borrowings
    
    $
    40,000
    
    
    $
    
    
    
    $
    
    
    
    $
    
    
    
    $
    40,000
 
 (1)
    
    Excludes the unused commitments to extend credit to our portfolio companies
of $2.9 million and guarantees of $4.7 million, as discussed above.(2)
    
    On July 7, 2011, we repaid the short-term loan in full. Critical Accounting Policies
  Investment Valuation
  36




---



##### 



General Valuation Policy:
  
    
    Level 1inputs to the valuation methodology are quoted prices (unadjusted) for
identical assets or liabilities in active markets;
    
    Level 2inputs to the valuation methodology include quoted prices for similar
assets and liabilities in active markets and inputs that are observable for the asset or
liability, either directly or indirectly, for substantially the full term of the financial
instrument. Level 2 inputs are in those markets for which there are few transactions, the
prices are not current, little public information exists or instances where prices vary
substantially over time or among brokered market makers and
    
    Level 3inputs to the valuation methodology are unobservable and significant
to the fair value measurement. Unobservable inputs are those inputs that reflect our own
assumptions that market participants would use to price the asset or liability based upon
the best available information.
 Investments Condensed Consolidated Financial
Statements
    
    
    Publicly-traded securities;
    
    Securities for which a limited market exists and
    
    Securities for which no market exists.
 Valuation Methods:
 Publicly-traded securities:
 Securities for which a limited market exists:
  37




---



##### 



Securities for which no market exists:
 (1)
    
    Portfolio investments comprised solely of debt securities:Debt securities that are not
publicly traded on an established securities market, or for which a limited market does not
exist (Non-Public Debt Securities), and that are issued by portfolio companies in which we
have no equity, or equity-like securities, are fair valued in accordance with the terms of the
policy, which utilizes opinions of value submitted to us by Standard & Poors Securities
Evaluations, Inc (SPSE). We may also submit paid in kind (PIK) interest to SPSE for its
evaluation when it is determined that PIK interest is likely to be received.In the case of Non-Public Debt Securities, we have engaged SPSE to submit opinions of value for
our debt securities that are issued by portfolio companies in which we own no equity, or
equity-like securities. SPSEs opinions of value are based on the valuations prepared by our
portfolio management team, as described below. We request that SPSE also evaluate and assign
values to success fees when we determine that there is a reasonable probability of receiving a
success fee on a given loan. SPSE will only evaluate the debt portion of our investments for
which we specifically request evaluation and may decline to make requested evaluations for any
reason, at its sole discretion. Upon completing our collection of data with respect to the
investments (which may include the information described below under Credit Information, the
risk ratings of the loans described below under Loan Grading and Risk Rating and the factors
described hereunder), this valuation data is forwarded to SPSE for review and analysis. SPSE
makes its independent assessment of the data that we have assembled and assesses its independent
data to form an opinion as to what they consider to be the market values for the securities.
With regard to its work, SPSE has issued the following paragraph:
 SPSE provides evaluated price opinions which are reflective of what SPSE believes the bid
side of the market would be for each loan after careful review and analysis of descriptive,
market and credit information. Each price reflects SPSEs best judgment based upon careful
examination of a variety of market factors. Because of fluctuation in the market and in
other factors beyond its control, SPSE cannot guarantee these evaluations. The evaluations
reflect the market prices, or estimates thereof, on the date specified. The prices are
based on comparable market prices for similar securities. Market information has been
obtained from reputable secondary market sources. Although these sources are considered
reliable, SPSE cannot guarantee their accuracy.
 SPSE opinions of the value of our debt securities that are issued by portfolio companies in
which we do not own equity, or equity-like securities, are submitted to our Board of Directors
along with our Advisers supplemental assessment and recommendation regarding valuation of each
of these investments. Our Adviser generally accepts the opinion of value given by SPSE; however,
in certain limited circumstances, such as when our Adviser may learn new information regarding
an investment between the time of submission to SPSE and the date of our Board of Directors
assessment, our Advisers conclusions as to value may differ from the opinion of value delivered
by SPSE. Our Board of Directors then reviews whether our Adviser has followed its established
procedures for determinations of fair value and votes to accept or reject the recommended
valuation of our investment portfolio. Our Adviser and our management recommended, and our Board
of Directors voted to accept, the opinions of value delivered by SPSE on the loans in our
portfolio as denoted on the Schedule of Investments included in our accompanying Condensed
Consolidated Financial Statements.
 Because there is a delay between when we close an investment and when the investment can be
evaluated by SPSE, new loans are not valued immediately by SPSE; rather, management makes its
own determination about the value of these investments in accordance with our valuation policy
using the methods described herein.
 (2)
    
    Portfolio investments in controlled companies comprised of a bundle of investments, which can
include debt and equity securities:The fair value of these investments is determined based on
the total enterprise value (TEV) of the portfolio company, or issuer, utilizing a liquidity
waterfall approach under ASC 820. For Non-Public Debt Securities and equity or equity-like
securities (e.g., preferred equity, common equity or other equity-like securities) that are
purchased together as part of a package, where we have control or could gain control through
an option or warrant security, both the debt and equity securities of
the portfolio investment would exit in the mergers and acquisitions market as the principal
market, generally through a sale or
 38




---



##### 



recapitalization of the portfolio company. In accordance
with ASC 820, we apply the in-use premise of value, which assumes the debt and equity securities
are sold together. Under this liquidity waterfall approach, we first calculate the TEV of the
issuer by incorporating some or all of the following factors:
 
    
    the issuers ability to make payments;
    
    the earnings of the issuer;
    
    recent sales to third parties of similar securities;
    
    the comparison to publicly traded securities and
    
    DCF or other pertinent factors.
 In gathering the sales to third parties of similar securities, we may gather and analyze
industry statistics and use outside experts. Once we have estimated the TEV of the issuer, we
subtract the value of all the debt securities of the issuer, which are valued at the contractual
principal balance. Fair values of these debt securities are discounted for any shortfall of TEV
over the total debt outstanding for the issuer. Once the values for all outstanding senior
securities (which include the debt securities) have been subtracted from the TEV of the issuer,
the remaining amount, if any, is used to determine the value of the issuers equity or equity
like securities. If, in our Advisers judgment, the liquidity waterfall approach does not
accurately reflect the value of the debt component, our Adviser may recommend that we use a
valuation by SPSE, or if that is unavailable, a DCF valuation technique.
 (3)
    
    Portfolio investments in non-controlled companies comprised of a bundle of investments, which
can include debt and equity securities:We value Non-Public Debt Securities that are purchased
together with equity or equity-like securities from the same portfolio company, or issuer, for
which we do not control or cannot gain control as of the measurement date, using a
hypothetical secondary market as our principal market. In accordance with ASC 820, we
determine the fair value of these debt securities of non-control investments assuming the sale
of an individual debt security using the in-exchange premise of value (as defined in ASC 820).
As such, we estimate the fair value of the debt component using estimates of value provided by
SPSE and our own assumptions in the absence of observable market data, including synthetic
credit ratings, estimated remaining life, current market yield and interest rate spreads of
similar securities as of the measurement date. For equity or equity-like securities of
investments that we do not control or cannot gain control as of the measurement date, we
estimate the fair value of the equity using the in-exchange premise of value based on factors
such as the overall value of the issuer, the relative fair value of other units of account,
including debt, or other relative value approaches. Consideration also is given to capital
structure and other contractual obligations that may impact the fair value of the equity.
Further, we may utilize comparable values of similar companies, recent investments and indices
with similar structures and risk characteristics or our own assumptions in the absence of
other observable market data and may also employ DCF valuation techniques.
  Valuation Considerations:
 
    
    the nature and realizable value of the collateral;
    
    the portfolio companys earnings and cash flows and its ability to make payments on its obligations;
    
    the markets in which the portfolio company does business;
    
    the comparison to publicly traded companies; and
    
    DCF and other relevant factors.
  Credit Information:
 Loan Grading and Risk Rating:
 39




---



##### 



Companys
    
    First
    
    SecondSystem
    
    NRSRO
    
    NRSRO
    
    Gladstone Investments Description(a)>10
    
    Baa2
    
    BBB
    
    Probability of Default (PD) during the next 10 years is 4% and the
Expected Loss upon Default (EL) is 1% or less10
    
    Baa3
    
    BBB-
    
    PD is 5% and the EL is 1% to 2%9
    
    Ba1
    
    BB+
    
    PD is 10% and the EL is 2% to 3%8
    
    Ba2
    
    BB
    
    PD is 16% and the EL is 3% to 4%7
    
    Ba3
    
    BB-
    
    PD is 17.8% and the EL is 4% to 5%6
    
    B1
    
    B+
    
    PD is 22% and the EL is 5% to 6.5%5
    
    B2
    
    B
    
    PD is 25% and the EL is 6.5% to 8%4
    
    B3
    
    B-
    
    PD is 27% and the EL is 8% to 10%3
    
    Caa1
    
    CCC+
    
    PD is 30% and the EL is 10% to 13.3%2
    
    Caa2
    
    CCC
    
    PD is 35% and the EL is 13.3% to 16.7%1
    
    Caa3
    
    CC
    
    PD is 65% and the EL is 16.7% to 20%0
    
    N/A
    
    D
    
    PD is 85% or there is a payment default and the EL is greater than 20%
 
 (a)
    
    The default rates set forth are for a 10-year term debt security. If a debt
security is less than 10 years, then the probability of default is adjusted to a lower
percentage for the shorter period, which may move the security higher on our risk rating scale   As of June 30,
    
    As of March 31,Rating
    
    2011
    
    2011Highest
    
    
    9.0
    
    
    
    9.0Average
    
    
    5.4
    
    
    
    5.6Weighted Average
    
    
    5.6
    
    
    
    5.9Lowest
    
    
    2.0
    
    
    
    3.0
  40




---



##### 



Tax Status
 Federal Income Taxes
    Revenue Recognition
 Investment Income Recognition
   Condensed
Consolidated Statements of Operations
  Recent Accounting Pronouncements
 Condensed
Consolidated Financial Statements
 41




---



##### 



ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  66.4
    %
    
    Variable rates with a floor and no ceiling33.6
    
    
    Fixed rates100.0
    %
    
    Total
    
 ITEM 4. CONTROLS AND PROCEDURES.
     42




---



##### 



PART IIOTHER INFORMATION
 
 ITEM 1. LEGAL PROCEEDINGS.
  
 ITEM 1A. RISK FACTORS.
  The failure of U.S. lawmakers to reach an agreement on a national debt ceiling or budget may
materially adversely affect our business, financial condition and results of operations.
   
 ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.
  
 ITEM 3. DEFAULTS UPON SENIOR SECURITIES.
  
 ITEM 4. REMOVED AND RESERVED.
 
 ITEM 5. OTHER INFORMATION.
  
 ITEM 6. EXHIBITS
  43




---



##### 



SIGNATURE
  GLADSTONE INVESTMENT CORPORATIONBy:
    /s/ David WatsonDavid WatsonChief Financial Officer  44




---



##### 



EXHIBIT INDEX
 Exhibit
    
    Description3.1
    
    Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit a.2 to
Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-123699),
filed May 13, 2005.3.2
    
    Amended and Restated Bylaws, incorporated by reference to Exhibit b.2 to Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.3.3
    
    First Amendment to Amended and Restated Bylaws, incorporated by reference to Exhibit 99.1 to the
Companys Current Report on Form 8-K (File No. 814-00704), filed on July 10, 2007.4.1
    
    Specimen Stock Certificate, incorporated by reference to Exhibit 99.1 to Pre-Effective Amendment
No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.11
    
    Computation of Per Share Earnings (included in the notes to the unaudited Condensed Consolidated
Financial Statements contained in this report).31.1
    
    Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.31.2
    
    Certification of Chief Financial Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.32.1
    
    Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.32.2
    
    Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
  45