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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549





FORM 10-K





(Mark One)

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

For the fiscal year ended March 31, 2014

OR



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

For the transition period from
 to

Commission file number 814-00704





GLADSTONE
INVESTMENT CORPORATION

(Exact name of registrant as specified in its charter)







|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 83-0423116                          
|(State or other jurisdiction of
incorporation or organization) |  | (I.R.S. Employer
Identification No.)
|                                                               | 
|1521 Westbranch Drive, Suite 100
McLean, Virginia              |  | 22102                               
|(Address of principal executive offices)                       |  | (Zip Code)                          

(703) 287-5800

(Registrants telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:



|                                                                            |  |                                            
|--------------------------------------------------------------------------- |  | -------------------------------------------
|(Title of Each Class)                                                       |  | (Name of Each Exchange on Which Registered)
|Common Stock, $0.001 par value per share                                    |  | NASDAQ Global Select Market                
|7.125% Series A Cumulative Term Preferred Stock, $0.001 par value per share |  | NASDAQ Global Select Market                

Securities registered pursuant to Section 12(g) of the Act: None







Indicate by check mark if the registrant is a well-known seasoned issuer, as defined
in Rule 405 of the Securities Act.    YES   ̈    NO  x

Indicate by check if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.    YES   ̈    NO  x

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

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

Indicate by check mark
if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrants knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K.   ̈

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



|                        |  |                                                  |  |                           |  |  
|----------------------- |  | ------------------------------------------------ |  | ------------------------- |  | -
|Large accelerated filer |  |  ̈                                                |  | Accelerated filer         |  | x
|                        |  |                                                  | 
|Non-accelerated filer   |  |  ̈  (Do not check if a smaller reporting company) |  | Smaller reporting company |  |  ̈

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

The aggregate market value of the voting stock held by non-affiliates of the Registrant on September 30, 2013, based on the closing price on that date of
$7.05 on the NASDAQ Global Select Market, was $165,326,144. For the purposes of calculating this amount only, all directors and executive officers of the Registrant have been treated as affiliates. There were 26,475,958 shares of the
Registrants Common Stock, $0.001 par value, outstanding as of May 13, 2014.

Documents Incorporated by Reference.Portions of the
Registrants Proxy Statement relating to the Registrants 2014 Annual Meeting of Stockholders are incorporated by reference into Part III of this Annual Report on Form 10-K as indicated herein.









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GLADSTONE INVESTMENT CORPORATION

FORM 10-K FOR THE FISCAL YEAR ENDED

MARCH 31, 2014

TABLE OF CONTENTS



|           |  |         |    |                                                                                                              |  |  |    | 
|---------- |  | ------- | -- | ------------------------------------------------------------------------------------------------------------ |  |  | -- | 
|PART I     |  | ITEM 1  |    | Business                                                                                                     |  |  | 2  | 
|           |  | ITEM 1A |    | Risk Factors                                                                                                 |  |  | 16 | 
|           |  | ITEM 1B |    | Unresolved Staff Comments                                                                                    |  |  | 31 | 
|           |  | ITEM 2  |    | Properties                                                                                                   |  |  | 31 | 
|           |  | ITEM 3  |    | Legal Proceedings                                                                                            |  |  | 31 | 
|           |  | ITEM 4  |    | Mine Safety Disclosures                                                                                      |  |  | 32 | 
|PART II    |  | ITEM 5  |    | Market for Registrants Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities |  |  | 32 | 
|           |  | ITEM 6  |    | Selected Financial Data                                                                                      |  |  | 33 | 
|           |  | ITEM 7  |    | Managements Discussion and Analysis of Financial Condition and Results of Operations                        |  |  | 34 | 
|           |  | ITEM 7A |    | Quantitative and Qualitative Disclosures About Market Risk                                                   |  |  | 59 | 
|           |  | ITEM 8  |    | Financial Statements and Supplementary Data                                                                  |  |  | 60 | 
|           |  | ITEM 9  |    | Changes in and Disagreements with Accountants on Accounting and Financial Disclosure                         |  |  | 95 | 
|           |  | ITEM 9A |    | Controls and Procedures                                                                                      |  |  | 95 | 
|           |  | ITEM 9B |    | Other Information                                                                                            |  |  | 95 | 
|PART III   |  | ITEM 10 |    | Directors, Executive Officers and Corporate Governance                                                       |  |  | 96 | 
|           |  | ITEM 11 |    | Executive Compensation                                                                                       |  |  | 96 | 
|           |  | ITEM 12 |    | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters               |  |  | 96 | 
|           |  | ITEM 13 |    | Certain Relationships and Related Transactions, and Director Independence                                    |  |  | 96 | 
|           |  | ITEM 14 |    | Principal Accountant Fees and Services                                                                       |  |  | 96 | 
|PART IV    |  | ITEM 15 |    | Exhibits and Financial Statement Schedules                                                                   |  |  | 97 | 
|SIGNATURES |  |         | 99 |                                                                                                             



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FORWARD-LOOKING STATEMENTS

All statements contained herein, other than historical facts, may constitute forward-looking statements. These statements may relate to, among
other things, our future performance or operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation and its affiliates, the use of borrowed
money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as estimate,
may, might, believe, will, provide, anticipate, future, could, growth, plan, project, intend,
expect, may, should, continue, would, if, seek, possible, potential, likely or the negative or variations of such terms or
comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future
results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include, among others: (1) further adverse changes in the economy and the capital markets; (2) risks associated
with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, Terry Lee Brubaker or David Dullum; 4) changes in our investment objectives and
strategy; (5) availability, terms and deployment of capital; (6) changes in our industry, interest rates, exchange rates,regulation or the general economy; (7) the degree and nature of our competition; (8) our ability to maintain
our qualification as a regulated investment company and as a business development company; and (9) those factors described in theRisk Factorssection of this Annual Report on Form 10-K. We caution
readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We
have based forward-looking statements on information available to us on the date of this Annual Report on Form 10-K. Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise, after the date of this Annual Report on Form 10-K. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of
new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the Securities and Exchange Commission,
including subsequent annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K.

In this Annual Report on
Form 10-K, or Annual Report, the Company, we, us, and our refer to Gladstone Investment Corporation and its wholly-owned subsidiaries unless the context otherwise indicates. Dollar amounts are in
thousands unless otherwise indicated.

PART I



|ITEM 1. | BUSINESS
|------- | --------

Overview

We were incorporated under the General Corporation Laws of the State of Delaware on February 18, 2005. On June 22, 2005, we completed an initial
public offering and commenced operations. We operate as an externally managed, closed-end, non-diversified management investment company and have elected to be treated as a business development company (BDC) under the Investment Company
Act of 1940, as amended (the 1940 Act). For federal income tax purposes, we have elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the
Code). In order to continue to qualify as a RIC for federal income tax purposes and obtain favorable RIC tax treatment, we must meet certain requirements, including certain minimum distribution requirements.

Our shares of common stock and term preferred stock are traded on the NASDAQ Global Select Market (NASDAQ) under the trading symbols
GAIN and GAINP, respectively.

Investment Objectives and Strategy

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States
(U.S.). Our investment objectives are to: (1) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and
interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time; and (2) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of
established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our objectives, our investment strategy is to invest in several categories of debt and equity securities, with each
investment generally ranging from $5 million to $30 million, although investment size may vary, depending upon our total assets or available capital at the time of investment. We expect that our investment mix over time will consist of approximately
80% in debt securities and 20% in equity securities. However, as of March 31, 2014, our investment mix is 73% in debt securities and 27% in equity securities, at cost.



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In general, our investments in debt securities have a term of no more than seven years, accrue interest at
variable rates (based on the London Interbank Offered Rate (LIBOR)) and, to a lesser extent, at fixed rates. We seek debt instruments that pay interest monthly or, at a minimum, quarterly, have a yield enhancement such as a success fee
or deferred interest provision and are primarily interest only with all principal and any accrued but unpaid interest due at maturity. Generally, success fees accrue at a set rate and are contractually due upon a change of control of the business.
Some debt securities have deferred interest whereby some portion of the interest payment is added to the principal balance so that the interest is paid, together with the principal, at maturity. This form of deferred interest is often called
paid in kind (PIK).

Typically, our equity investments consist of common stock, preferred stock, limited liability company
interests, or warrants or options to purchase the foregoing. Often, these equity investments occur in connection with our original investment, buyouts and recapitalizations of a business, or refinancing existing debt.

Since our initial public offering in 2005, we have invested in over 107 different companies, while making over 106 consecutive monthly distributions to common
stockholders.

We expect that our target portfolio will primarily include the following four categories of investments in private companies in the United
States (U.S.):



| |  |  | Senior Debt Securities: We seek to invest a portion of our assets in senior debt securities also known as senior loans, senior term loans, lines of credit and senior notes. Using its assets as collateral, the
borrower typically uses senior debt to cover a substantial portion of the funding needs of the business. The senior debt security usually takes the form of first priority liens on all, or the majority of, the assets of the business.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Senior Subordinated Debt Securities:We seek to invest a portion of our assets in senior subordinated debt securities, also known as senior subordinated loans and senior subordinated notes. These senior
subordinated debts usually take the form of first priority liens on a portion of the assets of the business but may include second lien notes.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Junior Subordinated Debt Securities: We seek to invest a portion of our assets in junior subordinated debt securities, also known as subordinated loans, subordinated notes and mezzanine loans. These junior
subordinated debts include second lien notes and unsecured loans. Additionally, we may receive other yield enhancements in addition to or in lieu of success fees such as warrants to buy common and preferred stock or limited liability interests in
connection with these junior subordinated debt securities.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Preferred and Common Equity/Equivalents: We seek to invest a portion of our assets in equity securities which consist of preferred and common equity or limited liability company interests, or warrants or options
to acquire such securities, and are generally in combination with our debt investment in a business. Additionally, we may receive equity investments derived from restructurings on some of our existing debt investments. In many cases, we will own a
significant portion of the equity which may include having voting control of the businesses in which we invest.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Additionally, pursuant to
the 1940 Act, we must maintain at least 70% of our total assets in qualifying assets, which generally include each of the investment types listed above. Therefore, the 1940 Act permits us to invest up to 30% of our assets in other non-qualifying
assets. See Regulation as a BDC  Qualifying Assets for a discussion of the types of qualifying assets in which we are permitted to invest pursuant to Section 55(a) of the 1940 Act.

Because the majority of the loans in our portfolio consist of term debt in private companies that typically cannot or will not expend the resources to have
their debt securities rated by a credit rating agency, we expect that most, if not all, of the debt securities we acquire will be unrated. Investors should assume that these loans would be rated below what is today considered investment
grade quality. Investments rated below investment grade are often referred to as high yield securities or junk bonds and may be considered high risk, as compared to investment-grade debt instruments. In addition, many of our debt securities we
hold typically do not amortize prior to maturity.



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Investment Concentrations

As of March 31, 2014, our investment portfolio consisted of investments in 29 portfolio companies located in 14 states across 14 different industries with
an aggregate fair value of $314.4 million, of which our investments in SOG Specialty K&T, LLC (SOG), Acme Cryogenics, Inc. (Acme), and Galaxy Tool Holdings Corp. (Galaxy), our three largest portfolio
investments at fair value, collectively comprised $70.9 million, or 22.6%, of our total investment portfolio at fair value. The following table summarizes our investments by security type as of March 31, 2014 and 2013:



|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------- |  | -------------- | ------- |  | -------------- |  | ----- | ---- |  | - | ---------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                          |  | March 31, 2014 |         |  | March 31, 2013 | 
|                          |  | Cost           |         |  | Fair Value     |  |       | Cost |  |   | Fair Value | 
|Senior debt               |  | $              | 196,293 |  |                |  | 51,2  | %    |  | $ | 169,870    |  |  |  | 54.0  | % |  | $ | 135,745 |  |  |  | 41.6  | % |  | $ | 103,882 |  |  |  | 36.3  | %
|Senior subordinated debt  |  |                | 82,348  |  |                |  | 21.5  |      |  |   | 70,827     |  |  |  | 22.5  |   |  |   | 103,547 |  |  |  | 31.7  |   |  |   | 86,811  |  |  |  | 30.3  |  
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total debt                |  |                | 278,641 |  |                |  | 72.7  |      |  |   | 240,697    |  |  |  | 76.5  |   |  |   | 239,292 |  |  |  | 73.3  |   |  |   | 190,693 |  |  |  | 66.6  |  
|                          |  |                |         |  |                |  |       |     
|Preferred equity          |  |                | 98,099  |  |                |  | 25.6  |      |  |   | 62,901     |  |  |  | 20.0  |   |  |   | 81,710  |  |  |  | 25.0  |   |  |   | 82,157  |  |  |  | 28.7  |  
|Common equity/equivalents |  |                | 6,797   |  |                |  | 1.7   |      |  |   | 10,795     |  |  |  | 3.5   |   |  |   | 5,419   |  |  |  | 1.7   |   |  |   | 13,632  |  |  |  | 4.7   |  
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total equity/equivalents  |  |                | 104,896 |  |                |  | 27.3  |      |  |   | 73,696     |  |  |  | 23.5  |   |  |   | 87,129  |  |  |  | 26.7  |   |  |   | 95,789  |  |  |  | 33.4  |  
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total Investments         |  | $              | 383,537 |  |                |  | 100.0 | %    |  | $ | 314,393    |  |  |  | 100.0 | % |  | $ | 326,421 |  |  |  | 100.0 | % |  | $ | 286,482 |  |  |  | 100.0 | %
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  

Investments at fair value consisted of the following industry classifications as of March 31, 2014 and 2013:



|                                                                       |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|---------------------------------------------------------------------- |  | -------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                                                                       |  | March 31, 2014 |         |  | March 31, 2013                 | 
|                                                                       |  | Fair Value     |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|Diversified/Conglomerate Manufacturing                                 |  | $              | 54,845  |  |                                |  | 17.4  | %          |  | $ | 32,698                         |  |  |  | 11.4  | %
|Chemicals, Plastics, and Rubber                                        |  |                | 52,753  |  |                                |  | 16.8  |            |  |   | 59,170                         |  |  |  | 20.7  |  
|Leisure, Amusement, Motion Pictures, Entertainment                     |  |                | 39,867  |  |                                |  | 12.7  |            |  |   | 29,822                         |  |  |  | 10.4  |  
|Machinery (Non-agriculture, Non-construction, Non-electronic           |  |                | 25,917  |  |                                |  | 8.2   |            |  |   | 32,662                         |  |  |  | 11.4  |  
|Automobile                                                             |  |                | 25,735  |  |                                |  | 8.2   |            |  |   | 7,467                          |  |  |  | 2.6   |  
|Home and Office Furnishings, Housewares, and Durable Consumer Products |  |                | 21,188  |  |                                |  | 6.7   |            |  |   | 23,512                         |  |  |  | 8.2   |  
|Farming and Agriculture                                                |  |                | 20,557  |  |                                |  | 6.5   |            |  |   |                               |  |  |  |      |  
|Aerospace and Defense                                                  |  |                | 18,512  |  |                                |  | 5.9   |            |  |   | 20,876                         |  |  |  | 7.3   |  
|Containers, Packaging, and Glass                                       |  |                | 17,889  |  |                                |  | 5.7   |            |  |   | 23,019                         |  |  |  | 8.0   |  
|Beverage Food and Tobacco                                              |  |                | 13,050  |  |                                |  | 4.2   |            |  |   | 369                            |  |  |  | 0.1   |  
|Personal and Non-Durable Consumer Products (Manufacturing Only)        |  |                | 10,005  |  |                                |  | 3.2   |            |  |   |                               |  |  |  |      |  
|Buildings and Real Estate                                              |  |                | 7,575   |  |                                |  | 2.4   |            |  |   | 6,020                          |  |  |  | 2.2   |  
|Cargo Transport                                                        |  |                | 6,500   |  |                                |  | 2.1   |            |  |   | 6,897                          |  |  |  | 2.4   |  
|Electronics                                                            |  |                |        |  |                                |  |      |            |  |   | 43,970                         |  |  |  | 15.3  |  
|                                                                       |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments                                                      |  | $              | 314,393 |  |                                |  | 100.0 | %          |  | $ | 286,482                        |  |  |  | 100.0 | %
|                                                                       |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

Investments at fair value were included in the following geographic regions of the U.S. as of March 31, 2014 and 2013:



|                  |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|----------------- |  | -------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                  |  | March 31, 2014 |         |  | March 31, 2013                 | 
|                  |  | Fair Value     |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|West              |  | $              | 117,781 |  |                                |  | 37.5  | %          |  | $ | 81,400                         |  |  |  | 28.4  | %
|South             |  |                | 89,915  |  |                                |  | 28.6  |            |  |   | 125,518                        |  |  |  | 43.8  |  
|Northeast         |  |                | 67,862  |  |                                |  | 21.6  |            |  |   | 58,319                         |  |  |  | 20.4  |  
|Midwest           |  |                | 38,835  |  |                                |  | 12.3  |            |  |   | 21,245                         |  |  |  | 7.4   |  
|                  |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments |  | $              | 314,393 |  |                                |  | 100.0 | %          |  | $ | 286,482                        |  |  |  | 100.0 | %
|                  |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

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

Our Investment Adviser and Administrator

Gladstone Management Corporation (the Adviser) is our affiliate, investment adviser, and a privately-held company led by a management team that has
extensive experience in our lines of business. Another of our and the Advisers affiliates, a privately-held company, Gladstone Administration, LLC (the Administrator), employs, among others, our chief financial officer and
treasurer, chief compliance officer, internal legal counsel and secretary and their respective staffs. Excluding our chief financial officer and



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treasurer, all of our executive officers serve as directors or executive officers, or both, of the following of our affiliates: Gladstone Commercial Corporation (Gladstone
Commercial), a publicly-traded real estate investment trust; Gladstone Capital Corporation (Gladstone Capital), a publicly-traded BDC and RIC; Gladstone Land Corporation (Gladstone Land), a publicly-traded real estate
company that invests in farmland and farm related property; the Adviser; and the Administrator. Our chief financial officer and treasurer is also the treasurer of Gladstone Capital. David Gladstone, our chairman and chief executive officer, also
serves on the board of managers of our affiliate, Gladstone Securities, LLC (Gladstone Securities), a privately-held broker-dealer registered with the Financial Industry Regulatory Authority (FINRA) and insured by the
Securities Investor Protection Corporation.

The Adviser and Administrator also provide investment advisory and administrative services, respectively, to
our affiliates, including, but not limited to, Gladstone Commercial; Gladstone Capital; and Gladstone Land. In the future, the Adviser and Administrator may provide investment advisory and administrative services, respectively, to other funds and
companies, both public and private.

We have been externally managed by the Adviser pursuant to an investment advisory and management agreement and our
Administrator has provided administration services to us under an administration agreement since June 22, 2005. The Adviser was organized as a corporation under the laws of the State of Delaware on July 2, 2002, and is a registered
investment adviser under the Investment Advisers Act of 1940, as amended. The Administrator was organized as a limited liability company under the laws of the State of Delaware on March 18, 2005. The Adviser and Administrator are headquartered
in McLean, Virginia, a suburb of Washington, D.C., and the Advisor also has offices in several other states.

Investment Process

Overview of Investment and Approval Process

To
originate investments, the Advisers investment professionals use an extensive referral network comprised primarily of private equity sponsors, venture capitalists, leveraged buyout funds, investment bankers, attorneys, accountants, commercial
bankers and business brokers. The Advisers investment professionals review information received from these and other sources in search of potential financing opportunities. If a potential opportunity matches our investment objectives, the
investment professionals will seek an initial screening of the opportunity with our president, David Dullum, to authorize the submission of an indication of interest (IOI) to the prospective portfolio company. If the prospective
portfolio company passes this initial screening and the IOI is accepted by the prospective company, the investment professionals will seek approval to issue a letter of intent (LOI) from the Advisers investment committee, which is
composed of David Gladstone (our chairman and chief executive officer), Terry Lee Brubaker (our vice chairman, chief operating officer and assistant secretary), and Mr. Dullum, to the prospective company. If this LOI is issued, then
professionals from the Adviser and Gladstone Securities (the Due Diligence Team) will conduct a due diligence investigation and create a detailed profile summarizing the prospective portfolio companys historical financial
statements, industry, competitive position and management team and analyzing its conformity to our general investment criteria. The investment professionals then present this profile to the Advisers investment committee, which must approve
each investment. Further, each investment is available for review by the members of our board of directors (our Board of Directors), a majority of whom are not interested persons as defined in Section 2(a)(19) of the
1940 Act.

Prospective Portfolio Company Characteristics

We have identified certain characteristics that we believe are important in identifying and investing in prospective portfolio companies. The criteria listed
below provide general guidelines for our investment decisions, although not all of these criteria may be met by each portfolio company.



| |  | Value-and-Income Orientation and Positive Cash Flow. Our investment philosophy places a premium on fundamental analysis from an investors perspective and has a distinct value-and-income orientation. In
seeking value, we focus on established companies in which we can invest at relatively low multiples of earnings before interest, taxes, depreciation and amortization (EBITDA), and that have positive operating cash flow at the time of
investment. In seeking income, we typically invest in companies that generate relatively stable to growing sales and cash flow to provide some assurance that they will be able to service their debt. We do not expect to invest in start-up companies
or companies with what we believe to be speculative business plans.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Experienced Management. We require that the businesses in which we invest have experienced management teams or a hiring plan in place to install an experienced management team. We also require the businesses to
have in place proper incentives to induce management to succeed and act in concert with our interests as investors, including having significant equity or other interests in the financial performance of their companies.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  | Strong Competitive Position in an Industry. We seek to invest in businesses that have developed strong market positions within their respective markets and that we believe are well-positioned to capitalize on
growth opportunities. We seek businesses that demonstrate significant competitive advantages versus their competitors, which we believe will help to protect their market positions and profitability.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Liquidation Value of Assets. The projected liquidation value of the assets, if any, is an important factor in our investment analysis in collateralizing our debt securities.
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Extensive Due Diligence

Our Due Diligence Team
conducts what we believe are extensive due diligence investigations of our prospective portfolio companies and investment opportunities. The due diligence investigation may begin with a review of publicly available information followed by in depth
business analysis, including, but not limited to, some or all of the following:



| |  | a review of the prospective portfolio companys historical and projected financial information, including a quality of earnings analysis;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------



| |  | visits to the prospective portfolio companys business site(s);
|- |  | ---------------------------------------------------------------



| |  | interviews with the prospective portfolio companys management, employees, customers and vendors;
|- |  | -------------------------------------------------------------------------------------------------



| |  | review of loan documents and material contracts;
|- |  | ------------------------------------------------



| |  | background checks and a management capabilities assessment on the prospective portfolio companys management team; and
|- |  | ----------------------------------------------------------------------------------------------------------------------



| |  | research on the prospective portfolio companys products, services or particular industry and its competitive position therein.
|- |  | -------------------------------------------------------------------------------------------------------------------------------

Upon completion of a due diligence investigation and a decision to proceed with an investment, the Advisers investment professionals who have primary
responsibility for the investment present the investment opportunity to the Advisers investment committee. The investment committee then determines whether to pursue the potential investment. Additional due diligence of a potential investment
may be conducted on our behalf by attorneys and independent accountants, as well as other outside advisers, prior to the closing of the investment, as appropriate.

We also rely on the long-term relationships that the Advisers investment professionals have with venture capitalists, leveraged buyout funds, investment
bankers, commercial bankers, private equity sponsors, attorneys, accountants and business brokers. In addition, the extensive direct experiences of our executive officers and managing directors in the operations of and providing debt and equity
capital to small and medium-sized private businesses plays a significant role in our investment evaluation and assessment of risk.

Investment
Structure

Once the Adviser has determined that an investment meets our standards and investment criteria, the Adviser works with the management of
that company and other capital providers to structure the transaction in a way that we believe will provide us with the greatest opportunity to maximize our return on the investment, while providing appropriate incentives to management of the
company. As discussed above, the capital classes through which we typically structure a deal include senior debt, senior subordinated debt, junior subordinated debt, and preferred and common equity or equivalents. Through its risk management
process, the Adviser seeks to limit the downside risk of our investments by:



| |  | making investments with an expected total return (including both interest and potential equity appreciation) that it believes compensates us for the credit risk of the investment;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | seeking collateral or superior positions in the portfolio companys capital structure where possible;
|- |  | -----------------------------------------------------------------------------------------------------



| |  | incorporating put rights and call protection into the investment structure where possible;
|- |  | ------------------------------------------------------------------------------------------



| |  | negotiating covenants in connection with our investments that afford our portfolio companies as much flexibility as possible in managing their businesses, consistent with preserving our capital; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | holding board seats or securing board observation rights at the portfolio company.
|- |  | ----------------------------------------------------------------------------------

We expect to hold most of
our investments in senior debt and senior and junior subordinated debt until maturity or repayment, but may sell our investments (including our equity investments) earlier if a liquidity event takes place, such as the sale or recapitalization



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of a portfolio company or, in the case of an equity investment in a company, its initial public offering. Occasionally, we may sell some or all of our investment interests in a portfolio company
to a third party, such as an existing investor in the portfolio company, in a privately negotiated transaction.

Competitive Advantages

A large number of entities compete with us and make the types of investments that we seek to make in small and medium-sized privately-owned businesses. Such
competitors include private equity funds, leveraged buyout funds, other BDCs, venture capital funds, investment banks and other equity and non-equity based investment funds, and other financing sources, including traditional financial services
companies such as commercial banks. Many of our competitors are substantially larger than we are and have considerably greater funding sources that are not available to us. In addition, certain of our competitors may have higher risk tolerances or
different risk assessments, which could allow them to consider a wider variety of investments, establish more relationships and build their market shares. Furthermore, many of these competitors are not subject to the regulatory restrictions that the
1940 Act imposes on us as a BDC. However, we believe that we have the following competitive advantages over many other providers of financing to small and medium-sized businesses.

Management Expertise

David Gladstone, our
chairman and chief executive officer, is also the chairman and chief executive officer of the Adviser and its affiliated companies, other than Gladstone Securities, (the Gladstone Companies) and has been involved in all aspects of the
Gladstone Companies investment activities, including serving as a member of the Advisers investment committee. David Dullum, our president and a director, has extensive experience in private equity investing in middle market companies.
Terry Lee Brubaker, our vice chairman, chief operating officer and assistant secretary, has substantial experience in acquisitions and operations of companies. Messrs. Gladstone and Brubaker also have principal management responsibility for the
Adviser as its senior executive officers. These two individuals dedicate a significant portion of their time to managing our investment portfolio. Our senior management has extensive experience providing capital to small and medium-sized companies
and has worked together at the Gladstone Companies for more than ten years. In addition, we have access to the resources and expertise of the Advisers investment professionals and support staff who possess a broad range of transactional,
financial, managerial, and investment skills.

Increased Access to Investment Opportunities Developed Through Extensive Network of Contacts

The Adviser seeks to identify potential investments through active origination and due diligence and through its dialogue with numerous management
teams, members of the financial community and potential corporate partners with whom the Advisers investment professionals have long-term relationships. We believe that the Advisers investment professionals have developed a broad network
of contacts within the investment, commercial banking, private equity and investment management communities, and that their reputation in investment management enables us to identify well-positioned prospective portfolio companies, which provide
attractive investment opportunities. Additionally, the Adviser expects to generate information from its professionals network of accountants, consultants, lawyers and management teams of portfolio companies and other companies.

Disciplined, Value and Income-Oriented Investment Philosophy with a Focus on Preservation of Capital

In making its investment decisions, the Adviser focuses on the risk and reward profile of each prospective portfolio company, seeking to minimize the risk of
capital loss without foregoing the potential for capital appreciation. We expect the Adviser to use the same value and income-oriented investment philosophy that its professionals use in the management of the other Gladstone Companies and to commit
resources to manage downside exposure. The Advisers approach seeks to reduce our risk in investments by using some or all of the following approaches:



| |  | focusing on companies with good market positions and cash flow;
|- |  | ---------------------------------------------------------------



| |  | investing in businesses with experienced and established management teams;
|- |  | --------------------------------------------------------------------------



| |  | engaging in extensive due diligence from the perspective of a long-term investor;
|- |  | ---------------------------------------------------------------------------------



| |  | investing at low price-to-cash flow multiples; and
|- |  | --------------------------------------------------



| |  | adopting flexible transaction structures by drawing on the experience of the investment professionals of the Adviser and its affiliates.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------



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Longer Investment Horizon

Unlike private equity and venture capital funds that are typically organized as finite-life partnerships, we are not subject to standard periodic capital
return requirements. The partnership agreements of most private equity and venture capital funds typically provide that these funds may only invest investors capital once and must return all capital and realized gains to investors within a
finite time period, often seven to ten years. These provisions often force private equity and venture capital funds to seek returns on their investments by causing their portfolio companies to pursue mergers, public equity offerings, or other
liquidity events more quickly than might otherwise be optimal or desirable, potentially resulting in a lower overall return to investors and/or an adverse impact on their portfolio companies. In contrast, we are a corporation of perpetual duration
and are exchange-traded. We believe that our flexibility to make investments with a long-term view and without the capital return requirements of traditional private investment vehicles provides us with the opportunity to achieve greater long-term
returns on invested capital.

Flexible Transaction Structuring

We believe our management teams broad expertise and its ability to draw upon many years of combined experience enables the Adviser to identify, assess,
and structure investments successfully across all levels of a companys capital structure and manage potential risk and return at all stages of the economic cycle. We are not subject to many of the regulatory limitations that govern traditional
lending institutions, such as banks. As a result, we are flexible in selecting and structuring investments, adjusting investment criteria and transaction structures and, in some cases, the types of securities in which we invest. We believe that this
approach enables the Adviser to identify attractive investment opportunities that will continue to generate current income and capital gain potential throughout the economic cycle, including during turbulent periods in the capital markets.

Leverage

For the purpose of making investments
and taking advantage of favorable interest rates, we may issue senior securities up to the maximum amount permitted by the 1940 Act. The 1940 Act currently permits us to issue senior securities representing indebtedness and senior securities that
are stock, to which we refer collectively as Senior Securities, in amounts such that we maintain an asset coverage ratio, as defined in Section 18(h) of the 1940 Act, of at least 200% on each such Senior Security immediately after
each issuance of such Senior Security. We may also incur such indebtedness to repurchase our common stock. As a result of incurring indebtedness generally, such as through our revolving line of credit or issuing senior securities representing
indebtedness, such as our 7.125% Series A Cumulative Term Preferred Stock (our Term Preferred Stock), we are exposed to the risks of leverage. Although borrowing money for investments increases the potential for gain, it also increases
the risk of a loss. A decrease in the value of our investments will have a greater impact on the value of our common stock to the extent that we have borrowed money to make investments. There is a possibility that the costs of borrowing could exceed
the income we receive on the investments we make with such borrowed funds. Our Board of Directors is authorized to provide for the issuance of Senior Securities with such preferences, powers, rights and privileges as it deems appropriate, subject to
the requirements of the 1940 Act. See Regulation as a BDCAsset Coverage for a discussion of our leveraging constraints and Risk FactorsRisks Related to Our External Financing for further discussion of
certain leveraging risks.

Ongoing Management of Investments and Portfolio Company Relationships

The Advisers investment professionals actively oversee each investment by continuously evaluating the portfolio companys performance and typically
working collaboratively with the portfolio companys management to identify and incorporate best resources and practices that help us achieve our projected investment performance.

Monitoring

The Advisers investment
professionals monitor the financial performance, trends, and changing risks of each portfolio company on an ongoing basis to determine if each company is performing within expectations and to guide the portfolio companys management in taking
the appropriate courses of action. The Adviser employs various methods of evaluating and monitoring the performance of our investments in portfolio companies, which can include the following:



| |  |  | monthly analysis of financial and operating performance;
| | - |  | --------------------------------------------------------



| |  |  | assessment of the portfolio companys performance against its business plan and our investment expectations;
| | - |  | ------------------------------------------------------------------------------------------------------------



| |  |  | assessment of the investments risks;
| | - |  | -------------------------------------



| |  |  | attendance at and participation in the portfolio companys board of directors or management meetings;
| | - |  | -----------------------------------------------------------------------------------------------------



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| |  |  | assessment of portfolio company management, sponsor, governance and strategic direction;
| | - |  | ----------------------------------------------------------------------------------------



| |  |  | assessment of the portfolio companys industry and competitive environment; and
| | - |  | -------------------------------------------------------------------------------



| |  |  | review and assessment of the portfolio companys operating outlook and financial projections.
| | - |  | ---------------------------------------------------------------------------------------------

Relationship Management

The Advisers investment
professionals interact with various parties involved with a portfolio company, or investment, by actively engaging with internal and external constituents, including:



| |  |  | management;
| | - |  | -----------



| |  |  | boards of directors;
| | - |  | --------------------



| |  |  | financial sponsors;
| | - |  | -------------------



| |  |  | capital partners;
| | - |  | -----------------



| |  |  | auditors; and
| | - |  | -------------



| |  |  | advisers and consultants.
| | - |  | -------------------------

Managerial Assistance and Services

As a BDC, we make available significant managerial assistance to our portfolio companies and provide other services to such portfolio companies. Neither we,
nor the Adviser, currently receive fees in connection with the managerial assistance we make available. At times, the Adviser provides other services to certain of our portfolio companies and it receives fees for these other services. 50% of certain
of these fees and 100% of others historically have been credited against the base management fee that we would otherwise be required to pay to our Adviser. Effective October 1, 2013, 100% of all these fees are credited against the base
management fee that we would otherwise be required to pay to our Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees is retained by the Adviser in the form of reimbursement for certain tasks
completed by personnel of the Adviser.

In February 2011, Gladstone Securities started providing other services (such as investment banking and due
diligence services) to certain of our portfolio companies. Any such fees paid by portfolio companies to Gladstone Securities do not impact the overall fees we pay to the Adviser or the overall fees credited against the base management fee.

Valuation Process

The following is a general
description of the valuation steps that professionals from the Adviser and Administrator (the Valuation Team) take each quarter to determine the value of our investment portfolio. The Valuation Team values our investments in accordance
with the requirements of the 1940 Act. We value securities for which market quotations are readily available at their market value. We value all other securities and assets at fair value as determined in good faith by our Board of Directors. In
determining the value of our investments, the Valuation Team has established an investment valuation policy (the Policy). The Policy has been approved by our Board of Directors and each quarter the Board of Directors reviews whether the
Valuation Team have applied the Policy consistently and votes whether or not to accept the recommended valuation of our investment portfolio. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ
significantly from the values that would have been obtained had a ready market for the securities existed. Investments for which market quotations are readily available are recorded in our financial statements at such market quotations. With respect
to any investments for which market quotations are not readily available, we perform the following valuation process each quarter:



| |  |  | Quarterly, each portfolio company or investment is initially assessed by the Valuation Teams investment professionals responsible for the investment, using the Policy;
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Preliminary valuation conclusions are then discussed with our management, and documented, along with any independent opinions of value provided by Standard & Poors Securities Evaluations, Inc.
(SPSE), for review by our Board of Directors;
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Next, our Board of Directors reviews this documentation and discusses the information provided by the Valuation Team, and the opinions of value provided by SPSE to arrive at a determination that the Policy has been
followed for determining the aggregate fair value of our portfolio of investments.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Our valuation policies, procedures and processes
are more fully described under Managements Discussion and Analysis of Financial Condition and Results of Operations  Critical Accounting Policies  Investment Valuation.



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Investment Advisory and Management Agreement

We entered into an investment advisory and management agreement with the Adviser (the Advisory Agreement). In accordance with the Advisory
Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. On July 9, 2013, our Board of Directors approved the annual renewal of the Advisory Agreement with the Adviser
through August 31, 2014. Mr. Gladstone, our chairman and chief executive officer, controls the Adviser.

Base Management Fee

The base management fee is computed and payable quarterly and is assessed at an annual rate of 2%. It is computed on the basis of the
value of our average gross assets at the end of the two most recently completed quarters, which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings. As a
BDC, we make available significant managerial assistance to our portfolio companies and provide other services to such portfolio companies. Although neither we nor our Adviser receive fees in connection with managerial assistance, the Adviser
provides other services to our portfolio companies and receives fees for these other services. 50% of certain of these fees and 100% of others historically have been credited against the base management fee that we would otherwise be required to pay
to our Adviser. Effective October 1, 2013, 100% of all these fees are credited against the base management fee that we would otherwise be required to pay to our Adviser; however, pursuant to the terms of the Advisory Agreement, a small
percentage of certain of such fees is retained by the Adviser in the form of reimbursement for certain tasks completed by personnel of the Adviser.

Incentive Fee

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



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



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



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

Quarterly Incentive Fee Based on Net Investment Income

Pre-incentive fee net investment income

(expressed as a percentage of the value of net assets)



LOGO

Percentage of pre-incentive fee net investment income

allocated to income-related portion of incentive fee

The second part of the incentive fee is a capital gains-based incentive fee that will be determined and payable in arrears as of the end of
each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20% of our realized capital gains as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the Adviser,
we will calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate net unrealized capital depreciation as of the date of the calculation, as applicable, with
respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such
investment since our inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since our inception. Aggregate
net unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year, the amount
of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate net unrealized capital
depreciation, with respect to our portfolio of investments. If this number is positive at the end of such year, then the capital



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gains-based incentive fee for such year equals 20% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. No
capital gains-based incentive fee has been recorded since our inception through March 31, 2014, as cumulative net unrealized capital depreciation has exceeded cumulative realized capital gains net of cumulative realized capital losses.

Additionally, in accordance with accounting principles generally accepted in the U.S. (GAAP), a capital gains-based incentive fee
accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains-based incentive fee plus the aggregate cumulative
unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains-based incentive
fees paid in all prior years. If such amount is negative, then there is no accrual for such year. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation,
as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital
gains-based incentive fee has been recorded from our inception through March 31, 2014.

Administration Agreement

We have entered into an administration agreement (the Administration Agreement) with the Administrator, whereby we pay separately for
administrative services. The Administration Agreement provides for payments equal to our allocable portion of the Administrators overhead expenses in performing its obligations under the Administration Agreement, including, but not limited to,
rent and the salaries and benefits expenses of our chief financial officer and treasurer, chief compliance officer, internal counsel and secretary and their respective staffs. Our allocable portion of administrative expenses is generally derived by
multiplying the Administrators total allocable expenses by the percentage of our total assets at the beginning of the quarter in comparison to the total assets at the beginning of the quarter of all companies serviced by the Administrator
under similar agreements. On July 9, 2013, our Board of Directors approved the annual renewal of the Administration Agreement through August 31, 2014.

Material U.S. Federal Income Tax Considerations

RIC Status

To maintain the qualification for
treatment as a RIC under Subchapter M of the Code, we must distribute to our stockholders, for each taxable year, at least 90% of our investment company taxable income, which is generally our ordinary income plus the excess of our net
short-term capital gains over net long-term capital losses. We refer to this as the annual distribution requirement. We must also meet several additional requirements, including:



| |  |  | Business Development Company status. At all times during the taxable year, we must maintain our status as a BDC.
| | - |  | ----------------------------------------------------------------------------------------------------------------



| |  |  | Income source requirements. At least 90% of our gross income for each taxable year must be from dividends, interest, payments with respect to securities loans, gains from sales or other dispositions of securities
or other income derived with respect to our business of investing in securities, and net income derived from an interest in a qualified, publicly-traded partnership.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Asset diversification requirements. As of the close of each quarter of our taxable year: (1) at least 50% of the value of our assets must consist of cash, cash items, U.S. government securities, the
securities of other regulated investment companies and other securities to the extent that (a) we do not hold more than 10% of the outstanding voting securities of an issuer of such other securities and (b) such other securities of any one
issuer do not represent more than 5% of our total assets, and (2) no more than 25% of the value of our total assets may be invested in the securities of one issuer (other than U.S. government securities or the securities of other regulated
investment companies), or of two or more issuers that are controlled by us and are engaged in the same or similar or related trades or businesses or in the securities of one or more qualified, publicly-traded partnerships.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to the limited number of investments in our portfolio, our asset composition at times has affected our ability to satisfy certain elements of the rules of
the Code, for maintenance of our status as a RIC thereunder. To maintain our status as a RIC, in addition to other requirements, as of the close of each quarter of our taxable year, we must meet the asset diversification test, which requires
that at least 50% of the value of our assets consist of cash, cash items, U.S. government securities or certain other qualified securities (the 50% threshold). During the fiscal year ended March 31, 2014, we were at times below the
50% threshold.

Failure to meet the 50% threshold alone will not result in our loss of RIC status. In circumstances where the failure to meet the 50%
threshold is the result of fluctuations in the value of our assets, including as a result of the sale of assets, we will still be deemed to have satisfied the 50% threshold and, therefore, maintain our RIC status, provided that we have not made
any new investments, including additional investments in our existing portfolio companies (such as advances under outstanding lines of credit), since the



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time that we fell below the 50% threshold. As of March 31, 2014, our asset composition satisfied the 50% threshold. Additionally, our asset composition satisfied the 50% threshold as of
September 30 and December 31, 2013 without, but as a precaution to ensure compliance, we also purchased short-term qualified securities, which were funded through short-term loan agreements. Subsequent to each of those measurement dates,
the short-term qualified securities matured and we repaid the short-term loans. See Managements Discussion and Analysis of Financial Condition and Results of OperationsRecent DevelopmentsShort-Term Loan for more
information regarding these transactions.

Until the composition of our assets satisfies the required 50% threshold by a significant margin, we may
continue to employ similar purchases of qualified securities using short-term loans that would ensure that we satisfy the 50% threshold. There can be no assurance, however, that we will be able to enter into such a transaction on reasonable terms,
if at all.

Failure to Qualify as a RIC. If we are unable to qualify for treatment as a RIC, we will be subject to tax on all of our taxable income
at regular corporate rates. We would not be able to deduct distributions to stockholders, nor would we be required to make such distributions. Distributions would be taxable to our stockholders as dividend income to the extent of our current and
accumulated earnings and profits. Subject to certain limitations under the Code, corporate distributees would be eligible for the dividends received deduction. Distributions in excess of our current and accumulated earnings and profits would be
treated first as a return of capital to the extent of the stockholders adjusted tax basis, and then as a gain realized from the sale or exchange of property. If we fail to meet the RIC requirements for more than two consecutive years and then
seek to requalify as a RIC, we would be required to recognize a gain on of any unrealized appreciation with respect to our assets to the extent that any such unrealized appreciation is recognized during a specified period up to 10-years. Absent such
special election, any gain we recognized would be deemed distributed to our stockholders as a taxable distribution.

Qualification as a RIC. If we
qualify as a RIC and distribute to stockholders each year in a timely manner at least 90% of our investment company taxable income, we will not be subject to federal income tax on the portion of our taxable income and gains we distribute to
stockholders. We would, however, be subject to a 4% nondeductible federal excise tax if we do not distribute, actually or on a deemed basis, an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year,
(2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gains in excess of capital losses for preceding years that were not
distributed during such years. For the years ended December 31, 2013 and 2012, we incurred $0.3 million and $31, respectively, in excise taxes.

The
federal excise tax would apply only to the amount by which the required distributions exceed the amount of income we distribute, actually or on a deemed basis, to stockholders. We will be subject to regular corporate income tax, currently at rates
up to 35%, on any undistributed income, including both ordinary income and capital gains. We intend to retain some or all of our capital gains, but to treat the retained amount as a deemed distribution. In that case, among other consequences, we
will pay tax on the retained amount, each stockholder will be required to include its share of the deemed distribution in income as if it had been actually distributed to the stockholder and the stockholder will be entitled to claim a credit or
refund equal to its allocable share of the tax we pay on the retained capital gain. The amount of the deemed distribution net of such tax will be added to the stockholders cost basis for its common stock. Since we expect to pay tax on any
retained capital gains at our regular corporate capital gain tax rate, and since that rate is in excess of the maximum rate currently payable by individuals on long-term capital gains, the amount of tax that individual stockholders will be treated
as having paid will exceed the tax they owe on the capital gain dividend and such excess may be claimed as a credit or refund against the stockholders other tax obligations. A stockholder that is not subject to U.S. federal income tax or tax
on long-term capital gains would be required to file a U.S. federal income tax return on the appropriate form in order to claim a refund for the taxes we paid. In order to utilize the deemed distribution approach, we must provide written notice
to the stockholders after the close of the relevant tax year. We will also be subject to alternative minimum tax, but any tax preference items would be apportioned between us and our stockholders in the same proportion that distributions, other than
capital gain dividends, paid to each stockholder bear to our taxable income determined without regard to the dividends paid deduction.

Taxation of
Our U.S. Stockholders

Distributions. For any period during which we qualify as a RIC for federal income tax purposes, distributions to our
stockholders attributable to our investment company taxable income generally will be taxable as ordinary income to stockholders to the extent of our current or accumulated earnings and profits. We first allocate our earnings and profits to
distributions to our preferred stockholders and then to distributions to our common stockholders based on priority in our capital structure. Any distributions in excess of our earnings and profits will first be treated as a return of capital to the
extent of the stockholders adjusted basis in his or her shares of common stock and thereafter as gain from the sale of shares of our common stock. Distributions of our long-term capital gains, reported by us as such, will be taxable to
stockholders as long-term capital gains regardless of the stockholders holding period for its common stock and whether the distributions are paid in cash or invested in additional common stock. Corporate stockholders are generally eligible for
the 70% dividends received deduction with respect to dividends received from us, other than capital gains dividends, to the extent such amount reported by us does not exceed the dividends received by us from domestic corporations. Any dividend
declared by us in October, November or December of any calendar year, payable to stockholders of record on a specified date in such a month and actually paid during January of the following year, will be treated as if it were paid by
us and received by the



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stockholders on December 31 of the previous year. In addition, we may elect (in accordance with Section 855(a) of the Code) to relate a dividend back to the prior taxable year if we
(1) declare such dividend prior to the later of the due date for filing our return for that taxable year or the 15th day of the ninth month following the close of the taxable year,
(2) make the election in that return, and (3) distribute the amount in the 12-month period following the close of the taxable year but not later than the first regular dividend payment of the same type following the declaration. Any such
election will not alter the general rule that a stockholder will be treated as receiving a dividend in the taxable year in which the distribution is made, subject to the October, November, December rule described above.

If a common stockholder participates in our opt in dividend reinvestment plan, any distributions reinvested under the plan will be taxable to the
common stockholder to the same extent, and with the same character, as if the common stockholder had received the distribution in cash. The common stockholder will have an adjusted basis in the additional common shares purchased through the plan
equal to the amount of the reinvested distribution. The additional shares will have a new holding period commencing on the day following the day on which the shares are credited to the common stockholders account. We do not have a dividend
reinvestment plan for our preferred stockholders.

Sale of Our Shares. A U.S. stockholder generally will recognize taxable gain or loss
if the U.S. stockholder sells or otherwise disposes of his, her or its shares of our common or preferred stock. Any gain arising from such sale or disposition generally will be treated as long-term capital gain or loss if the
U.S. stockholder has held his, her or its shares for more than one year. Otherwise, it will be classified as short-term capital gain or loss. However, any capital loss arising from the sale or disposition of shares of our common stock held for
six months or less will be treated as long-term capital loss to the extent of the amount of capital gain dividends received, or undistributed capital gain deemed received, with respect to such shares. Under the tax laws in effect as of the date of
this filing, individual U.S. stockholders are subject to a maximum federal income tax rate of 20% on their net capital gain (i.e. the excess of realized net long-term capital gain over realized net short-term capital loss for a taxable year)
including any long-term capital gain derived from an investment in our shares. Such rate is lower than the maximum rate on ordinary income currently payable by individuals. Corporate U.S. stockholders currently are subject to federal income tax
on net capital gain at the same rates applied to their ordinary income (currently up to a maximum of 35%). Capital losses are subject to limitations on use for both corporate and non-corporate stockholders. Certain U.S. stockholders who are
individuals, estates or trusts generally are subject to a 3.8% Medicare tax on, among other things, dividends on, and capital gain from the sale or other disposition of, shares of our common stock.

Backup Withholding. We may be required to withhold federal income tax, or backup withholding, currently at a rate of 28%, from all taxable
distributions to any non-corporate U.S. stockholder (1) who fails to furnish us with a correct taxpayer identification number or a certificate that such stockholder is exempt from backup withholding, or (2) with respect to whom the
Internal Revenue Service (IRS) notifies us that such stockholder has failed to properly report certain interest and dividend income to the IRS and to respond to notices to that effect. An individuals taxpayer identification number
is generally his or her social security number. Any amount withheld under backup withholding is allowed as a credit against the U.S. stockholders federal income tax liability, provided that proper information is provided to the IRS.

The Foreign Account Tax Compliance Act (FATCA) imposes a federal withholding tax on certain types of payments made to foreign financial
institutions and certain other non-U.S. entities unless certain due diligence, reporting, withholding, and certification obligation requirements are satisfied. Under delayed effective dates provided for in the Treasury Regulations and other
IRS guidance, such required withholding will not begin until July 1, 2014 with respect to dividends on our stock, and January 1, 2017 with respect to gross proceeds from a sale or other disposition of our stock.

Regulation as a BDC

We are a closed-end, non-diversified
management investment company that has elected to be regulated as a BDC under Section 54 of the 1940 Act. As such, we are subject to regulation under the 1940 Act. The 1940 Act contains prohibitions and restrictions relating to transactions
between BDCs and their affiliates, principal underwriters and affiliates of those affiliates or underwriters and requires that a majority of the directors be persons other than interested persons, as defined in the 1940 Act. In addition,
the 1940 Act provides that we may not change the nature of our business so as to cease to be, or to withdraw our election as, a BDC unless approved by a majority of our outstanding voting securities, as defined in the 1940 Act.

We intend to conduct our business so as to retain our status as a BDC. A BDC may use capital provided by public stockholders and from other sources to invest
in long-term private investments in businesses. A BDC provides stockholders the ability to retain the liquidity of a publicly-traded stock while sharing in the possible benefits, if any, of investing in primarily privately owned companies. In
general, a BDC must have been organized and have its principal place of business in the U.S. and must be operated for the purpose of making investments in qualifying assets, as described in Sections 55(a)(1)  (through (a)(3) of the 1940 Act.



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Qualifying Assets

Under the 1940 Act, a BDC may not acquire any asset other than assets of the type listed in Section 55(a) of the 1940 Act, which are referred to as
qualifying assets, unless, at the time the acquisition is made, qualifying assets, other than certain interests in furniture, equipment, real estate, or leasehold improvements (operating assets) represent at least 70% of our total
assets, exclusive of operating assets. The types of qualifying assets in which we may invest under the 1940 Act include, but are not limited to, the following:



| | (1) | Securities purchased in transactions not involving any public offering from the issuer of such securities, which issuer is an eligible portfolio company. An eligible portfolio company is generally defined in the 1940
Act as any issuer which:
| | --- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (a) | is organized under the laws of, and has its principal place of business in, any State or States in the U.S;
| | --- | -----------------------------------------------------------------------------------------------------------



| | (b) | is not an investment company (other than a small business investment company wholly owned by the BDC or otherwise excluded from the definition of investment company); and
| | --- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (c) | satisfies one of the following:
| | --- | -------------------------------



| | (i) | it does not have any class of securities with respect to which a broker or dealer may extend margin credit;
| | --- | -----------------------------------------------------------------------------------------------------------



| | (ii) | it is controlled by the BDC and for which an affiliate of the BDC serves as a director;
| | ---- | ---------------------------------------------------------------------------------------



| | (iii) | it has total assets of not more than $4 million and capital and surplus of not less than $2 million;
| | ----- | ----------------------------------------------------------------------------------------------------



| | (iv) | it does not have any class of securities listed on a national securities exchange; or
| | ---- | -------------------------------------------------------------------------------------



| | (v) | it has a class of securities listed on a national securities exchange, with an aggregate market value of outstanding voting and non-voting equity of less than $250 million.
| | --- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (2) | Securities received in exchange for or distributed on or with respect to securities described in (1) above, or pursuant to the exercise of options, warrants or rights relating to such securities.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | (3) | Cash, cash items, government securities or high quality debt securities maturing in one year or less from the time of investment.
| | --- | ---------------------------------------------------------------------------------------------------------------------------------

Asset Coverage

Pursuant to Section 61(a)(2)
of the 1940 Act, we are permitted, under specified conditions, to issue multiple classes of Senior Securities representing indebtedness. However, pursuant to Section 18(c) of the 1940 Act, we are permitted to issue only one class of Senior
Securities that is stock. In either case, we may only issue such Senior Securities if such class of Senior Securities, after such issuance, has an asset coverage, as defined in Section 18(h) of the 1940 Act, of at least 200%.

In addition, our ability to pay dividends or distributions (other than dividends payable in our stock) to holders of any class of our capital stock would be
restricted if our Senior Securities representing indebtedness fail to have an asset coverage of at least 200% (measured at the time of declaration of such distribution and accounting for such distribution). The 1940 Act does not apply this
limitation to privately arranged debt that is not intended to be publicly distributed, unless this limitation is specifically negotiated by the lender. In addition, our ability to pay dividends or distributions (other than dividends payable in our
common stock) to our common stockholders would be restricted if our Senior Securities that are stock fail to have an asset coverage of at least 200% (measured at the time of declaration of such distribution and accounting for such distribution). If
the value of our assets declines, we might be unable to satisfy these asset coverage requirements. To satisfy the 200% asset coverage requirement in the event that we are seeking to pay a distribution, we might either have to (i) liquidate a
portion of our loan portfolio to repay a portion of our indebtedness or (ii) issue common stock. This may occur at a time when a sale of a portfolio asset may be disadvantageous, or when we have limited access to capital markets on agreeable
terms. In addition, any amounts that we use to service our indebtedness or for offering expenses will not be available for distributions to our stockholders. If we are unable to regain asset coverage through these methods, we may be forced to
suspend the payment of such dividends.

Significant Managerial Assistance

A BDC generally must make available significant managerial assistance to issuers of certain of its portfolio securities that the BDC counts as a qualifying
asset for the 70% test described above. Making available significant managerial assistance means, among other things, any arrangement whereby the BDC, through its directors, officers or employees, offers to provide, and, if accepted, does so
provide, significant guidance and counsel concerning the management, operations or business objectives and policies of a portfolio company. Significant managerial assistance also includes the exercise of a controlling influence over the management
and policies of the portfolio company. However, with respect to certain, but not all such securities, where the BDC purchases such securities in conjunction with one or more other persons acting together, one of the other persons in the group may
make available such managerial assistance, or the BDC may exercise such control jointly.



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Investment Policies

We seek to achieve a high level of current income and capital gains through investments in debt securities and preferred and common stock that we acquire in
connection with buyout and other recapitalizations. The following investment policies, along with these investment objectives, may not be changed without the approval of our Board of Directors:



| |  |  | We will at all times conduct our business so as to retain our status as a BDC. In order to retain that status, we must be operated for the purpose of investing in certain categories of qualifying assets. In addition, we
may not acquire any assets (other than non-investment assets necessary and appropriate to our operations as a BDC or qualifying assets) if, after giving effect to such acquisition, the value of our qualifying assets is less than 70% of
the value of our total assets. We anticipate that the securities we seek to acquire will generally be qualifying assets.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We will at all times endeavor to conduct our business so as to retain our status as a RIC under the Code. To do so, we must meet income source, asset diversification and annual distribution requirements. We may issue
Senior Securities, such as debt or preferred stock, to the extent permitted by the 1940 Act for the purpose of making investments, to fund share repurchases, or for temporary emergency or other purposes.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

With the exception of our policy to conduct our business as a BDC, these policies are not fundamental and may be changed without stockholder approval.

Code of Ethics

We and all of the Gladstone family
of companies, have adopted a code of ethics and business conduct applicable to all of the officers, directors and employees of such companies that complies with the guidelines set forth in Item 406 of Regulation S-K of the Securities Act of
1933 (the Securities Act) and Rule 17j-1 of the 1940 Act. As required by the 1940 Act, this code establishes procedures for personal investments, restricts certain transactions by such personnel and requires the reporting of certain
transactions and holdings by such personnel. This code of ethics and business conduct is publicly available on our website under Corporate Governance at www.GladstoneInvestment.com. We intend to provide any required disclosure of any
amendments to or waivers of the provisions of this code by posting information regarding any such amendment or waiver to our website within four days of its effectiveness in a Current Report on Form 8-K.

Compliance Policies and Procedures

We and the
Adviser have adopted and implemented written policies and procedures reasonably designed to prevent violation of the federal securities laws, and our Board of Directors is required to review these compliance policies and procedures annually to
assess their adequacy and the effectiveness of their implementation. We have designated a chief compliance officer, John Dellafiora, Jr., who also serves as chief compliance officer for all of the Gladstone family of companies.

Staffing

We do not currently have any employees
and do not expect to have any employees in the foreseeable future. Currently, services necessary for our business are provided by individuals who are employees of the Adviser and the Administrator pursuant to the terms of the Advisory Agreement and
the Administration Agreement, respectively. No employee of the Adviser or the Administrator will dedicate all of his or her time to us. However, we expect that 25 to 30 full time employees of the Adviser and the Administrator will spend substantial
time on our matters during the remainder of calendar year 2014. To the extent we acquire more investments, we anticipate that the number of employees of the Adviser and the Administrator who devote time to our matters will increase.

As of May 12, 2014, the Adviser and Administrator collectively had 61 full-time employees. A breakdown of these employees is summarized by functional
area in the table below:



|                      |  |                                                                            
|--------------------- |  | ---------------------------------------------------------------------------
|Number of Individuals |  | Functional Area                                                            
|11                    |  | Executive management                                                       
|15                    |  | Accounting, administration, compliance, human resources, legal and treasury
|35                    |  | Investment management, portfolio management and due diligence              



Available Information:

Copies of our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments, if any, to those reports
filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended (the Exchange Act) are available free of charge through our website at www.GladstoneInvestment.com as soon as
reasonably practicable after such materials are electronically filed with or furnished to the Securities and Exchange Commission (the SEC). A request for any of these reports may also be submitted to us by sending a written request
addressed to Investor Relations, Gladstone Investment Corporation, 1521 Westbranch Drive, Suite 100, McLean, VA 22102, or by calling our toll-free investor relations line at 1-866-366-5745. The public may read and copy materials that we file
with the SEC at the SECs Public Reference Room at 100 F Street, NE, Washington, DC 20549. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330. The SEC also maintains a
website that contains reports, proxy and information statements, and other information regarding issuers that file electronically with the SEC at www.sec.gov.



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

You should carefully consider these risk factors, together with all of the other
information included in this Annual Report on Form 10-K and the other reports and documents filed by us with the SEC. The risks set out below are not the only risks we face. Additional risks and uncertainties not presently known to us, or not
presently deemed material by us, may also impair our operations and performance. If any of the following events occur, our business, financial condition, results of operations and cash flows could be materially and adversely affected. In such case,
our net asset value and the trading price of our securities could decline, and you may lose all or part of your investment. The risk factors described below are the principal risk factors associated with an investment in our securities as well as
those factors generally associated with an investment company with investment objectives, investment policies, capital structure or trading markets similar to ours.

Risks Related to the Economy and Recent Legislation

The failure of U.S. lawmakers to reach an agreement on the national debt ceiling could have a material adverse effect on our business, financial condition
and results of operations.

In February 2014, the U.S. Congress passed legislation to increase the debt ceiling through March 2015. Congress will need
to pass additional legislation prior to March 2015 to further increase the debt ceiling in order for the government to continue to make payments to its creditors. In the event U.S. lawmakers fail to reach a viable agreement on the national debt
ceiling, the U.S. could default on its obligations, which could negatively impact the trading market for U.S. government securities. This may, in turn, negatively affect our ability to obtain financing for our investments. As a result, it may
materially adversely affect our business, financial condition and results of operations.

While the U.S. has begun to see improving financial indicators
since the 2008 recession, recent events have created more uncertainty in the U.S. economy and capital markets. Therefore, we remain cautious about a long-term economic recovery.

Over the last several years, the U.S. capital markets have experienced significant price volatility and liquidity disruptions, which have caused market prices
of many stocks and debt securities to fluctuate substantially and the spreads on prospective debt financings to widen considerably. The recession in general, and the disruptions in the capital markets in particular, have impacted our liquidity
options and increased our cost of debt and equity capital. As a result, we do not know if adverse conditions will again intensify, and we are unable to gauge the full extent to which disruptions will continue to affect us. The longer these uncertain
conditions persist, the greater the probability that these factors could continue to increase our costs of, and significantly limit our access to, debt and equity capital and, thus, have an adverse effect on our operations and financial results.
Many of our portfolio companies and the companies we may invest in prospectively are also susceptible to these unstable economic conditions, which may affect the ability of one or more of our portfolio companies to repay our loans or engage in a
liquidity event, such as a sale, recapitalization or initial public offering. These unstable economic conditions could also disproportionately impact some of the industries in which we invest, causing us to be more vulnerable to losses in our
portfolio, which could cause the number of non-performing assets to increase and the fair value of our portfolio to decrease. The unstable economic conditions may also decrease the value of collateral securing some of our loans as well as the value
of our equity investments, which would decrease our ability to borrow under our Credit Facility or raise equity capital, thereby further reducing our ability to make new investments.

Even with the short term increase to the debt ceiling, there is still a great deal of volatility in the marketplace. The unstable economic conditions have
affected the availability of credit generally. Though we increased our distributions by 20% during the 2014 fiscal year and maintained that level of distributions, we cannot guarantee that this increase will remain in place due to limitations placed
by our Credit Facility on distributions to stockholders and the impact of market conditions. We do not know when market conditions will stabilize, if adverse conditions will intensify or the full extent to which the disruptions will continue to
affect us. Also, it is possible that persistent instability of the financial markets could have other unforeseen material effects on our business.

A
further downgrade of the United States credit rating and the ongoing economic crisis in Europe could negatively impact our liquidity, financial condition and earnings.

Recent U.S. debt ceiling and budget deficit concerns, together with signs of deteriorating sovereign debt conditions in Europe, have increased the possibility
of additional credit-rating downgrades and economic slowdowns. In August 2011, Standard & Poors downgraded its long-term sovereign credit rating on the U.S. to AA+ for the first time due to the U.S. Congress inability to reach
an effective agreement on the national debt ceiling and a budget in a timely manner. The current U.S. debt ceiling and budget deficit concerns have increased the possibility of the credit-rating agencies further downgrading the U.S. credit rating.
On October 15, 2013,



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Fitch Ratings Service placed the U.S. credit rating on negative watch, warning that a failure by the U.S. Government to honor interest or principal payments on U.S. treasury securities would
impact its decision on whether to downgrade the U.S. credit rating. Fitch also stated that the manner and duration of an agreement to raise the debt ceiling and resolve the then existing budget impasse, as well as the perceived risk of such events
occurring in the future, would weigh on its ratings. On March 21, 2014, Fitch affirmed its AAA long-term and F1+ short-term sovereign credit rating on the U.S. government with a stable outlook. This resolved the rating watch negative that was
placed on the ratings on October 15, 2013.

The impact of any further downgrades to the U.S. governments sovereign credit rating, or its
perceived creditworthiness, and deteriorating sovereign debt conditions in Europe, is inherently unpredictable and could adversely affect the U.S. and global financial markets and economic conditions. There can be no assurance that governmental or
other measures to aid economic recovery will be effective. These developments and the governments credit concerns in general could cause interest rates and borrowing costs to rise, which may negatively impact our ability to access the debt
markets on favorable terms. In addition, the decreased credit rating could create broader financial turmoil and uncertainty, which may weigh heavily on our stock price. Continued adverse economic conditions could have a material adverse effect on
our business, financial condition and results of operations.

We may experience fluctuations in our quarterly and annual results based on the impact of
inflation in the United States.

The majority of our portfolio companies are in industries that are directly impacted by inflation, such as consumer
goods and services and manufacturing. Our portfolio companies may not be able to pass on to customers increases in their costs of operations, which could greatly affect their operating results, impacting their ability to repay our loans. In
addition, any projected future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future
unrealized losses and therefore reduce our net assets resulting from operations.

Healthcare reform legislation may affect our results of operations
and financial condition.

On March 23, 2010, the President of the United States signed into law the Patient Protection and Affordable Care Act of
2010 and on March 30, 2010, the President signed into law the Health Care and Education Reconciliation Act, which in part modified the Patient Protection and Affordable Care Act (together, the Acts). Together, the two Acts serve as
the primary vehicle for comprehensive health care reform in the U.S. The Acts are intended to reduce the number of individuals in the U.S. without health insurance and effect significant other changes to the ways in which health care is organized,
delivered and reimbursed. The complexities and ramifications of the new legislation are significant, and have begun being implemented through a phased approach concluding in 2018. At this time, the effects of health care reform and its impact on our
portfolio companies business, results of operations and financial condition and the resulting impact on our operations are not yet known. Accordingly, the Acts could adversely affect the cost of providing healthcare coverage generally and
could adversely affect the financial and operational performance of the portfolio companies in which we invest and therefore negatively impact our financial and operational performance.

Risks Related to Our External Management

We
are dependent upon our key management personnel and the key management personnel of the Adviser, particularly David Gladstone, Terry Lee Brubaker and David Dullum, and on the continued operations of the Adviser, for our future success.

We have no employees. Our chief executive officer, president, chief operating officer, chief financial officer and treasurer, and the employees of the Adviser,
do not spend all of their time managing our activities and our investment portfolio. We are particularly dependent upon David Gladstone, Terry Lee Brubaker and David Dullum in this regard. Our executive officers and the employees of the Adviser
allocate some, and in some cases a material portion, of their time to businesses and activities that are not related to our business. We have no separate facilities and are completely reliant on the Adviser, which has significant discretion as to
the implementation and execution of our business strategies and risk management practices. We are subject to the risk of discontinuation of the Advisers operations or termination of the Advisory Agreement and the risk that, upon such event, no
suitable replacement will be found. We believe that our success depends to a significant extent upon the Adviser and that discontinuation of its operations could have a material adverse effect on our ability to achieve our investment objectives.

Our success depends on the Advisers ability to attract and retain qualified personnel in a competitive environment.

The Adviser experiences competition in attracting and retaining qualified personnel, particularly investment professionals and senior executives, and we may
be unable to maintain or grow our business if we cannot attract and retain such personnel. The Advisers ability to attract and retain personnel with the requisite credentials, experience and skills depends on several factors including, but not
limited to, its ability to offer competitive wages, benefits and professional growth opportunities. The Adviser competes with investment funds (such as private equity funds and mezzanine funds) and traditional financial services companies for
qualified personnel, many of which have greater resources than us. Searches for qualified personnel may divert managements time from the operation of our business. Strain on the existing personnel resources of the Adviser, in the event
that it is unable to attract experienced investment professionals and senior executives, could have a material adverse effect on our business.



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The Adviser can resign on 60 days notice, and we may not be able to find a suitable replacement within
that time, resulting in a disruption in our operations that could adversely affect our financial condition, business and results of operations.

The
Adviser has the right to resign under the Advisory Agreement at any time upon not less than 60 days written notice, whether we have found a replacement or not. If the Adviser resigns, we may not be able to find a new investment adviser or hire
internal management with similar expertise and ability to provide the same or equivalent services on acceptable terms within 60 days, or at all. If we are unable to do so quickly, our operations are likely to experience a disruption, our financial
condition, business and results of operations as well as our ability to pay distributions are likely to be adversely affected and the market price of our shares may decline. In addition, the coordination of our internal management and investment
activities is likely to suffer if we are unable to identify and reach an agreement with a single institution or group of executives having the expertise possessed by the Adviser and its affiliates. Even if we are able to retain comparable
management, whether internal or external, the integration of such management and their lack of familiarity with our investment objective may result in additional costs and time delays that may adversely affect our business, financial condition,
results of operations and cash flows.

Our incentive fee may induce the Adviser to make certain investments, including speculative investments.

The management compensation structure that has been implemented under the Advisory Agreement may cause the Adviser to invest in high-risk investments
or take other risks. In addition to its management fee, the Adviser is entitled under the Advisory Agreement to receive incentive compensation based in part upon our achievement of specified levels of income. In evaluating investments and other
management strategies, the opportunity to earn incentive compensation based on net income may lead the Adviser to place undue emphasis on the maximization of net income at the expense of other criteria, such as preservation of capital, maintaining
sufficient liquidity, or management of credit risk or market risk, in order to achieve higher incentive compensation. Investments with higher yield potential are generally riskier or more speculative. This could result in increased risk to the value
of our investment portfolio.

We may be obligated to pay the Adviser incentive compensation even if we incur a loss.

The Advisory Agreement entitles the Adviser to incentive compensation for each fiscal quarter in an amount equal to a percentage of the excess of our
investment income for that quarter (before deducting incentive compensation, net operating losses and certain other items) above a threshold return for that quarter. When calculating our incentive compensation, our pre-incentive fee net investment
income excludes realized and unrealized capital losses that we may incur in the fiscal quarter, even if such capital losses result in a net loss on our statement of operations for that quarter. Thus, we may be required to pay the Adviser incentive
compensation for a fiscal quarter even if there is a decline in the value of our portfolio or we incur a net loss for that quarter. For additional information on incentive compensation under the Advisory Agreement with the Adviser, see
Business  Ongoing Management of Investments and Portfolio Company Relationships  Investment Advisory and Management Agreement.

We may be required to pay the Adviser incentive compensation on income accrued, but not yet received in cash.

That part of the incentive fee payable by us that relates to our net investment income is computed and paid on income that may include interest that has been
accrued but not yet received in cash, such as debt instruments with PIK interest. If a portfolio company defaults on a loan, it is possible that such accrued interest previously used in the calculation of the incentive fee will become uncollectible.
Consequently, we may make incentive fee payments on income accruals that we may not collect in the future and with respect to which we do not have a clawback right against the Adviser.

The Advisers failure to identify and invest in securities that meet our investment criteria or perform its responsibilities under the Advisory
Agreement would likely adversely affect our ability for future growth.

Our ability to achieve our investment objectives will depend on our ability to
grow, which in turn will depend on the Advisers ability to identify and invest in securities that meet our investment criteria. Accomplishing this result on a cost-effective basis will be largely a function of the Advisers structuring of
the investment process, its ability to provide competent and efficient services to us, and our access to financing on acceptable terms. The senior management team of the Adviser has substantial responsibilities under the Advisory Agreement. In order
to grow, the Adviser will need to hire, train, supervise, and manage new employees successfully. Any failure to manage our future growth effectively would likely have a material adverse effect on our business, financial condition, and results of
operations.



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There are significant potential conflicts of interest which could impact our investment returns.

Our executive officers and directors, and the officers and directors of the Adviser, serve or may serve as officers, directors, or principals of entities that
operate in the same or a related line of business as we do or of investment funds managed by our affiliates. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or
our stockholders. For example, Mr. Gladstone, our chairman and chief executive officer, is the chairman of the board and chief executive officer of the Adviser, Gladstone Investment, Gladstone Commercial and Gladstone Land. In addition,
Mr. Brubaker, our vice chairman and chief operating officer, is the vice chairman and chief operating officer of the Adviser, Gladstone Capital, Gladstone Commercial and Gladstone Land. Mr. Dullum, our president and a director, is a
director of Gladstone Capital and Gladstone Commercial, as well as an executive managing director of the Adviser. Moreover, the Adviser may establish or sponsor other investment vehicles which from time to time may have potentially overlapping
investment objectives with ours and accordingly may invest in, whether principally or secondarily, asset classes we target. While the Adviser generally has broad authority to make investments on behalf of the investment vehicles that it advises, the
Adviser has adopted investment allocation procedures to address these potential conflicts and intends to direct investment opportunities to the Gladstone affiliate with the investment strategy that most closely fits the investment opportunity.
Nevertheless, the management of the Adviser may face conflicts in the allocation of investment opportunities to other entities managed by the Adviser. As a result, it is possible that we may not be given the opportunity to participate in certain
investments made by other funds managed by the Adviser. Our Board of Directors approved a revision of our investment objectives and strategies that became effective on January 1, 2013, which may enhance the potential for conflicts in the
allocation of investment opportunities to us and other entities managed by the Adviser.

In certain circumstances, we may make investments in a portfolio
company in which one of our affiliates has or will have an investment, subject to satisfaction of any regulatory restrictions and, where required, the prior approval of our Board of Directors. As of March 31, 2014, our Board of Directors has
approved the following types of co-investment transactions:



| |  | Our affiliate, Gladstone Commercial, may, under certain circumstances, lease property to portfolio companies that we do not control. We may pursue such transactions only if (i) the portfolio company is not
controlled by us or any of our affiliates, (ii) the portfolio company satisfies the tenant underwriting criteria of Gladstone Commercial, and (iii) the transaction is approved by a majority of our independent directors and a majority of
the independent directors of Gladstone Commercial. We expect that any such negotiations between Gladstone Commercial and our portfolio companies would result in lease terms consistent with the terms that the portfolio companies would be likely to
receive were they not portfolio companies of ours.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | We may invest simultaneously with our affiliate Gladstone Capital in senior syndicated loans whereby neither we nor any affiliate has the ability to dictate the terms of the loans.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Additionally, pursuant to an exemptive order granted by the SEC in July 2012, under certain circumstances, we may co-invest with Gladstone Capital and any future BDC or closed-end management investment company that is
advised by the Adviser (or sub-advised by the Adviser if it controls the fund) or any combination of the foregoing subject to the conditions included therein.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Certain of our officers, who are also officers of the Adviser, may from time to time serve as directors of certain of our portfolio companies. If an officer
serves in such capacity with one of our portfolio companies, such officer will owe fiduciary duties to stockholders of the portfolio company, which duties may from time to time conflict with the interests of our stockholders.

In the course of our investing activities, we will pay management and incentive fees to the Adviser and will reimburse the Administrator for certain expenses
it incurs. As a result, investors in our common stock will invest on a gross basis and receive distributions on a net basis after expenses, resulting in, among other things, a lower rate of return than one might achieve
through our investors themselves making direct investments. As a result of this arrangement, there may be times when the management team of the Adviser has interests that differ from those of our stockholders, giving rise to a conflict. In addition,
as a BDC, we make available significant managerial assistance to our portfolio companies and provide other services to such portfolio companies. Although, neither we nor the Adviser currently receives fees in connection with managerial assistance,
the Adviser and Gladstone Securities have, at various times, provided other services to certain of our portfolio companies and received fees for these other services.



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Our business model is dependent upon developing and sustaining strong referral relationships with investment
bankers, business brokers and other intermediaries and any change in our referral relationships may impact our business plan.

We are dependent upon
informal relationships with investment bankers, business brokers and traditional lending institutions to provide us with deal flow. If we fail to maintain our relationship with such funds or institutions, or if we fail to establish strong referral
relationships with other funds, we will not be able to grow our portfolio of investments and fully execute our business plan.

Our base management fee
may induce our Adviser to incur leverage.

The fact that our base management fee is payable based upon our gross assets, which would include any
investments made with proceeds of borrowings, may encourage our Adviser to use leverage to make additional investments. Under certain circumstances, the use of increased leverage may increase the likelihood of default, which would disfavor holders
of our securities. Given the subjective nature of the investment decisions made by our Adviser on our behalf, we will not be able to monitor this potential conflict of interest.

Risks Related to Our External Financing

In
addition to regulatory limitations on our ability to raise capital, our credit facility contains various covenants which, if not complied with, could accelerate our repayment obligations under the facility, thereby materially and adversely affecting
our liquidity, financial condition, results of operations and ability to pay distributions.

We will have a continuing need for capital to finance our
investments. As of March 31, 2014, we had $61.2 million in borrowings outstanding under our fifth amended and restated credit agreement, which provides for maximum borrowings of $105 million, with a revolving period end date of April 30,
2016 (the Credit Facility). Our Credit Facility permits us to fund additional loans and investments as long as we are within the conditions set forth in the credit agreement. Our Credit Facility contains covenants that require our
wholly-owned subsidiary Gladstone Business Investment, LLC (Business Investment) to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or
dissolutions) and restrict material changes to our credit and collection policies without lenders consent. The facility also limits payments as distributions to the aggregate net investment income for each of the twelve month periods ending
March 31, 2015, 2016 and 2017. We are also subject to certain limitations on the type of loan investments we can make, including restrictions on geographic concentrations, sector concentrations, loan size, dividend payout, payment frequency and
status, average life and lien property. The Credit Facility also requires us to comply with other financial and operational covenants, which obligate us to, among other things, maintain certain financial ratios, including asset and interest
coverage, a minimum net worth and a minimum number of obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a performance guaranty that requires us to maintain (i) a minimum net worth of $170 million
plus 50% of all equity and subordinated debt raised after April 30, 2013 which equates to $170 million as of March 31, 2014, (ii) asset coverage with respect to senior securities representing indebtedness of at
least 200%, in accordance with Section 18 of the 1940 Act and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of March 31, 2014, we were in compliance with the covenants under the fifth amended and
restated credit agreement, and as of May 12, 2014, we were in compliance with the covenants under the Credit Facility; however, our continued compliance depends on many factors, some of which are beyond our control.

Given the continued uncertainty in the capital markets, the cumulative unrealized depreciation in our portfolio may increase in future periods and threaten
our ability to comply with the minimum net worth covenant and other covenants under our Credit Facility.

Any inability to renew, extend or replace our
Credit Facility on terms favorable to us, or at all, could adversely impact our liquidity and ability to fund new investments or maintain distributions to our stockholders.

The revolving period end date of our Credit Facility is April 30, 2016 (the Revolving Period End Date) and, if not renewed or extended by the
Revolving Period End Date, all principal and interest will be due and payable one year later on or before April 30, 2017. Subject to certain terms and conditions, the Credit Facility may be expanded to a total of $200 million through the
addition of other lenders to the facility. However, if additional lenders are unwilling to join the facility on its terms, we will be unable to expand the facility and thus will continue to have limited availability to finance new investments under
our Credit Facility. There can be no guarantee that we will be able to renew, extend or replace the Credit Facility upon its revolving period end in 2016 on terms that are favorable to us, if at all. Our ability to expand the Credit Facility,
and to obtain replacement financing at or before the time of its maturity, will be constrained by then-current economic conditions affecting the credit markets. In the event that we are not able to expand the Credit Facility, or to renew,
extend or refinance the Credit Facility by the end of its revolving period, this could have a material adverse effect on our liquidity and ability to fund new investments, our ability to make distributions to our stockholders and our ability to
qualify as a RIC under the Code.

If we are unable to secure replacement financing, we may be forced to sell certain assets on disadvantageous terms,
which may result in realized losses, and such realized losses could materially exceed the amount of any unrealized depreciation on these assets as of our



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most recent balance sheet date, which would have a material adverse effect on our results of operations. In addition to selling assets, or as an alternative, we may issue equity in order to repay
amounts outstanding under the Credit Facility. Based on the recent trading prices of our stock, such an equity offering may have a substantial dilutive impact on our existing stockholders interest in our earnings, assets and voting interest in
us. If we are able to renew, extend or refinance our Credit Facility prior to maturity, any renewal, extension or refinancing of the Credit Facility will potentially result in significantly higher interest rates and related charges and may impose
significant restrictions on the use of borrowed funds to fund investments or maintain distributions to stockholders.

Our business plan is dependent
upon external financing, which is constrained by the limitations of the 1940 Act.

The last equity offerings we completed were for our Term Preferred
Stock in March 2012 and our common offering in October 2012, and there can be no assurance that we will be able to raise capital through issuing equity in the near future. Our business requires a substantial amount of cash to operate and grow. We
may acquire such additional capital from the following sources:



| |  | Senior Securities. We may issue debt securities, other evidences of indebtedness (including borrowings under our Credit Facility), senior securities representing indebtedness and senior securities that are stock
up to the maximum amount permitted by the 1940 Act. The 1940 Act currently permits us, as a BDC, to issue senior securities representing indebtedness and senior securities which are stock (such as our Term Preferred Stock), which we refer to
collectively as Senior Securities, in amounts such that our asset coverage, as defined in Section 18(h) of the 1940 Act, is at least 200% immediately after each issuance of such Senior Security. As a result of incurring indebtedness (in
whatever form), we will be exposed to the risks associated with leverage. Although borrowing money for investments increases the potential for gain, it also increases the risk of a loss. A decrease in the value of our investments will have a greater
impact on the value of our common stock to the extent that we have borrowed money to make investments. There is a possibility that the costs of borrowing could exceed the income we receive on the investments we make with such borrowed funds. In
addition, our ability to pay distributions, issue Senior Securities or repurchase shares of our common stock would be restricted if the asset coverage on each of our Senior Securities is not at least 200%. If the aggregate value of our assets
declines, we might be unable to satisfy that 200% requirement. To satisfy the 200% asset coverage requirement in the event that we are seeking to pay a distribution, we might either have to (i) liquidate a portion of our loan portfolio to repay
a portion of our indebtedness or (ii) issue common stock. This may occur at a time when a sale of a portfolio asset may be disadvantageous, or when we have limited access to capital markets on agreeable terms. In addition, any amounts that we
use to service our indebtedness or for offering expenses will not be available for distributions to stockholders. Furthermore, if we have to issue common stock at below net asset value (NAV) per common share, any non-participating
stockholders will be subject to dilution, as described below. Pursuant to Section 61(a)(2) of the 1940 Act, we are permitted, under specified conditions, to issue multiple classes of senior securities representing indebtedness. However,
pursuant to Section 18(c) of the 1940 Act, we are permitted to issue only one class of senior securities that is stock.
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Common and Convertible Preferred Stock.Because we are constrained in our ability to issue debt or senior securities for the reasons given above, we are dependent on the issuance of equity as a financing source.
If we raise additional funds by issuing more common stock, the percentage ownership of our stockholders at the time of the issuance would decrease and our existing common stockholder may experience dilution. In addition, under the 1940 Act, we will
generally not be able to issue additional shares of our common stock at a price below NAV per common share to purchasers, other than to our existing stockholders through a rights offering, without first obtaining the approval of our stockholders and
our independent directors. If we were to sell shares of our common stock below our then current NAV per common share, as we did in October 2012, such sales would result in an immediate dilution to the NAV per common share. This dilution would occur
as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a stockholders interest in our earnings and assets and voting percentage than the increase in our
assets resulting from such issuance. For example, if we issue and sell an additional 10% of our common stock at a 5% discount from NAV, a stockholder who does not participate in that offering for its proportionate interest will suffer NAV dilution
of up to 0.5% or $5 per $1,000 of NAV. This imposes constraints on our ability to raise capital when our common stock is trading below NAV per common share, as it generally has for the last several years. As noted above, the 1940 Act prohibits the
issuance of multiple classes of senior securities that are stock. As a result, we would be prohibited from issuing convertible preferred stock to the extent that such a security was deemed to be a separate class of stock from our outstanding Term
Preferred Stock. However, pending legislation in the U.S House of Representatives, if passed, would modify this section of the 1940 Act and allow the issuance of multiple classes of senior securities that are stock, which may lessen our dependence
on the issuance of common stock as a financing source.
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We financed certain of our investments with borrowed money and capital from the issuance of Senior Securities,
which will magnify the potential for gain or loss on amounts invested and may increase the risk of investing in us.

The following table illustrates
the effect of leverage on returns from an investment in our common stock assuming various annual returns on our portfolio, net of expenses. The calculations in the table below are hypothetical, and actual returns may be higher or lower than those
appearing in the table below.



|                                              |  |                                                  |       |    |  |  |      |    |  |  |      |    |  |  |     |   |  |  |      |  
|--------------------------------------------- |  | ------------------------------------------------ | ----- | -- |  |  | ---- | -- |  |  | ---- | -- |  |  | --- | - |  |  | ---- | -
|                                              |  | Assumed Return on Our Portfolio(Net of Expenses) |      
|                                              |  |                                                  |       |    | 
|                                              |  |                                                  | (10   | )% |  |  | (5   | )% |  |  | 0    | %  |  |  | 5   | % |  |  | 10   | %
|                                              |  |                                                  |       |    |  |  |      |    |  |  |      |    |  |  |     |   |  |  |      |  
|Corresponding return to common stockholder(1) |  |                                                  | (17.2 | )% |  |  | (9.7 | )% |  |  | (2.2 | )% |  |  | 5.3 | % |  |  | 12.7 | %



|(1) | The hypothetical return to common stockholders is calculated by multiplying our total assets as of March 31, 2014 by the assumed rates of return and subtracting
all interest accrued on our debt for the year ended March 31, 2014, adjusted for the dividends on our Term Preferred Stock; and then dividing the resulting difference by our total assets attributable to common stock. Based on
$330.7 million in total assets, $61.2 million in debt, $40 million in aggregate liquidation preference of Term Preferred Stock, and $220.8 million in net assets, each as of March 31, 2014.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Based on an aggregate outstanding indebtedness of $66.2 million at cost as of March 31, 2014, the effective annual interest rate of 4.5% as of that date,
and aggregate liquidation preference of our Term Preferred Stock of $40 million, our investment portfolio at fair value would have had to produce an annual return of at least 1.8% to cover annual interest payments on the outstanding debt and
dividends on our Term Preferred Stock.

A change in interest rates may adversely affect our profitability and our hedging strategy may expose us to
additional risks.

We anticipate using a combination of equity and long-term and short-term borrowings to finance our investment activities. As a
result, a portion of our income will depend upon the difference between the rate at which we borrow funds and the rate at which we loan these funds. Higher interest rates on our borrowings will decrease the overall return on our portfolio. As of
March 31, 2014, based on the total principal balance of debt outstanding, our portfolio consisted of 82.5% of loans at variable rates with floors and 17.5% at fixed rates.

We currently hold one interest rate cap agreement. While hedging activities may insulate us against adverse fluctuations in interest rates, they may also
limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or any future hedging transactions could have a material adverse effect on
our business, financial condition and results of operations. Our ability to receive payments pursuant to an interest rate cap agreement is linked to the ability of the counter-party to that agreement to make the required payments. To the extent that
the counter-party to the agreement is unable to pay pursuant to the terms of the agreement, we may lose the hedging protection of the interest rate cap agreement.

Risks Related to Our Investments

We operate in
a highly competitive market for investment opportunities.

There has been increased competitive pressure in the BDC and investment company marketplace
for senior and senior subordinated debt, resulting in lower yields for increasingly riskier investments. A large number of entities compete with us and make the types of investments that we seek to make in small and mid-sized companies. We compete
with public and private buyout funds, commercial and investment banks, commercial financing companies, and, to the extent that they provide an alternative form of financing, hedge funds. Many of our competitors are substantially larger and have
considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have
higher risk tolerances or different risk assessments, which would allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions
that the 1940 Act imposes on us as a BDC. The competitive pressures we face could have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take
advantage of attractive investment opportunities from time to time and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective. We do not seek to compete based on the interest
rates we offer, and we believe that some of our competitors may make loans with interest rates that will be comparable to or lower than the rates we offer. We may lose investment opportunities if we do not match our competitors pricing, terms,
and structure. However, if we match our competitors pricing, terms, and structure, we may experience decreased net interest income and increased risk of credit loss.



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Our investments in small and medium-sized portfolio companies are extremely risky and could cause you to lose
all or a part of your investment.

Investments in small and medium-sized portfolio companies are subject to a number of significant risks including
the following:



| |  |  | Small and medium-sized businesses are likely to have greater exposure to economic downturns than larger businesses. Our portfolio companies may have fewer resources than larger businesses, and thus the
recent recession, and any further economic downturns or recessions, are more likely to have a material adverse effect on them. If one of our portfolio companies is adversely impacted by a recession, its ability to repay our loan or engage in a
liquidity event, such as a sale, recapitalization or initial public offering would be diminished.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Small and medium-sized businesses may have limited financial resources and may not be able to repay the loans we make to them. Our strategy includes providing financing to portfolio companies that typically
do not have readily available access to financing. While we believe that this provides an attractive opportunity for us to generate profits, this may make it difficult for the portfolio companies to repay their loans to us upon maturity. A
borrowers ability to repay its loan may be adversely affected by numerous factors, including the failure to meet its business plan, a downturn in its industry or negative economic conditions. A deterioration in a borrowers financial
condition and prospects usually will be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing on any guarantees we may have obtained from the borrowers management. Although we will
sometimes seek to be the senior, secured lender to a borrower, in most of our loans we expect to be subordinated to a senior lender, and our interest in any collateral would, accordingly, likely be subordinate to another lenders security
interest.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Small and medium-sized businesses typically have narrower product lines and smaller market shares than large businesses. Because our target portfolio companies are smaller businesses, they will tend to be
more vulnerable to competitors actions and market conditions, as well as general economic downturns. In addition, our portfolio companies may face intense competition, including competition from companies with greater financial resources, more
extensive development, manufacturing, marketing and other capabilities and a larger number of qualified managerial and technical personnel.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | There is generally little or no publicly available information about these businesses. Because we seek to invest in privately owned businesses, there is generally little or no publicly available operating
and financial information about our potential portfolio companies. As a result, we rely on our officers, the Adviser and its employees, Gladstone Securities and consultants to perform due diligence investigations of these portfolio companies, their
operations, and their prospects. We may not learn all of the material information we need to know regarding these businesses through our investigations.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Small and medium-sized businesses generally have less predictable operating results. We expect that our portfolio companies may have significant variations in their operating results, may from time to time
be parties to litigation or may expose us to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, may require substantial additional capital to support their operations, to finance
expansion or to maintain their competitive position, may otherwise have a weak financial position or may be adversely affected by changes in the business cycle. Our portfolio companies may not meet net income, cash flow and other coverage tests
typically imposed by their senior lenders. A borrowers failure to satisfy financial or operating covenants imposed by senior lenders could lead to defaults and, potentially, foreclosure on its senior credit facility, which could additionally
trigger cross-defaults in other agreements. If this were to occur, it is possible that the borrowers ability to repay our loan would be jeopardized.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Small and medium-sized businesses are more likely to be dependent on one or two persons. Typically, the success of a small or medium-sized business also depends on the management talents and efforts of one
or two persons or a small group of persons. The death, disability or resignation of one or more of these persons could have a material adverse impact on our borrower and, in turn, on us.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Small and medium-sized businesses may have limited operating histories. While we intend to target stable companies with proven track records, we may make loans to new companies that meet our other investment
criteria. Portfolio companies with limited operating histories will be exposed to all of the operating risks that new businesses face and may be particularly susceptible to, among other risks, market downturns, competitive pressures and the
departure of key executive officers.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Debt securities of small and medium-sized private companies typically are not rated by a credit rating agency. Typically a small or medium-sized private business cannot or will not expend the resources to have
their debt securities rated by a credit rating agency. We expect that most, if not all, of the debt securities we acquire will be unrated. Investors should assume that these loans would be at rates below what is today considered investment
grade quality. Investments rated below investment grade are often referred to as high yield securities or junk bonds and may be considered high risk as compared to investment-grade debt instruments.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Because the loans we make and equity securities we receive when we make loans are not publicly traded, there
is uncertainty regarding the value of our privately held securities that could adversely affect our determination of our NAV.

Our portfolio
investments are, and we expect will continue to be, in the form of securities that are not publicly traded. The fair value of securities and other investments that are not publicly traded may not be readily determinable. Our Board of Directors has
established an investment valuation policy that the Adviser and Administrator apply to determine the fair value of these securities quarterly. These procedures for the determination of value of many of our debt securities rely on the opinions of
value submitted to us by SPSE or the use of internally developed discounted cash flow (DCF) methodologies or indicative bid prices (IBP) offered by the respective originating syndication agents trading desk, or
secondary desk, specifically for our syndicated loans, or internal methodologies based on the total enterprise value (TEV) of the issuer used for certain of our equity investments. SPSE will only evaluate the debt portion of our
investments for which we specifically request evaluation, and SPSE may decline to make requested evaluations for any reason in its sole discretion. However, to date, SPSE has accepted each of our requests for evaluation.

Our use of these fair value methods is inherently subjective and is based on estimates and assumptions of each security. In the event that we are required to
sell a security, we may ultimately sell for an amount materially less than the estimated fair value calculated by SPSE, or utilizing the TEV, IBP or the DCF methodology.

Our procedures also include provisions whereby the Adviser will establish the fair value of any equity securities we may hold where SPSE or third-party agent
banks are unable to provide evaluations. The types of factors that may be considered in determining the fair value of our debt and equity securities include some or all of the following:



| |  |  | the nature and realizable value of any 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
| | - |  | ------------------------------------------------



| |  |  | discounted cash flow and other relevant factors.
| | - |  | ------------------------------------------------

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

A portion of our assets are, and will continue to be, comprised of equity securities
that are valued based on internal assessment using our own valuation methods approved by our Board of Directors, without the input of SPSE or any other third-party evaluator. We believe that our equity valuation methods reflect those regularly used
as standards by other professionals in our industry who value equity securities. However, determination of fair value for securities that are not publicly traded, whether or not we use the recommendations of an independent third-party evaluator,
necessarily involves the exercise of subjective judgment. Our NAV could be adversely affected if our determinations regarding the fair value of our investments were materially higher than the values that we ultimately realize upon the disposal of
such securities.

The lack of liquidity of our privately held investments may adversely affect our business.

We will generally make investments in private companies whose securities are not traded in any public market. Substantially all of the investments we
presently hold and the investments we expect to acquire in the future are, and will be, subject to legal and other restrictions on resale and will otherwise be less liquid than publicly-traded securities. The illiquidity of our investments may make
it difficult for us to quickly obtain cash equal to the value at which we record our investments if the need arises. This could cause us to miss important investment opportunities. In addition, if we are required to liquidate all or a portion of our
portfolio quickly, we may record substantial realized losses upon liquidation. We may also face other restrictions on our ability to liquidate an investment in a portfolio company to the extent that we, the Adviser, or our respective officers,
employees or affiliates have material non-public information regarding such portfolio company.

Due to the uncertainty inherent in valuing these
securities, our determinations of fair value may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if our determinations regarding the fair value of our
investments are materially different from the values that we ultimately realize upon our disposal of such securities.



Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected.

Our total investment in companies may be significant individually or in the aggregate. As a result, if a significant investment in one or more companies fails
to perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be more significant than if we had made smaller investments in more companies. Our five largest investments represented 32.8% of the
fair value of our total portfolio as of March 31, 2014, compared to 50.2% as of March 31, 2013. Any disposition of a significant investment in one or more companies may negatively impact our net investment income and limit our ability to
pay distributions.



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When we are a debt or minority equity investor in a portfolio company, which we expect will generally be the
case, we may not be in a position to control the entity, and its management may make decisions that could decrease the value of our investment.

We
anticipate that most of our investments will continue to be either debt or minority equity investments in our portfolio companies. Therefore, we are and will remain subject to risk that a portfolio company may make business decisions with which we
disagree, and the shareholders and management of such company may take risks or otherwise act in ways that do not serve our best interests. As a result, a portfolio company may make decisions that could decrease the value of our portfolio holdings.
In addition, we will generally not be in a position to control any portfolio company by investing in its debt securities.

We typically invest in
transactions involving acquisitions, buyouts and recapitalizations of companies, which will subject us to the risks associated with change in control transactions.

Our strategy, in part, includes making debt and equity investments in companies in connection with acquisitions, buyouts and recapitalizations, which subjects
us to the risks associated with change in control transactions. Change in control transactions often present a number of uncertainties. Companies undergoing change in control transactions often face challenges retaining key employees and maintaining
relationships with customers and suppliers. While we hope to avoid many of these difficulties by participating in transactions where the management team is retained and by conducting thorough due diligence in advance of our decision to invest, if
our portfolio companies experience one or more of these problems, we may not realize the value that we expect in connection with our investments, which would likely harm our operating results and financial condition.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We invest in debt securities issued by our portfolio companies. In some cases portfolio companies will be permitted to have other debt that ranks equally
with, or senior to, the debt securities in which we invest. By their terms, such debt instruments may provide that the holders thereof are entitled to receive payment of interest and principal on or before the dates on which we are entitled to
receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization, or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in
that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for
repaying its obligation to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation,
dissolution, reorganization, or bankruptcy of a portfolio company.

Prepayments of our investments by our portfolio companies could adversely impact
our results of operations and reduce our return on equity.

In addition to risks associated with delays in investing our capital, we are also subject
to the risk that investments we make in our portfolio companies may be repaid prior to maturity. During the fiscal year 2014, we experienced prepayments of debt investments from Venyu Solutions, Inc. (Venyu), Channel Technologies Group,
LLC (CTG) and Cavert II Holding Corp. (Cavert). We will first use any proceeds from prepayments to repay any borrowings outstanding on our Credit Facility. In the event that funds remain after repayment of our outstanding
borrowings, then we will generally reinvest these proceeds in government securities, pending their future investment in new debt and/or equity securities. These government securities will typically have substantially lower yields than the debt
securities being prepaid and we could experience significant delays in reinvesting these amounts. As a result, our results of operations could be materially adversely affected if one or more of our portfolio companies elect to prepay amounts owed to
us. Additionally, prepayments could negatively impact our return on equity, which could result in a decline in the market price of our common stock.

Higher taxation of our portfolio companies may impact our quarterly and annual operating results.

The recessions adverse effect on federal, state and municipality revenues may induce these government entities to raise various taxes to make up for
lost revenues. Additional taxation may have an adverse affect on our portfolio companies earnings and reduce their ability to repay our loans to them, thus affecting our quarterly and annual operating results.

Our portfolio is concentrated in a limited number of companies and industries, which subjects us to an increased risk of significant loss if any one of
these companies does not repay us or if the industries experience downturns.

As of March 31, 2014, we had investments in 29 portfolio companies,
of which there were three investments, SOG, Acme, and Galaxy that comprised $70.9 million or 22.6% of our total investment portfolio, at fair value. A consequence of a limited number of investments is that the aggregate returns we realize may be
substantially adversely affected by the unfavorable performance of a small number of such loans or a substantial write-down of any one investment. Beyond our regulatory and income tax diversification requirements, we do not have fixed guidelines for
industry concentration and our investments could potentially be concentrated in



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relatively few industries. In addition, while we do not intend to invest 25% or more of our total assets in a particular industry or group of industries at the time of investment, it is possible
that as the values of our portfolio companies change, one industry or a group of industries may comprise in excess of 25% of the value of our total assets. As of March 31, 2014, our largest industry concentration was in Diversified/Conglomerate
Manufacturing representing 17.4% of our total investments, at fair value. As a result, a downturn in an industry in which we have invested a significant portion of our total assets could have a materially adverse effect on us.

Our investments are typically long term and will require several years to realize liquidation events.

Since we generally make five to seven year term loans and hold our loans and related warrants or other equity positions until the loans mature, you should not
expect realization events, if any, to occur over the near term. In addition, we expect that any warrants or other equity positions that we receive when we make loans may require several years to appreciate in value and we cannot give any assurance
that such appreciation will occur.

The disposition of our investments may result in contingent liabilities.

Currently, all of our investments involve private securities. In connection with the disposition of an investment in private securities, we may be required to
make representations about the business and financial affairs of the underlying portfolio company typical of those made in connection with the sale of a business. We may also be required to indemnify the purchasers of such investment to the extent
that any such representations turn out to be inaccurate or with respect to certain potential liabilities. These arrangements may result in contingent liabilities that ultimately yield funding obligations that must be satisfied through our return of
certain distributions previously made to us.

There may be circumstances where our debt investments could be subordinated to claims of other creditors
or we could be subject to lender liability claims.

Even though we have structured some of our investments as senior loans, if one of our portfolio
companies were to go bankrupt, depending on the facts and circumstances, including the extent to which we actually provided managerial assistance to that portfolio company, a bankruptcy court might re-characterize our debt investments and
subordinate all, or a portion, of our claims to that of other creditors. Holders of debt instruments ranking senior to our investments typically would be entitled to receive payment in full before we receive any distributions. After repaying such
senior creditors, such portfolio company may not have any remaining assets to use to repay its obligation to us. We may also be subject to lender liability claims for actions taken by us with respect to a borrowers business or in instances in
which we exercised control over the borrower. It is possible that we could become subject to a lenders liability claim, including as a result of actions taken in rendering significant managerial assistance.

Portfolio company litigation could result in additional costs and the diversion of management time and resources.

In the course of investing in and often providing significant managerial assistance to certain of our portfolio companies, certain persons employed by our
Adviser sometimes serve as directors on the boards of such companies. To the extent that litigation arises out of our investments in these companies, even if meritless, we or such employees may be named as defendants in such litigation, which could
result in additional costs, including defense costs, and the diversion of management time and resources. We may be unable to accurately estimate our exposure to litigation risk if we record balance sheet reserves for probable loss
contingencies. As a result, any reserves we establish to cover any settlements or judgments may not be sufficient to cover our actual financial exposure, which may have a material impact on our results of operations or financial condition.

In view of the inherent difficulty of predicting the outcome of legal actions and regulatory matters, we cannot provide assurance as to the outcome of any
pending matter or, if resolved adversely, the costs associated with any such matter, particularly where the claimant seeks very large or indeterminate damages or where the matter presents novel legal theories, involves a large number of parties or
is at a preliminary stage. The resolution of any such matters may be time consuming, expensive, and may distract management from the conduct of our business. The resolution of certain pending legal actions or regulatory matters, if unfavorable,
could have a material adverse effect on our results of operations for the quarter in which such actions or matters are resolved or a reserve is established.

We may not realize gains from our equity investments and other yield enhancements.

When we make a subordinated loan, we may receive warrants to purchase stock issued by the borrower or other yield enhancements, such as success fees. Our goal
is to ultimately dispose of these equity interests and realize gains upon our disposition of such interests. We expect that, over time, the gains we realize on these warrants and other yield enhancements will offset any losses we experience on loan
defaults. However, any warrants we receive may not appreciate in value and, in fact, may decline in value and any other yield enhancements, such as success fees, may not be realized. Accordingly, we may not be able to realize gains from our equity
interests or other yield enhancements and any gains we do recognize may not be sufficient to offset losses we experience on our loan portfolio.

During
the fiscal year ended March 31, 2014, we recorded a net realized gain of $8.2 million related to the $24.8 million gain on the Venyu sale, partially offset by the realized losses of $11.4 million and $1.8 million related to the equity sales of
Auto Safety House,



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LLC (ASH) and Packerland Whey Products, Inc. (Packerland), respectively, and realized losses of $3.4 million related to the restructuring of Noble Logistics, Inc.
(Noble). During the fiscal year ended March 31, 2013, we recorded a realized gain of $0.8 million relating to post-closing adjustments on our previous investment exit of A. Stucki, and during the fiscal year ended March 31,
2012, we recapitalized our investment in Cavert, receiving $8.5 million in proceeds and realizing a gain of $5.5 million. There can be no guarantees that such realized gains can be achieved in future periods and the impact of such sales on our
results of operations for the fiscal years 2014, 2013 and 2012 should not be relied upon as being indicative of performance in future periods.

Any
unrealized depreciation we experience on our investment portfolio may be an indication of future realized losses, which could reduce our income available for distribution.

As a BDC we are required to carry our investments at market value or, if no market value is ascertainable, at fair value as determined in good faith by or
under the direction of our Board of Directors. We will record decreases in the market values or fair values of our investments as unrealized depreciation. Since our inception, we have, at times, incurred a cumulative net unrealized depreciation of
our portfolio. Any unrealized depreciation in our investment portfolio could result in realized losses in the future and ultimately in reductions of our income available for distribution to stockholders in future periods.

Risks Related to Our Regulation and Structure

If we are unable to meet the 50% threshold of the asset diversification test applicable to RICs under the Code as measured at each quarter end, we would
lose our RIC status unless we are able to cure such failure within 30 days of the quarter end.

In order to maintain RIC status under the Code, in
addition to other requirements, as of the close of each quarter of our taxable year, we must meet the asset diversification test, which requires that at least 50% of the value of our assets consist of cash, cash items, U.S. government securities,
the securities of other RICs and other securities to the extent such other securities of any one issuer do not represent more than 5% of our total assets or more than 10% of the voting securities of such issuer. As a result of changes in the makeup
of our assets during 2009, we have not continuously exceeded the 50% threshold. At each quarterly measurement date from June 30, 2009 to December 31, 2013, we satisfied the 50% threshold through the purchase of short-term qualified
securities, which was funded primarily through a short-term loan agreement. The March 31, 2014 quarter end is the first quarter since June 30, 2009 in which we satisfied the 50% threshold without purchasing short-term qualified securities.
Until the composition of our assets is continuously above the required 50% threshold, we may have to deploy similar purchases of qualified securities using short-term loans that would allow us to satisfy the asset diversification test, thereby
allowing us to make new or additional investments. There can be no assurance, however, that we will be able to enter into such a transaction on reasonable terms, if at all. In circumstances where the failure to meet the 50% threshold as of a
subsequent quarterly measurement date is the result of fluctuations in the value of assets, we are still deemed under the rules to have satisfied the asset diversification test and, therefore, maintain our RIC status, as long as we have not
made any new investments, including additional investments in our portfolio companies (such as advances under outstanding lines of credit), since the time that we fell below the 50% threshold. Because, in most circumstances, we are contractually
required to advance funds on outstanding lines of credit upon the request of our portfolio companies, we may have a limited ability to avoid adding to existing investments in a manner that would cause us to fail the asset diversification test at a
subsequent quarterly measurement date.

If we are not in compliance with the 50% threshold at a quarterly measurement date, we would have thirty days to
cure our failure to meet the 50% threshold at such quarterly measurement date to avoid our loss of RIC status. Potential cures for failure of the asset diversification test include raising additional equity or debt capital as we have
done in the past, or changing the composition of our assets, which could include full or partial divestitures of investments, such that we would once again meet or exceed the 50% threshold at such quarterly measurement date. Our ability to implement
any of these cures would be subject to market conditions and a number of risks and uncertainties that would be, in part, beyond our control. Accordingly, we cannot guarantee you that we would be successful in curing any failure of the asset
diversification test, which would subject us to corporate level tax. For additional information about the consequences of failing to satisfy the RIC qualification requirements, see We will be subject to corporate-level tax if we are
unable to satisfy Code requirements for RIC qualification.

We will be subject to corporate-level tax if we are unable to satisfy Code
requirements for RIC qualification.

To maintain our qualification as a RIC, we must meet income source, asset diversification and annual distribution
requirements. The annual distribution requirement is satisfied if we distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. Because we use leverage, we are subject to certain asset
coverage ratio requirements under the 1940 Act and could, under certain circumstances, be restricted from making distributions necessary to qualify as a RIC. Warrants we receive with respect to debt investments will create original issue
discount, which we must recognize as ordinary income, increasing the amounts we are required to distribute to maintain RIC status. Because such warrants will not produce distributable cash for us at the same time as we are required to make
distributions in respect of the related original issue discount, we will need to use cash from other sources to satisfy such distribution requirements. The asset diversification requirements must be met at the end of each calendar quarter. If we
fail to meet these tests, we may need to quickly dispose of certain investments to prevent the loss of RIC status. Since



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most of our investments will be illiquid, such dispositions, if even possible, may not be made at prices advantageous to us and, in fact, may result in substantial losses. If we fail to qualify
as a RIC for any reason and become fully subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution, and the actual amount distributed. Such a failure
would have a material adverse effect on us and our shares. For additional information regarding asset coverage ratio and RIC requirements, see BusinessMaterial U.S. Federal Income Tax ConsiderationsRIC Status.

From time to time, some of our debt investments may include success fees that would generate payments to us if the business is ultimately sold. Because the
satisfaction of these success fees, and the ultimate payment of these fees, is uncertain, we do not recognize them as income until we have received payment. We sought and received approval for a change in accounting method from the IRS related to
our tax treatment for success fees. As a result, we, in effect, will continue to account for the recognition of income from the success fees upon receipt, or when the amounts become fixed. Success fee amounts are characterized as ordinary income for
tax purposes and, as a result, we are required to distribute such amounts to our stockholders in order to maintain RIC status.

Changes in laws or
regulations governing our operations, or changes in the interpretation thereof, and any failure by us to comply with laws or regulations governing our operations may adversely affect our business.

We and our portfolio companies are subject to regulation by laws at the local, state and federal levels. These laws and regulations, as well as their
interpretation, may be changed from time to time. Accordingly, any change in these laws or regulations, or their interpretation, or any failure by us or our portfolio companies to comply with these laws or regulations may adversely affect our
business. For additional information regarding the regulations to which we are subject, see BusinessMaterial U.S. Federal Income Tax ConsiderationsRIC Status and BusinessRegulation as a BDC.

Provisions of the Delaware General Corporation Law and of our certificate of incorporation and bylaws could restrict a change in control and have an
adverse impact on the price of our common stock.

We are subject to provisions of the Delaware General Corporation Law that, in general, prohibit any
business combination with a beneficial owner of 15% or more of our common stock for three years unless the holders acquisition of our stock was either approved in advance by our Board of Directors or ratified by the Board of Directors and
stockholders owning two-thirds of our outstanding stock not owned by the acquiring holder. Although we believe these provisions collectively provide for an opportunity to receive higher bids by requiring potential acquirers to negotiate with our
Board of Directors, they would apply even if the offer may be considered beneficial by some stockholders.

We have also adopted other measures that may
make it difficult for a third party to obtain control of us, including provisions of our certificate of incorporation classifying our Board of Directors in three classes serving staggered three-year terms, and provisions of our certificate of
incorporation authorizing our Board of Directors to induce the issuance of additional shares of our stock. These provisions, as well as other provisions of our certificate of incorporation and bylaws, may delay, defer, or prevent a transaction or a
change in control that might otherwise be in the best interests of our stockholders.

Risks Related to an Investment in Our Securities

We may experience fluctuations in our quarterly and annual operating results.

We may experience fluctuations in our quarterly and annual operating results due to a number of factors, including, among others, variations in our investment
income, the interest rates payable on the debt securities we acquire, the default rates on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the level of our
expenses, the degree to which we encounter competition in our markets, and general economic conditions, including the impacts of inflation. The majority of our portfolio companies are in industries that are directly impacted by inflation, such as
manufacturing and consumer goods and services. Our portfolio companies may not be able to pass on to customers increases in their costs of production which could greatly affect their operating results, impacting their ability to repay our loans. In
addition, any projected future decreases in our portfolio companies operating results due to inflation could adversely impact the fair value of those investments. Any decreases in the fair value of our investments could result in future
realized and unrealized losses and therefore reduce our net assets resulting from operations. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

There is a risk that you may not receive distributions or that distributions may not grow over time.

Our current intention is to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on a quarterly basis by paying
monthly distributions. We expect to retain some or all net realized long-term capital gains by first offsetting them with realized capital losses, and, secondly, through a deemed distribution to supplement our equity capital and support
the growth of our portfolio, although our Board of Directors may determine in certain cases to distribute these gains to our common stockholders. In addition, our Credit Facility restricts the amount of distributions we are permitted to make. We
cannot assure you that we will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions.



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Investing in our securities may involve an above average degree of risk.

The investments we make in accordance with our investment objective may result in a higher amount of risk than alternative investment options and a higher
risk of volatility or loss of principal. Our investments in portfolio companies may be highly speculative, and therefore, an investment in our shares may not be suitable for someone with lower risk tolerance.

Distributions to our stockholders have included and may in the future include a return of capital.

Our Board of Directors declares monthly distributions based on estimates of taxable income for each fiscal year, which may differ, and in the past have
differed, from actual results. Because our distributions are based on estimates of taxable income that may differ from actual results, future distributions payable to our stockholders may also include a return of capital. Moreover, to the extent
that we distribute amounts that exceed our accumulated earnings and profits, these distributions constitute a return of capital. A return of capital represents a return of a stockholders original investment in shares of our stock and should
not be confused with a distribution from earnings and profits. Although return of capital distributions may not be taxable, such distributions may increase an investors tax liability for capital gains upon the sale of our shares by reducing
the investors tax basis for such shares. Such returns of capital reduce our asset base and also adversely impact our ability to raise debt capital as a result of the leverage restrictions under the 1940 Act, which could have a material adverse
impact on our ability to make new investments.

The market price of our shares may fluctuate significantly.

The trading price of our common stock and our preferred stock may fluctuate substantially. The extreme volatility and disruption that have affected the
capital and credit markets over the past few years, we have experienced greater than usual stock price volatility.

The market price and marketability of
our shares may from time to time be significantly affected by numerous factors, including many over which we have no control and that may not be directly related to us. These factors include, but are not limited to, the following:



| |  |  | general economic trends and other external factors;
| | - |  | ---------------------------------------------------



| |  |  | price and volume fluctuations in the stock market from time to time, which are often unrelated to the operating performance of particular companies;
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | significant volatility in the market price and trading volume of shares of RICs, BDCs or other companies in our sector, which is not necessarily related to the operating performance of these companies;
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | changes in regulatory policies or tax guidelines, particularly with respect to RICs or BDCs;
| | - |  | --------------------------------------------------------------------------------------------



| |  |  | loss of BDC status;
| | - |  | -------------------



| |  |  | loss of RIC status;
| | - |  | -------------------



| |  |  | changes in our earnings or variations in our operating results;
| | - |  | ---------------------------------------------------------------



| |  |  | changes in prevailing interest rates;
| | - |  | -------------------------------------



| |  |  | changes in the value of our portfolio of investments;
| | - |  | -----------------------------------------------------



| |  |  | any shortfall in our revenue or net income or any increase in losses from levels expected by securities analysts;
| | - |  | -----------------------------------------------------------------------------------------------------------------



| |  |  | departure of key personnel;
| | - |  | ---------------------------



| |  |  | operating performance of companies comparable to us;
| | - |  | ----------------------------------------------------



| |  |  | short-selling pressure with respect to our shares or BDCs generally;
| | - |  | --------------------------------------------------------------------



| |  |  | the announcement of proposed, or completed, offerings of our securities, including a rights offering; and
| | - |  | ---------------------------------------------------------------------------------------------------------



| |  |  | loss of a major funding source.
| | - |  | -------------------------------

Fluctuations in the trading prices of our shares may adversely affect the
liquidity of the trading market for our shares and, if we seek to raise capital through future equity financings, our ability to raise such equity capital.

The issuance of subscription rights to our existing stockholders may dilute the ownership and voting powers of existing stockholders in our common stock,
dilute the NAV of their shares and have a material adverse effect on the trading price of our common stock.

In April 2008, we completed an
offering of transferable rights to subscribe for additional shares of our common stock, or subscription rights. We raised equity in this manner primarily due to the capital raising constraints applicable to us under the 1940 Act when our common
stock is trading below its NAV per share, as it was at the time of the rights offering. In the event that we again issue subscription rights to our existing stockholders, there is a significant possibility that the rights offering will dilute the
ownership



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interest and voting power of stockholders who do not fully exercise their subscription rights. Stockholders who do not fully exercise their subscription rights should expect that they will, upon
completion of the rights offering, own a smaller proportional interest in the Company than would otherwise be the case if they fully exercised their subscription rights. In addition, because the subscription price of the rights offering is likely to
be less than our most recently determined NAV per share, our common stockholders are likely to experience an immediate dilution of the per share NAV of their shares as a result of the offer. As a result of these factors, any future rights offerings
of our common stock, or our announcement of our intention to conduct a rights offering, could have a material adverse impact on the trading price of our common stock.

Shares of closed-end investment companies frequently trade at a discount from NAV.

Shares of closed-end investment companies frequently trade at a discount from NAV. Since our inception, our common stock has at times traded above NAV, and at
times traded below NAV. During the past year, our common stock has consistently, and at times significantly, traded below NAV. Subsequent to March 31, 2014, our common stock has traded at discounts of up to 7.9% of our NAV per share, which was
$8.34 as of March 31, 2014. This characteristic of shares of closed-end investment companies is separate and distinct from the risk that our NAV per share will decline. As with any stock, the price of our shares will fluctuate with market
conditions and other factors. If shares are sold, the price received may be more or less than the original investment. Whether investors will realize gains or losses upon the sale of our shares will not depend directly upon our NAV, but will depend
upon the market price of the shares at the time of sale. Since the market price of our shares will be affected by such factors as the relative demand for and supply of the shares in the market, general market and economic conditions and other
factors beyond our control, we cannot predict whether the shares will trade at, below or above our NAV. Under the 1940 Act, we are generally not able to issue additional shares of our common stock at a price below NAV per share to purchasers other
than our existing stockholders through a rights offering without first obtaining the approval of our common stockholders and our independent directors. Additionally, at times when our common stock is trading below its NAV per share, our dividend
yield may exceed the weighted average returns that we would expect to realize on new investments that would be made with the proceeds from the sale of such stock, making it unlikely that we would determine to issue additional shares in such
circumstances. Thus, for as long as our common stock trades below NAV we will be subject to significant constraints on our ability to raise capital through the issuance of common stock. Additionally, an extended period of time in which we are unable
to raise capital may restrict our ability to grow and adversely impact our ability to increase or maintain our distributions.

Stockholders may incur
dilution if we sell shares of our common stock in one or more offerings at prices below the then current NAV per share of our common stock.

At our
most recent annual meeting, our stockholders approved a proposal designed to allow us to access the capital markets in a way that absent stockholder approval, we are generally unable to due to restrictions applicable to BDCs under the 1940 Act.
Specifically, our stockholders approved a proposal that authorizes us to sell shares of our common stock below the then current NAV per share of our common stock in one or more offerings for a period of one year, subject to certain conditions
(including, but not limited to, that the number of common shares issued and sold pursuant to such authority does not exceed 25% of our then outstanding common stock immediately prior to each such sale).

We exercised this right with Board of Director approval in October 2012, when we completed a public offering of 4.4 million shares of our common stock at
a public offering price of $7.50 per share, which was below our then current NAV of $8.65 per share. Gross proceeds totaled $33 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $31 million. The
net dilutive effect of the issuance of common stock, net of expenses, below NAV was $0.31 per share of common stock.

At the upcoming annual stockholders
meeting scheduled for August 7, 2014, we expect that our stockholders will again be asked to vote in favor of renewing this proposal for another year. During the past year, our common stock has traded consistently, and at times significantly,
below NAV. Any decision to sell shares of our common stock below the then current NAV per share of our common stock would be subject to the determination by our Board of Directors that such issuance is in our and our stockholders best
interests.

If we were to sell shares of our common stock below NAV per share, such sales would result in an immediate dilution to the NAV per share. This
dilution would occur as a result of the sale of shares at a price below the then current NAV per share of our common stock and a proportionately greater decrease in a stockholders interest in our earnings and assets and voting interest in us
than the increase in our assets resulting from such issuance. The greater the difference between the sale price and the NAV per share at the time of the offering, the more significant the dilutive impact would be. Because the number of shares of
common stock that could be so issued and the timing of any issuance is not currently known, the actual dilutive effect, if any, cannot be currently predicted. However, if, for example, we sold an additional 10% of our common stock at a 5% discount
from NAV, a stockholder who did not participate in that offering for its proportionate interest would suffer NAV dilution of up to 0.5% or $5 per $1,000 of NAV.



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If we fail to pay dividends on our Term Preferred Stock for two years, the holders of our Term Preferred Stock
will be entitled to elect a majority of our directors.

The terms of our Term Preferred Stock provide for annual dividends in the amount of $1.7813
per outstanding share of Term Preferred Stock. In accordance with the terms of our Term Preferred Stock, if dividends thereon are unpaid in an amount equal to at least two years of dividends, the holders of Term Preferred Stock will be entitled to
elect a majority of our Board of Directors.

Other Risks

We could face losses and potential liability if intrusion, viruses or similar disruptions to our technology jeopardize our confidential information, whether
through breach of our network security or otherwise.

Maintaining our network security is of critical importance because our systems store highly
confidential financial models and portfolio company information. Although we have implemented, and will continue to implement, security measures, our technology platform is and will continue to be vulnerable to intrusion, computer viruses or similar
disruptive problems caused by transmission from unauthorized users. The misappropriation of proprietary information could expose us to a risk of loss or litigation.

Terrorist attacks, acts of war, or national disasters may affect any market for our common stock, impact the businesses in which we invest, and harm our
business, operating results, and financial conditions.

Terrorist acts, acts of war, or national disasters have created, and continue to create,
economic and political uncertainties and have contributed to global economic instability. Future terrorist activities, military or security operations, or national disasters could further weaken the domestic/global economies and create additional
uncertainties, which may negatively impact the businesses in which we invest directly or indirectly and, in turn, could have a material adverse impact on our business, operating results, and financial condition. Losses from terrorist attacks and
national disasters are generally uninsurable.

Pending legislation may allow us to incur additional leverage.

As a BDC, we are generally not permitted to incur indebtedness (which includes senior securities representing indebtedness and senior securities that are
stock) unless immediately after such borrowing we have asset coverage (as defined in Section 18(h) of the 1940 Act) of at least 200% (i.e. the amount of borrowings may not exceed 50% of the value of our assets). Various pieces of legislation
that have been introduced during the current session of the U.S. House of Representatives, if passed, would modify this section of the 1940 Act and increase the amount of such indebtedness that BDCs may incur by modifying the percentage from 200% to
150% and making the asset coverage requirement inapplicable for senior securities that are stock, such as preferred term Our Term Preferred Stock is a senior security that is stock and so for this 200% asset coverage threshold is included as total
indebtedness. However, if this proposed legislation is passed, the 1940 Act may not limit our ability to issue preferred stock in the future. As a result, we may be able to incur additional indebtedness in the future and therefore your risk of an
investment in us may increase.



|ITEM 1B. | UNRESOLVED STAFF COMMENTS
|-------- | -------------------------

None.



|ITEM 2. | PROPERTIES
|------- | ----------

We do not own any real estate or other physical properties material to our operations. The
Adviser is the current leaseholder of all properties in which we operate. We occupy these premises pursuant to our Advisory and Administration Agreements with the Adviser and Administrator, respectively. The Adviser and Administrator are both
headquartered in McLean, Virginia, a suburb of Washington, D.C., and the Adviser also has offices in several other states.



|ITEM 3. | LEGAL PROCEEDINGS
|------- | -----------------

From time to time, we may become involved in various investigations, claims and legal
proceedings that arise in the ordinary course of our business. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these
matters if they arise would materially affect our business, financial condition or results of operations, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources.

On April 25, 2014, plaintiffs Clarence and Sheila Walder (Walder) filed a complaint in the Superior Court of California, County of Los
Angeles, alleging various violations of the United States Fair Labor Standards Act and the California Labor Code, against the Company, and one of its wholly-owed subsidiaries, Business Investment, among other persons, and seeking monetary
damages. The gravamen of the lawsuit, brought as a class action and seeking certification of plaintiffs as class representatives, is that the defendants



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conspired to intentionally misclassify plaintiffs and similarly situated individuals as independent contractors (rather than as employees), thereby failing to pay plaintiffs and others similarly
situated all wages (including overtime wages) to which they were statutorily entitled, failing to allow meal and rest breaks, and asserting other related claims. The complaint relates to services rendered by plaintiffs for Aspen Contracting
California, LLC d/b/a/ Noble Logistics. Inc. (Aspen), an entity that is currently a chapter 11 debtor, having filed a bankruptcy case in Delaware on February 28, 2014. Aspen is a portfolio company of the Company and Business
Investment. The Walder complaint has not yet been served on the Company or Business Investment. The Company and Business Investment intend to vigorously defend themselves in this litigation and any potential range of damages can not be
estimated at this time.



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

Not Applicable.

PART II

ITEM 5. MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded on NASDAQ Global Select Market (NASDAQ) under the symbol GAIN. The following table reflects, by quarter, the
high and low sales prices per share of our common stock on the NASDAQ, the sales prices as a percentage of NAV and quarterly distributions declared per share for each fiscal quarter during the last two fiscal years. Amounts presented for each fiscal
quarter of 2014 and 2013 represent the cumulative amount of the distributions declared per share for the months composing such quarter.



|        |  |              |        |   |      |      |              |   |      |  |                          |   |                                       |                       |  |  |    |   |  |  |    |   |  |   |       | 
|------- |  | ------------ | ------ | - | ---- | ---- | ------------ | - | ---- |  | ------------------------ | - | ------------------------------------- | --------------------- |  |  | -- | - |  |  | -- | - |  | - | ----- | 
|        |  |              |        |   |      |      |              |   |      |  |                          |   | Discount /(Premium) ofHigh to 
NAV(B) |                       |  |  |    |   |  | 
|        |  | QuarterEnded |        |   |      |      | Sales Prices |   |      |  | Discount ofLow to NAV(B) |   |                                       | DeclaredDistributions | 
|        |  |              | NAV(A) |   |      | High |              |   | Low  |  |                          |   |                                      
|FY 2014 |  | 6/30/2013    |        | $ | 8.70 |      |              | $ | 7.52 |  |                          | $ | 7.02                                  |                       |  |  | 14 | % |  |  | 19 | % |  | $ | 0.150 | 
|        |  | 9/30/2013    |        |   | 9.12 |      |              |   | 7.57 |  |                          |   | 6.80                                  |                       |  |  | 17 |   |  |  | 25 |   |  |   | 0.150 | 
|        |  | 12/31/2013   |        |   | 8.49 |      |              |   | 8.06 |  |                          |   | 6.80                                  |                       |  |  | 5  |   |  |  | 20 |   |  |   | 0.230 | 
|        |  | 3/31/2014    |        |   | 8.34 |      |              |   | 8.50 |  |                          |   | 7.35                                  |                       |  |  | (2 | ) |  |  | 12 |   |  |   | 0.180 | 
|        |  |              |        |   |      |      |             
|FY 2013 |  | 6/30/2012    |        | $ | 9.10 |      |              | $ | 7.81 |  |                          | $ | 6.90                                  |                       |  |  | 14 | % |  |  | 24 | % |  | $ | 0.150 | 
|        |  | 9/30/2012    |        |   | 8.93 |      |              |   | 8.07 |  |                          |   | 7.20                                  |                       |  |  | 10 |   |  |  | 19 |   |  |   | 0.150 | 
|        |  | 12/31/2012   |        |   | 8.65 |      |              |   | 8.02 |  |                          |   | 6.59                                  |                       |  |  | 7  |   |  |  | 24 |   |  |   | 0.150 | 
|        |  | 3/31/2013    |        |   | 9.10 |      |              |   | 7.72 |  |                          |   | 6.95                                  |                       |  |  | 15 |   |  |  | 24 |   |  |   | 0.150 | 



|(A) | NAV per share is determined as of the last day in the relevant quarter and therefore may not reflect the NAV per share on the date of the high and low sales prices. The NAVs shown are based on outstanding shares
at the end of each period.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | The discounts (premiums) set forth in these columns represent the high or low, as applicable, sale prices per share for the relevant quarter minus the NAV per share as of the end of such quarter, and therefore
may not reflect the premium or discount to NAV per share on the date of the high and low sales prices.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of May 12, 2013, there were
24 record owners of our common stock. This number does not include stockholders for whom shares are held in street name.

Distributions

We currently intend to continue to distribute in the form of cash distributions a minimum of 90% of our ordinary income and short-term capital gains,
if any, on a quarterly basis to our stockholders in the form of monthly distributions. We intend to retain some or all of our long-term capital gains, but to designate the retained amount as a deemed distribution, after giving effect to any prior
year realized losses that are carried forward, to supplement our equity capital and support the growth of our portfolio. However, in certain cases our Board of Directors may choose to distribute our net realized long-term capital gains by
paying a one-time special distribution.

Additionally, our Credit Facility contains a covenant that limits payments of distributions to our aggregate net
investment income for each of the twelve month periods ending March 31, 2015, 2016 and 2017.

Recent Sales of Unregistered Securities and
Purchases of Equity Securities

We did not sell any unregistered securities or repurchase any of our securities during the fiscal year ended
March 31, 2014.



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|ITEM 6. | SELECTED FINANCIAL DATA
|------- | -----------------------

The following consolidated selected financial data as of and for the fiscal
years ended March 31, 2014, 2013, 2012, 2011, and 2010, are derived from our audited consolidated financial statements. The other data included at the bottom of the table is unaudited. The data should be read in conjunction with our
consolidated financial statements and notes thereto and Managements Discussion and Analysis of Financial Condition and Results of Operations included elsewhere in this report.

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SELECTED FINANCIAL AND OTHER DATA

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)



|                                                                                                   |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|-------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                                                   |  | Year Ended March 31, |           
|                                                                                                   |  | 2014                 |            |   | 2013 |   |            | 2012 |  |   | 2011       |   |  | 2010 |           
|Statement of operations data:                                                                      |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total investment income                                                                            |  | $                    | 36,264     |   |      | $ | 30,538     |      |  | $ | 21,242     |   |  | $    | 26,064     |   |  | $ | 20,785     |  
|Total expenses net of credits from Adviser                                                         |  |                      | 16,957     |   |      |   | 14,050     |      |  |   | 7,499      |   |  |      | 9,893      |   |  |   | 10,187     |  
|                                                                                                   |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income                                                                              |  |                      | 19,307     |   |      |   | 16,488     |      |  |   | 13,743     |   |  |      | 16,171     |   |  |   | 10,598     |  
|                                                                                                   |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net (loss) gain on investments                                                                     |  |                      | (20,636    | ) |      |   | 791        |      |  |   | 8,223      |   |  |      | 268        |   |  |   | (21,669    | )
|                                                                                                   |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net (decrease) increase in net assets resulting from operations                                    |  | $                    | (1,329     | ) |      | $ | 17,279     |      |  | $ | 21,966     |   |  | $    | 16,439     |   |  | $ | (11,071    | )
|                                                                                                   |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                                                                   |  |                      |            |   |     
|Per share data(A):                                                                                 |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net (decrease) increase in net assets resulting from operations per common sharebasic and diluted |  | $                    | (0.05      | ) |      | $ | 0.71       |      |  | $ | 0.99       |   |  | $    | 0.74       |   |  | $ | (0.50      | )
|Net investment income before net (loss) gain on investments per common sharebasic and diluted     |  |                      | 0.73       |   |      |   | 0.68       |      |  |   | 0.62       |   |  |      | 0.73       |   |  |   | 0.48       |  
|Cash distributions declared per common share                                                       |  |                      | 0.71       |   |      |   | 0.60       |      |  |   | 0.61       |   |  |      | 0.48       |   |  |   | 0.48       |  
|                                                                                                   |  |                      |            |   |     
|Statement of assets and liabilities data:                                                          |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total assets                                                                                       |  | $                    | 330,694    |   |      | $ | 379,803    |      |  | $ | 325,297    |   |  | $    | 241,109    |   |  | $ | 297,161    |  
|Net assets                                                                                         |  |                      | 220,837    |   |      |   | 240,963    |      |  |   | 207,216    |   |  |      | 198,829    |   |  |   | 192,978    |  
|Net asset value per common share                                                                   |  |                      | 8.34       |   |      |   | 9.10       |      |  |   | 9.38       |   |  |      | 9.00       |   |  |   | 8.74       |  
|Common shares outstanding                                                                          |  |                      | 26,475,958 |   |      |   | 26,475,958 |      |  |   | 22,080,133 |   |  |      | 22,080,133 |   |  |   | 22,080,133 |  
|Weighted common shares outstandingbasic and diluted                                               |  |                      | 26,475,958 |   |      |   | 24,189,148 |      |  |   | 22,080,133 |   |  |      | 22,080,133 |   |  |   | 22,080,133 |  
|                                                                                                   |  |                      |            |   |     
|Senior securities data(B):                                                                         |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Borrowings under Credit Facility at cost                                                           |  | $                    | 61,250     |   |      | $ | 31,000     |      |  | $ |           |   |  | $    |           |   |  | $ | 27,800     |  
|Short term loan                                                                                    |  |                      |           |   |      |   | 58,016     |      |  |   | 76,005     |   |  |      | 40,000     |   |  |   | 75,000     |  
|Mandatorily redeemable preferred stock                                                             |  |                      | 40,000     |   |      |   | 40,000     |      |  |   | 40,000     |   |  |      |           |   |  |   |           |  
|Asset coverage ratio(C)                                                                            |  |                      | 298        | % |      |   | 272        | %    |  |   | 268        | % |  |      | 534        | % |  |   | 281        | %
|Asset coverage per unit(D)                                                                         |  | $                    | 2,978      |   |      | $ | 2,725      |      |  | $ | 2,676      |   |  | $    | 5,344      |   |  | $ | 2,814      |  
|                                                                                                   |  |                      |            |   |     
|Other unaudited data:                                                                              |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Number of portfolio companies                                                                      |  |                      | 29         |   |      |   | 21         |      |  |   | 17         |   |  |      | 17         |   |  |   | 16         |  
|Average size of portfolio company investment at cost                                               |  | $                    | 13,225     |   |      | $ | 15,544     |      |  | $ | 15,670     |   |  | $    | 11,600     |   |  | $ | 14,223     |  
|Principal amount of new investments                                                                |  |                      | 132,291    |   |      |   | 87,607     |      |  |   | 91,298     |   |  |      | 43,634     |   |  |   | 4,788      |  
|Proceeds from loan repayments and investments sold                                                 |  |                      | 83,415     |   |      |   | 28,424     |      |  |   | 27,185     |   |  |      | 97,491     |   |  |   | 90,240     |  
|Weighted average yield on investments(E)                                                           |  |                      | 12.61      | % |      |   | 12.51      | %    |  |   | 12.32      | % |  |      | 11.36      | % |  |   | 11.02      | %
|Total return(F)                                                                                    |  |                      | 23.51      |   |      |   | 4.73       |      |  |   | 5.58       |   |  |      | 38.56      |   |  |   | 79.80      |  



|(A) | Per share data for net (decrease) increase in net assets resulting from operations is based on the weighted average common stock outstanding for both basic and diluted.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(B) | See Managements Discussion and Analysis of Financial Condition and Results of Operations for more information regarding our level of indebtedness.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(E) | Weighted average yield on investments equals interest income on investments divided by the weighted average interest-bearing debt investment balance throughout the year.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(F) | Total return equals the increase (decrease) of the ending market value over the beginning market value plus monthly distributions divided by the monthly beginning market value.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|ITEM 7. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
|------- | -------------------------------------------------------------------------------------

The
following analysis of our financial condition and results of operations should be read in conjunction with our accompanyingConsolidated Financial Statementsand the notes thereto contained elsewhere in this Annual Report on
Form 10-K. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition or results of operations for any future
periods. Statements we make in the following discussion that express a belief, expectation or intention, as well as those that are not historical fact, are forward-looking statements that are subject to risks, uncertainties and assumptions. Our
actual results could differ materially from those we express in the following discussion as a result of a variety of factors, including the risks and uncertainties we have referred to under the headings Forward Looking Statements and
Risk Factors in Part I of this report. Except per share amounts, dollar amounts are in thousands unless otherwise indicated.

OVERVIEW

General

We are an externally-managed,
closed-end, non-diversified management investment company that has elected to be regulated as a business development company (BDC) under the Investment Company Act of 1940, as amended (the 1940 Act). In addition, for United
States (U.S.) federal income tax purposes, we have elected to be treated as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code). As a BDC and a RIC,
we are also subject to certain constraints, including limitations imposed by the 1940 Act and the Code.

We were incorporated under the General
Corporation Law of the State of Delaware on February 18, 2005. We were established for the purpose of investing in debt and equity securities of established private businesses in the U.S. Debt investments primarily come in the form of three
types of loans: senior term loans, senior subordinated loans and junior subordinated debt. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts
and other recapitalizations. To a much lesser extent, we also invest in senior and subordinated syndicated loans. Our investment objectives are (a) to achieve and grow current income by investing in debt securities of established businesses
that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time and (b) to provide our stockholders with
long-term capital appreciation in the value of our assets by investing in equity securities of established businesses that we believe can grow over time to permit us to sell our equity investments for capital gains. We expect that our investment mix
over time will consist of approximately 80% in debt securities and 20% in equity securities. As of March 31, 2014, our investment mix was 73% in debt securities and 27% in equity securities, at cost.

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

Our common stock and 7.125%
Series A Cumulative Term Preferred Stock (our Term Preferred Stock) are traded on the NASDAQ Global Select Market (NASDAQ) under the symbols GAIN and GAINP, respectively.

We are externally managed by our investment advisor, Gladstone Management Corporation (our Adviser), an SEC registered investment adviser and an
affiliate of ours, pursuant to an investment advisory and management agreement (the Advisory Agreement). The Adviser manages our investment activities. Our Board of Directors, which is composed of a majority of independent directors,
supervises such investment activities. We have also entered into an administration agreement (the Administration Agreement) with Gladstone Administration, LLC (our Administrator), an affiliate of ours and the Adviser, whereby
we pay separately for administrative services.

Business Environment

The strength of the global economy, and the U.S. economy in particular, continues to be uncertain and volatile, and we remain cautious about a long-term
economic recovery. The effects of the previous recession and the disruptions in the capital markets have



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impacted our liquidity options and increased our cost of debt and equity capital. In addition, the recent federal government shutdown combined with the uncertainty surrounding the ability of the
federal government to address its fiscal condition in both the near and long term have increased domestic and global economic instability. Many of our portfolio companies, as well as those that we evaluate for possible investments, are adversely
impacted by these political and economic conditions. If these conditions persist, it may adversely affect their ability to repay our loans or engage in a liquidity event, such as a sale, recapitalization or initial public offering.

New Investment and Realized Gains/Losses from Exits

While conditions remain challenging, we are seeing an increase in the number of new investment opportunities consistent with our investing strategy of
providing a combination of debt and equity in support of management and sponsor-led buyouts of small and medium-sized companies in the U.S. These opportunities along with the capital raising efforts discussed below have allowed us to invest $310.1
million in 19 new proprietary debt and equity deals since October 2010. During the fiscal year ended March 31, 2014, we invested a total of $125.6 million in nine new deals.

These new investments, as well as the majority of our debt securities in our portfolio, have a success fee component, which enhances the yield on our debt
investments. Unlike paid-in-kind (PIK) income, we generally do not recognize success fees as income until they are received in cash. As a result, as of March 31, 2014, we had an off-balance sheet success fee receivable of $17.2
million, or $0.65 per common share. Due to their contingent nature, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of such collections.

The improved investing environment in the second quarter presented us with an opportunity to realize gains and other income from our investment in Venyu
Solutions, Inc. (Venyu) as a result of its sale in August 2013. As a result of the sale, we received net cash proceeds of $32.2 million, resulting in a realized gain of $24.8 million and dividend income of $1.4 million. In addition, we
received full repayment of our debt investments of $19 million and $1.8 million in success fee income. This represents our fourth management-supported buyout liquidity event since June 2010, and in the aggregate, these four liquidity events have
generated $54.5 million in realized gains and $13.1 million in other income, for a total increase to our net assets of $67.6 million. We believe each of these transactions was an equity-oriented investment success and support our investment strategy
of striving to achieve returns through current income on the debt portion of our investments and capital gains from the equity portion. These successes, in part, enabled us to increase the monthly distribution 50% since March 2011, allowed us to
declare a $0.03 per common share one-time special distribution in fiscal year 2012, and to declare a $0.05 per common share one-time special distribution in November 2013.

With the four liquidity events that have generated $54.5 million in realized gains since June 2010, we have primarily overcome our cumulative realized losses
since inception that were primarily incurred during the recession and in connection with the sale of performing loans at a realized loss to pay off a former lender. We took the opportunity during the fiscal year ended March 31, 2014, to
strategically sell our investments in two of our portfolio companies, ASH Holding Corp. (ASH) and Packerland Whey Products, Inc. (Packerland) to existing members of their management teams and other existing owners,
respectively, which resulted in realized losses of $11.4 million and $1.8 million, respectively, as well as the write off of our equity investments in Noble Logistics, Inc. (Noble), which resulted in a realized loss of $3.4 million.
These sales and write off, while at a realized loss, were accretive to our net asset value in aggregate by $5.7 million, reduced our distribution requirements related to our realized gains and reduced our non-accruals outstanding.

Capital Raising Efforts

Despite the challenges that have
existed in the economy for the past several years, we have been able to meet our capital needs through enhancements to our revolving line of credit (our Credit Facility) and by accessing the capital markets in the form of public
offerings of preferred and common stock. For example, in March 2012, we issued 1.6 million shares of our Term Preferred Stock for gross proceeds of $40 million, and, in October 2012, we issued 4.4 million shares of common stock for gross
proceeds of $33 million. In October 2012, we extended the revolving period end date on our Credit Facility an additional year to 2015, and subsequently, in April and May 2013, we further extended the revolving period end date another six months into
2016 and increased the commitment amount from $60 million to $105 million.

Although we were able to access the capital markets during 2012, we believe
market conditions continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of equity. On May 12, 2014, the closing market price of our common stock was $7.92, which
represented a 5.0% discount to our March 31, 2014 net asset value (NAV) per share of $8.34. When our stock trades below NAV, our ability to issue equity is constrained by provisions of the 1940 Act, which generally prohibits the
issuance and sale of our common stock at an issuance price below the then current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering.



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At our 2013 Annual Meeting of Stockholders held on August 8, 2013, our stockholders approved a proposal
authorizing us to issue and sell shares of our common stock at a price below our then current NAV per share, subject to certain limitations, including that the number of shares issued and sold pursuant to such authority does not exceed 25% of our
then outstanding common stock immediately prior to each such sale, provided that our Board of Directors makes certain determinations prior to any such sale. This August 2013 stockholder authorization is in effect for one year from the date of
stockholder approval. Prior to the August 2013 stockholder authorization, we sought and obtained stockholder approval concerning a similar proposal at the Annual Meeting of Stockholders held in August 2012, and with our Board of Directors
subsequent approval, we issued shares of our common stock in October and November 2012 at a price per share below the then current NAV per share. The resulting proceeds, in part, have allowed us to grow the portfolio by making new investments,
generate additional income through these new investments, provide us additional equity capital to help ensure continued compliance with regulatory tests and increase our debt capital while still complying with our applicable debt-to-equity ratios.
At our 2014 Annual Meeting of Stockholders, scheduled to take place in August 2014, we expect to ask our stockholders to vote in favor of this proposal again so that it may be in effect for another year.

Regulatory Compliance

Our ability to seek external debt
financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have an asset coverage ratio (as defined in Section 18(h) of the 1940 Act),
of at least 200% on our senior securities representing indebtedness and our senior securities that are stock, which we refer to collectively as Senior Securities. As of March 31, 2014, our asset coverage ratio was 298%. Our status
as a regulated investment company (RIC) under Subchapter M of the Internal Revenue Code of 1986, as amended (the Code), in addition to other requirements, also requires us, at the close of each quarter of the taxable year, to
meet an asset diversification test, which requires that at least 50% of the value of our assets consists of cash, cash items, U.S. government securities or certain other qualified securities (the (50% threshold). In the past, we have obtained
this ratio by entering into a short-term loan at quarter end to purchase qualifying assets, though a short term loan was not necessary at the end of the quarter ended March 31, 2014. Until the composition of our assets is above the required 50%
threshold on a consistent basis by a significant margin, we may have to continue to obtain short-term loans on a quarterly basis. When deployed, this strategy, while allowing us to satisfy the 50% threshold for our RIC status, limits our ability to
use increased debt capital to make new investments, due to our asset coverage ratio limitations under the 1940 Act.

Investment Highlights

During the fiscal year ended March 31, 2014, we disbursed $125.6 million in new debt and equity investments and extended $6.6 million of investments to
existing portfolio companies. From our initial public offering in June 2005 through March 31, 2014, we have made 217 investments in 107 companies for a total of $925.6 million, before giving effect to principal repayments on investments
and divestitures.

Investment Activity

During the
fiscal year ended March 31, 2014, the following significant transactions occurred:



| |  |  | In April 2013, we invested $17.7 million in Jackrabbit, Inc. (Jackrabbit) through a combination of debt and equity. Jackrabbit, headquartered in Ripon, California, is a manufacturer of nut harvesting
equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In May 2013, we invested $8.8 million in Funko, LLC (Funko) through a combination of debt and equity. Funko, headquartered in Lynnwood, Washington, is a designer, importer and marketer of pop-culture
collectibles. This was our first co-investment with one of our affiliated funds, Gladstone Capital Corporation (Gladstone Capital), pursuant to an exemptive order granted by the SEC in July 2012.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In June 2013, we invested $9 million in Star Seed, Inc. (Star Seed) through a combination of debt and equity. Based in Osborne, Kansas, Star Seed provides its customers with a variety of specialty seeds and
related products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2013, we invested $20 million in Schylling, Inc. (Schylling) through a combination of debt and equity. Schylling, headquartered in Rowley, Massachusetts, is a premier provider of high quality
specialty toys.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2013, Venyu was sold. As a result of the sale, we received net cash proceeds of $32.2 million, resulting in a realized gain of $24.8 million and dividend income of $1.4 million. In addition, we received full
repayment of our debt investment of $19 million in principal repayment and $1.9 million in fee income.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2013, we invested $16.3 million in Alloy Die Casting Co. (ADC) through a combination of debt and equity. ADC, headquartered in Buena Park, California, is a manufacturer of high quality, finished
aluminum and zinc castings for aerospace, defense, aftermarket automotive and industrial applications. Gladstone Capital also participated as a co-investor by providing $7 million of debt and equity financing at the same price and terms as our
investment.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| |  |  | In October 2013, we received full repayment of our debt investments in Channel Technologies Group, LLC (Channel) in the aggregate amount of $16.2 million. We also received prepayment and success fee income
in the amount of $0.8 million. Simultaneously, we invested $1.3 million in additional preferred and common equity securities in Channel.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2013, ASH, which was on non-accrual, was sold to certain members of its existing management team. As a result of the sale, we received $12 in net cash proceeds, recognized a realized loss of $11.4 million and
have retained a $5 million accruing revolving credit facility in ASH.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2013, Packerland was sold to other existing owners at Packerland. As a result of the sale, we received $0.7 million in net cash proceeds and recognized a realized loss of $1.8 million.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, we received full repayment of our remaining debt investments in Cavert II Holding Corp. (Cavert) in the aggregate amount of $6.1 million. We also received prepayment and success fee income
in the amount of $0.2 million. As of December 31, 2013, we have an equity investment of preferred stock in Cavert with a cost basis of $1.8 million and fair value of $3 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, Quench Holdings Corp. (Quench) was recapitalized, resulting in all preferred stock holders, including our preferred stock investment of $3 million, being converted into common stock.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, we invested $12.9 million in Behrens Manufacturing, LLC (Behrens) through a combination of debt and equity. Behrens, headquartered in Winona, Minnesota, is a manufacturer and marketer of
high quality, classic looking, utility products and containers. Gladstone Capital also participated as a co-investor by providing $5.5 million of debt and equity financing at the same price and terms as our investment.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, we invested $13 million in Meridian Rack & Pinion, Inc. (Meridian) through a combination of debt and equity. Meridian, headquartered in San Diego, California, is a provider of
aftermarket and OEM replacement automotive parts, which it sells through both wholesale channels and online at www.BuyAutoParts.com. Gladstone Capital also participated as a co-investor by providing $5.6 million of debt and equity financing at the
same price and terms as our investment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2014, we invested $13.1 million in Head Country Inc. (Head Country) through a combination of debt and equity. Head Country, headquartered in Ponca City, OK, is a manufacturer of a leading BBQ
sauce brand with three BBQ flavors currently as well as seasonings and marinades.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2014, we invested $15.7 million in Edge Adhesives Holdings, Inc. (Edge) through a combination of debt and equity. Edge, headquartered in Fort Worth, TX, is a developer and manufacturer of
innovative adhesives, sealants, tapes and related solutions used in building products, transportation and electrical, among other markets. Gladstone Capital also participated as a co-investor by providing $11.1 million of debt and equity financing
at the same price and terms as our investment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2014, we invested $2.6 million in NDLI Acquisition Inc. (NDLI) through equity to facilitate its purchase of certain of Nobles assets out of bankruptcy. In connection with this transaction,
we wrote off our equity investments in Noble and recorded a realized loss of $3.4 million.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Recent Developments

Credit Facility Extension and Expansion

On April 30,
2013, we, through our wholly-owned subsidiary, Business Investment, entered into a fifth amended and restated credit agreement with Key Equipment Finance Inc., as administrative agent, lead arranger and a lender (the Administrative
Agent), Branch Banking and Trust Company as a lender and managing agent, and the Adviser, as servicer, to increase the commitment amount of the Credit Facility from $60 million to $70 million and to extend the revolving period to
April 30, 2016 and, if not renewed or extended by April 30, 2016, all principal and interest will be due and payable on or before April 30, 2017 (one year after the revolving period end date). In addition, there is one remaining
one-year extension option to be agreed upon by all parties, which may be exercised on or before April 30, 2015. Subject to certain terms and conditions, the Credit Facility may be expanded up to a total of $200 million through the addition of
other lenders. Advances under the Credit Facility generally bear interest at 30-day LIBOR, plus 3.75% per annum, and the Credit Facility includes an unused fee of 0.50% on undrawn amounts. We incurred fees of $0.3 million in connection with
this amendment.

On June 12, 2013, we further increased the borrowing capacity under the Credit Agreement from $70 million to $105 million by
entering into Joinder Agreements pursuant to the Credit Agreement by and among Business Investment, the Administrative Agent, the Adviser and each of Alostar Bank of Commerce and Everbank Commercial Finance, Inc.



37



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##### Table of Contents

Short-Term Loan

As of March 31, 2014, our asset composition satisfied the 50% threshold. However, excluding March 31, 2014, for each quarter end since June 30,
2009 (the measurement dates), we satisfied the 50% threshold to maintain our status as a RIC, in part, through the purchase of short-term qualified securities, which were funded primarily through a short-term loan agreement. Subsequent
to each of the measurement dates, the short-term qualified securities matured, and we repaid the short-term loan, at which time we again fell below the 50% threshold. For example, for the December 31, 2013 measurement date, we purchased $10
million of short-term United States Treasury Bills (T-Bills) through Jefferies & Company, Inc. (Jefferies) on December 27, 2013. The T-Bills were purchased on margin using $1.5 million in cash and the proceeds
from an $8.5 million short-term loan from Jefferies with an effective annual interest rate of 1.35%. On January 2, 2014, when the T-Bills matured, we repaid the $8.5 million loan from Jefferies and received the $1.5 million margin payment sent
to Jefferies to complete the transaction.



38



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##### Table of Contents

RESULTS OF OPERATIONS

Comparison of the Fiscal Year Ended March 31, 2014, to the Fiscal Year Ended March 31, 2013



|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|---------------------------------------------------------------- |  | ------------------------------------ | ------- | - | ---- | - | ------ | -------- |  | - | -------- | - |  |  | ----- | -
|                                                                 |  | For the Fiscal Years Ended March 31, |        
|                                                                 |  | 2014                                 |         |   | 2013 |   |        | $ Change |  |   | % Change |  
|INVESTMENT INCOME                                                |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Interest income                                                  |  | $                                    | 30,460  |   |      | $ | 24,798 |          |  | $ | 5,662    |   |  |  | 22.8  | %
|Other income                                                     |  |                                      | 5,804   |   |      |   | 5,740  |          |  |   | 64       |   |  |  | 1.1   |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Total investment income                                          |  |                                      | 36,264  |   |      |   | 30,538 |          |  |   | 5,726    |   |  |  | 18.8  |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|                                                                 |  |                                      |         |  
|EXPENSES                                                         |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Base management fee                                              |  |                                      | 6,207   |   |      |   | 5,412  |          |  |   | 795      |   |  |  | 14.7  |  
|Incentive fee                                                    |  |                                      | 3,983   |   |      |   | 2,585  |          |  |   | 1,398    |   |  |  | 54.1  |  
|Administration fee                                               |  |                                      | 863     |   |      |   | 785    |          |  |   | 78       |   |  |  | 9.9   |  
|Interest and dividend expense                                    |  |                                      | 4,925   |   |      |   | 3,977  |          |  |   | 948      |   |  |  | 23.8  |  
|Amortization of deferred financing costs                         |  |                                      | 1,024   |   |      |   | 791    |          |  |   | 233      |   |  |  | 29.5  |  
|Other                                                            |  |                                      | 2,264   |   |      |   | 1,828  |          |  |   | 436      |   |  |  | 23.9  |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Total expenses before credits from Adviser                       |  |                                      | 19,266  |   |      |   | 15,378 |          |  |   | 3,888    |   |  |  | 25.3  |  
|Credits to fees                                                  |  |                                      | (2,309  | ) |      |   | (1,328 | )        |  |   | (981     | ) |  |  | 73.9  |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Total expenses net of credits to fees                            |  |                                      | 16,957  |   |      |   | 14,050 |          |  |   | 2,907    |   |  |  | 20.7  |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|                                                                 |  |                                      |         |  
|NET INVESTMENT INCOME                                            |  |                                      | 19,307  |   |      |   | 16,488 |          |  |   | 2,819    |   |  |  | 17.1  |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|                                                                 |  |                                      |         |  
|REALIZED AND UNREALIZED (LOSS) GAIN ON:                          |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Net realized gain on investments                                 |  |                                      | 8,241   |   |      |   | 843    |          |  |   | 7,398    |   |  |  | 877.6 |  
|Net realized loss on other                                       |  |                                      | (29     | ) |      |   | (41    | )        |  |   | 12       |   |  |  | (29.3 | )
|Net unrealized (depreciation) appreciation of investments        |  |                                      | (29,206 | ) |      |   | 804    |          |  |   | (30,010  | ) |  |  | NM    |  
|Net unrealized appreciation (depreciation) of other              |  |                                      | 358     |   |      |   | (815   | )        |  |   | 1,173    |   |  |  | NM    |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Net realized and unrealized (loss) gain on investments and other |  |                                      | (20,636 | ) |      |   | 791    |          |  |   | (21,427  | ) |  |  | NM    |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|                                                                 |  |                                      |         |  
|NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS  |  | $                                    | (1,329  | ) |      | $ | 17,279 |          |  | $ | (18,608  | ) |  |  | NM    |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|                                                                 |  |                                      |         |  
|BASIC AND DILUTED PER COMMON SHARE:                              |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Net investment income                                            |  | $                                    | 0.73    |   |      | $ | 0.68   |          |  | $ | 0.05     |   |  |  | 7.4   | %
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  
|Net (decrease) increase in net assets resulting from operations  |  |                                      | (0.05   | ) |      |   | 0.71   |          |  |   | (0.76    | ) |  |  | NM    |  
|                                                                 |  |                                      |         |   |      |   |        |          |  |   |          |   |  |  |       |  

NM = Not Meaningful

Investment Income

Total investment income increased by
18.8% for the year ended March 31, 2014, as compared to the prior year. This increase was primarily due an overall increase in interest income in the year ended March 31, 2014, as a result of an increase in the size of our loan portfolio
and holding higher-yielding debt investments.

Interest income from our investments in debt securities increased 22.8% for the year ended March 31,
2014, as compared to the prior year. The level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted average yield. The
weighted average principal balance of our interest-bearing investment portfolio during the year ended March 31, 2014, was $241.5 million, compared to $198.1 million for the prior year. This increase was primarily due to $125.6 million in new
investments originated after March 31, 2013, including Jackrabbit, Funko, Star Seed, Schylling, ADC, Behrens, Meridian, Head Country and Edge, partially offset by the exit of Venyu and the repayment of debt investments of Cavert and Channel. As
of March 31, 2014, our loans to Tread Corp. (Tread) were on non-accrual. ASH, which was on non-accrual as of September 30, 2013, was sold to certain members of its existing management team in October 2013. As a result of the
sale, we retained a $5 million accruing revolving credit facility in ASH, which is no longer on non-accrual. The non-accrual aggregate weighted average principal balance was $19.9 million during the year ended March 31, 2014. As of
March 31, 2013, loans to two portfolio companies, ASH and Tread, were on non-accrual, with an aggregate weighted average $20.5 million during the year ended March 31, 2013. Tread was put on non-accrual and Country Club Enterprises, LLC
(CCE) was taken off non-accrual during the three months ended December 31, 2012. The weighted average yield on our interest-bearing investments, excluding cash and cash equivalents and excluding receipts recorded as other income,
for the year ended March 31, 2014, was 12.6%, compared to 12.5% for the prior year.



39



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##### Table of Contents

The following table lists the investment income for our five largest portfolio company investments at fair value
during the respective fiscal years:



|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|----------------------------------- |  | -------------------- | ------- |  | ------------------------- |  | ----- | ---------------- |  | - | -------------------------- |  |  |  | ----- | -
|                                    |  | As of March 31, 2014 |         |  | Year Ended March 31, 2014 | 
|Company                             |  | Fair Value           |         |  | % of Portfolio            |  |       | InvestmentIncome |  |   | % of TotalInvestmentIncome | 
|SOG Specialty Knives and Tools, LLC |  | $                    | 26,639  |  |                           |  | 8.5   | %                |  | $ | 3,157                      |  |  |  | 8.7   | %
|Acme Cryogenics, Inc.               |  |                      | 25,776  |  |                           |  | 8.2   |                  |  |   | 1,691                      |  |  |  | 4.7   |  
|Galaxy Tool Holding, Inc.           |  |                      | 18,512  |  |                           |  | 5.9   |                  |  |   | 2,124                      |  |  |  | 5.9   |  
|Ginsey Home Solutions, Inc.         |  |                      | 16,132  |  |                           |  | 5.1   |                  |  |   | 1,786                      |  |  |  | 4.9   |  
|Edge Adhesives Holdings, Inc.(A)    |  |                      | 15,969  |  |                           |  | 5.1   |                  |  |   | 142                        |  |  |  | 0.4   |  
|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Subtotalfive largest investments   |  |                      | 103,028 |  |                           |  | 32.8  |                  |  |   | 8,900                      |  |  |  | 24.6  |  
|Other portfolio companies           |  |                      | 211,365 |  |                           |  | 67.2  |                  |  |   | 27,364                     |  |  |  | 75.4  |  
|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Total investment portfolio          |  | $                    | 314,393 |  |                           |  | 100.0 | %                |  | $ | 36,264                     |  |  |  | 100.0 | %
|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|                                    |  |                     
|                                    |  | As of March 31, 2013 |         |  | Year Ended March 31, 2013 | 
|Company                             |  | Fair Value           |         |  | % of Portfolio            |  |       | InvestmentIncome |  |   | % of TotalInvestmentIncome | 
|Venyu Solutions, Inc.               |  | $                    | 43,970  |  |                           |  | 15.4  | %                |  | $ | 2,502                      |  |  |  | 8.2   | %
|SOG Specialty Knives and Tools, LLC |  |                      | 29,822  |  |                           |  | 10.4  |                  |  |   | 2,657                      |  |  |  | 8.7   |  
|Acme Cryogenics, Inc.               |  |                      | 27,340  |  |                           |  | 9.5   |                  |  |   | 2,368                      |  |  |  | 7.8   |  
|Ginsey Home Solutions, Inc.(A)      |  |                      | 21,833  |  |                           |  | 7.6   |                  |  |   | 1,331                      |  |  |  | 4.4   |  
|Galaxy Tool Holding, Inc.(B)        |  |                      | 20,876  |  |                           |  | 7.3   |                  |  |   | 4,711                      |  |  |  | 15.4  |  
|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Subtotalfive largest investments   |  |                      | 143,841 |  |                           |  | 50.2  |                  |  |   | 13,569                     |  |  |  | 44.5  |  
|Other portfolio companies           |  |                      | 142,641 |  |                           |  | 49.8  |                  |  |   | 16,969                     |  |  |  | 55.5  |  
|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Total investment portfolio          |  | $                    | 286,482 |  |                           |  | 100.0 | %                |  | $ | 30,538                     |  |  |  | 100.0 | %
|                                    |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  



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

|(B) | Investment income includes $4.1 million non-cash dividend recognized from recapitalization.
|--- | -------------------------------------------------------------------------------------------

Other
income remained relatively unchanged from the prior year. During the fiscal year ended March 31, 2014, other income primarily consisted of $3.3 million in success fee and dividend income received in connection with the exit of Venyu, $0.8
million and $0.2 million in success and prepayment fees resulting from payoffs from Channel and Cavert, respectively, and SOG Specialty K&T, LLCs (SOGs) and Frontier Packaging, Inc.s (Frontiers)
elections to prepay success fees of $0.5 million and $0.2 million, respectively. During the fiscal year ended March 31, 2013, other income primarily consisted of $4.1 million of dividend income from the Galaxy Tool Holding Corp.
(Galaxy) recapitalization, $0.7 million in cash dividends received on preferred shares of Acme Cryogenics, Inc. (Acme), and Mathey Investments, Inc.s (Matheys) and Caverts elections to each
prepay $0.4 million of success fees.

Expenses

Total
expenses, excluding any voluntary and irrevocable credits to the base management and incentive fees, increased 25.3% for the fiscal year ended March 31, 2014, as compared to the prior year period, primarily due to an increase in the base
management fee, incentive fee and interest expense as compared to the prior year period.



40



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##### Table of Contents

The base management fee increased for the fiscal year ended March 31, 2014, as compared to the prior year
period, as a result of the increased size of our portfolio over the respective periods. Additionally, a net incentive fee of $3.9 million was earned by the Adviser during the fiscal year ended March 31, 2014, compared to $2.4 million for the
prior year. The base management and incentive fees are computed quarterly, as described under Investment Advisory and Management Agreement in Note 4 of the notes to our accompanying Consolidated Financial Statements and are
summarized in the following table:



|                                                                 |  |                      |         |   |      |   |         |  
|---------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | -
|                                                                 |  | Year Ended March 31, |        
|                                                                 |  | 2014                 |         |   | 2013 |  
|Average total assets subject to base management fee(A)           |  | $                    | 310,350 |   |      | $ | 270,600 |  
|Multiplied by prorated annual base management fee of 2%          |  |                      | 2.0     | % |      |   | 2.0     | %
|                                                                 |  |                      |         |   |      |   |         |  
|Base management fee(B)                                           |  |                      | 6,207   |   |      |   | 5,412   |  
|Credit for fees received by Adviser from the portfolio companies |  |                      | (2,309  | ) |      |   | (1,107  | )
|                                                                 |  |                      |         |   |      |   |         |  
|Net base management fee                                          |  | $                    | 3,898   |   |      | $ | 4,305   |  
|                                                                 |  |                      |         |   |      |   |         |  
|                                                                 |  |                     
|Incentive fee(B)                                                 |  |                      | 3,983   |   |      |   | 2,585   |  
|Credit from waiver issued by Advisers board of directors        |  |                      |        |   |      |   | (221    | )
|                                                                 |  |                      |         |   |      |   |         |  
|Net Incentive fee                                                |  | $                    | 3,983   |   |      | $ | 2,364   |  
|                                                                 |  |                      |         |   |      |   |         |  
|                                                                 |  |                     
|Total credits to fees:                                           |  |                      |         |   |      |   |         |  
|Credit for fees received by Adviser from the portfolio companies |  |                      | (2,309  | ) |      |   | (1,107  | )
|Credit from waiver issued by Advisers board of directors        |  |                      |        |   |      |   | (221    | )
|                                                                 |  |                      |         |   |      |   |         |  
|Credit to fees(B)                                                |  | $                    | (2,309  | ) |      | $ | (1,328  | )
|                                                                 |  |                      |         |   |      |   |         |  



|(A) | Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings,
valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Interest and
dividend expense increased 23.8% for the fiscal year ended March 31, 2014, as compared to the prior year, primarily due to increased commitment (unused) fees related to the expansion of our Credit Facility from $60 million to $105
million and increased average borrowings under the Credit Facility. The average balance outstanding on our Credit Facility during the fiscal year ended March 31, 2014, was $34.6 million, as compared to $15.5 million in the prior year.

Realized and Unrealized Gain on Investments

Realized
Gain

During the fiscal year ended March 31, 2014, we recorded a net realized gain of $8.2 million consisting of a $24.8 million gain on the Venyu
sale, partially offset by the realized losses of $11.4 million and $1.8 million related to the equity sales of ASH and Packerland, respectively, and realized losses of $3.4 million related to the restructuring of Noble. During the year ended
March 31, 2013, we recorded a realized gain of $0.8 million relating to post-closing adjustments on the previous investment exit of A. Stucki Holding Corp. (A. Stucki).



41



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##### Table of Contents

Unrealized Appreciation and Depreciation

During the year ended March 31, 2014, we recorded net unrealized depreciation on investments in the aggregate amount of $29.2 million, which included the
reversal of $0.8 million in aggregate unrealized appreciation, primarily related to the sale of Venyu, partially offset by the sale of ASH and Packerland, and the restructure of Noble. Excluding reversals, we had $28.4 million in net unrealized
depreciation for the year ended March 31, 2014.

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for
the year ended March 31, 2014, were as follows:



|                                  |  |                           |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  
|--------------------------------- |  | ------------------------- | ------- | - | ------------------------------------ | - | ------- | ----------------------------------------------- |  | - | -------------- | - |  | - | ------- | -
|                                  |  | Year Ended March 31, 2014 |        
|Portfolio Company                 |  | RealizedGain (Loss)       |         |   | UnrealizedAppreciation(Depreciation) |   |         | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) |  
|Venyu Solutions, Inc.(A)          |  | $                         | 24,798  |   |                                      | $ | (1,596  | )                                               |  | $ | (17,374        | ) |  | $ | 5,828   |  
|Auto Safety House, LLC(B)         |  |                           | (11,402 | ) |                                      |   | 4,925   |                                                 |  |   | 11,410         |   |  |   | 4,933   |  
|Quench Holdings Corp.             |  |                           |        |   |                                      |   | 3,377   |                                                 |  |   |               |   |  |   | 3,377   |  
|Frontier Packaging, Inc.          |  |                           |        |   |                                      |   | 1,712   |                                                 |  |   |               |   |  |   | 1,712   |  
|Channel Technologies Group, LLC   |  |                           |        |   |                                      |   | 2,187   |                                                 |  |   | (583           | ) |  |   | 1,604   |  
|B-Dry, LLC                        |  |                           |        |   |                                      |   | 1,555   |                                                 |  |   |               |   |  |   | 1,555   |  
|Funko, LLC                        |  |                           |        |   |                                      |   | 1,113   |                                                 |  |   |               |   |  |   | 1,113   |  
|Packerland Whey Products, Inc.(C) |  |                           | (1,764  | ) |                                      |   | (369    | )                                               |  |   | 2,500          |   |  |   | 367     |  
|Tread Corp.                       |  |                           |        |   |                                      |   | (735    | )                                               |  |   |               |   |  |   | (735    | )
|Mathey Investments, Inc.          |  |                           |        |   |                                      |   | (922    | )                                               |  |   |               |   |  |   | (922    | )
|Danco Acquisition Corp.           |  |                           |        |   |                                      |   | (1,229  | )                                               |  |   |               |   |  |   | (1,229  | )
|Star Seed, Inc.                   |  |                           |        |   |                                      |   | (1,406  | )                                               |  |   |               |   |  |   | (1,406  | )
|Acme Cryogenics, Inc.             |  |                           |        |   |                                      |   | (1,564  | )                                               |  |   |               |   |  |   | (1,564  | )
|Jackrabbit, Inc.                  |  |                           |        |   |                                      |   | (1,687  | )                                               |  |   |               |   |  |   | (1,687  | )
|Mitchell Rubber Products, Inc.    |  |                           |        |   |                                      |   | (2,016  | )                                               |  |   |               |   |  |   | (2,016  | )
|Alloy Die Casting Corp.           |  |                           |        |   |                                      |   | (2,111  | )                                               |  |   |               |   |  |   | (2,111  | )
|Galaxy Tool Holding Corp.         |  |                           |        |   |                                      |   | (2,364  | )                                               |  |   |               |   |  |   | (2,364  | )
|Drew Foam Company, Inc.           |  |                           |        |   |                                      |   | (2,837  | )                                               |  |   |               |   |  |   | (2,837  | )
|Noble Logistics, Inc.(D)          |  |                           | (3,432  | ) |                                      |   | (2,989  | )                                               |  |   | 3,432          |   |  |   | (2,989  | )
|SOG Specialty K&T, LLC            |  |                           |        |   |                                      |   | (3,183  | )                                               |  |   |               |   |  |   | (3,183  | )
|Precision Southeast, Inc.         |  |                           |        |   |                                      |   | (3,227  | )                                               |  |   |               |   |  |   | (3,227  | )
|Schylling Investments, LLC        |  |                           |        |   |                                      |   | (3,853  | )                                               |  |   |               |   |  |   | (3,853  | )
|Ginsey Home Solutions, Inc.       |  |                           |        |   |                                      |   | (5,702  | )                                               |  |   |               |   |  |   | (5,702  | )
|SBS, Industries, LLC              |  |                           |        |   |                                      |   | (5,823  | )                                               |  |   |               |   |  |   | (5,823  | )
|Other, net (<$250 Net)            |  |                           | 41      |   |                                      |   | 328     |                                                 |  |   | (175           | ) |  |   | 194     |  
|                                  |  |                           |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  
|Total                             |  | $                         | 8,241   |   |                                      | $ | (28,416 | )                                               |  | $ | (790           | ) |  | $ | (20,965 | )
|                                  |  |                           |         |   |                                      |   |         |                                                 |  |   |                |   |  |   |         |  



|(A) | Venyu was sold in August 2013.
|--- | ------------------------------

|(B) | ASH equity investment was sold in October 2013.
|--- | -----------------------------------------------

|(C) | Packerland equity investment was sold in November 2013.
|--- | -------------------------------------------------------

|(D) | Noble was restructured in February 2014.
|--- | ----------------------------------------

The primary changes in our net unrealized depreciation for
the year ended March 31, 2014, were due to decreased equity valuations in several of our portfolio companies, primarily due to decreased portfolio company performance and decreases in certain comparable multiples used to estimate the fair value
of our investments.



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During the year ended March 31, 2013, we recorded net unrealized depreciation on investments in the
aggregate amount of $0.8 million. The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the year ended March 31, 2013, were as follows:



|                                |  |                           |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  
|------------------------------- |  | ------------------------- | --- | - | ------------------------------------ | - | ------- | ----------------------------------------------- |  | - | -------------- |  |  | - | ------- | -
|                                |  | Year Ended March 31, 2013 |    
|Portfolio Company               |  | RealizedGain (Loss)       |     |   | UnrealizedAppreciation(Depreciation) |   |         | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) | 
|Venyu Solutions, Inc.           |  | $                         |    |   |                                      | $ | 20,640  |                                                 |  | $ |               |  |  | $ | 20,640  |  
|Galaxy Tool Holdings, Inc.      |  |                           |    |   |                                      |   | 12,057  |                                                 |  |   |                |  |  |   | 12,057  |  
|Country Club Enterprises, LLC   |  |                           |    |   |                                      |   | 7,467   |                                                 |  |   |               |  |  |   | 7,467   |  
|Mathey Investments, Inc.        |  |                           |    |   |                                      |   | 1,653   |                                                 |  |   |               |  |  |   | 1,653   |  
|Precision Southeast, Inc.       |  |                           |    |   |                                      |   | 1,594   |                                                 |  |   |               |  |  |   | 1,594   |  
|SBS, Industries, LLC            |  |                           |    |   |                                      |   | 1,238   |                                                 |  |   |               |  |  |   | 1,238   |  
|A. Stucki Holding Corp.         |  |                           | 861 |   |                                      |   |        |                                                 |  |   |               |  |  |   | 861     |  
|Drew Foam Company, Inc.         |  |                           |    |   |                                      |   | 750     |                                                 |  |   |               |  |  |   | 750     |  
|SOG Specialty K&T, LLC          |  |                           |    |   |                                      |   | (273    | )                                               |  |   |               |  |  |   | (273    | )
|Ginsey Home Solutions, Inc.     |  |                           |    |   |                                      |   | (618    | )                                               |  |   |               |  |  |   | (618    | )
|Frontier Packaging, Inc.        |  |                           |    |   |                                      |   | (872    | )                                               |  |   |               |  |  |   | (872    | )
|Quench Holdings Corp.           |  |                           |    |   |                                      |   | (944    | )                                               |  |   |               |  |  |   | (944    | )
|Acme Cryogenics, Inc.           |  |                           |    |   |                                      |   | (962    | )                                               |  |   |               |  |  |   | (962    | )
|Channel Technologies Group, LLC |  |                           |    |   |                                      |   | (1,288  | )                                               |  |   |               |  |  |   | (1,288  | )
|ASH Holdings Corp.              |  |                           |    |   |                                      |   | (1,458  | )                                               |  |   |               |  |  |   | (1,458  | )
|Mitchell Rubber Products, Inc.  |  |                           |    |   |                                      |   | (1,762  | )                                               |  |   |               |  |  |   | (1,762  | )
|Packerland Whey Products, Inc.  |  |                           |    |   |                                      |   | (2,131  | )                                               |  |   |               |  |  |   | (2,131  | )
|B-Dry, LLC                      |  |                           |    |   |                                      |   | (3,953  | )                                               |  |   |               |  |  |   | (3,953  | )
|Noble Logistics, Inc.           |  |                           |    |   |                                      |   | (6,420  | )                                               |  |   |               |  |  |   | (6,420  | )
|Danco Acquisition Corp.         |  |                           |    |   |                                      |   | (8,225  | )                                               |  |   |               |  |  |   | (8,225  | )
|Tread Corp.                     |  |                           |    |   |                                      |   | (15,930 | )                                               |  |   |               |  |  |   | (15,930 | )
|Other, net (<$250 Net)          |  |                           | (18 | ) |                                      |   | 241     |                                                 |  |   |               |  |  |   | 223     |  
|                                |  |                           |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  
|Total                           |  | $                         | 843 |   |                                      | $ | 804     |                                                 |  | $ |               |  |  | $ | 1,647   |  
|                                |  |                           |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  

The primary changes in our net unrealized appreciation for the fiscal year ended March 31, 2013, were due to notable
unrealized appreciation of our equity investment in Venyu, primarily due to increased portfolio company performance and an increase in certain comparable multiples used to estimate the fair value. We also experienced notable appreciation in our
investments in Galaxy and CCE, primarily due to increased portfolio company performance. This unrealized appreciation was partially offset by notable depreciation of our debt investments in Danco Acquisition Corp. (Danco) and in our debt
and equity investments in Tread, Noble and B-Dry, LLC (B-Dry), primarily due to decreased portfolio company performance and, to a lesser extent, a decrease in certain comparable multiples used to estimate the fair value of our
investments. Excluding the impact of the aforementioned portfolio companies, the net unrealized depreciation of $4.8 million recognized on our investments was primarily due to a decrease in certain comparable multiples used to estimate the fair
value of our investments, partially offset by increases in the performance of certain of our portfolio companies.

Over our entire investment portfolio,
we recorded, in the aggregate, $10.7 million of net unrealized appreciation and $39.9 million of net unrealized depreciation on our debt positions and equity holdings, respectively, for the year ended March 31, 2014. As of March 31, 2014,
the fair value of our investment portfolio was less than our cost basis by $69.1 million, as compared to $39.9 million as of March 31, 2013, representing net unrealized depreciation of $29.2 million for fiscal year 2014. We believe that our
aggregate investment portfolio was valued at a depreciated value due to the lingering effects of the recent recession on the performance of certain of our portfolio companies. Our entire investment portfolio was fair valued at 82.0% of cost as of
March 31, 2014. The unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders; however, it may be an indication of future realized losses, which could ultimately reduce our
income available for distribution.

Realized and Unrealized Loss on Other

Realized Loss on Interest Rate Caps

For the fiscal years
ended March 31, 2014 and 2013, we recorded a net realized loss of $29 and $41, respectively, due to the expiration of interest rate cap agreements in each year.



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Net Unrealized Appreciation and Depreciation on Borrowings

For the fiscal year ended March 31, 2014, we recorded $0.4 million of net unrealized depreciation, compared to $0.9 million of net unrealized appreciation
in fiscal year ended March 31, 2013. Our Credit Facility was fair valued at $61.7 million and $31.9 million as of March 31, 2014 and 2013, respectively.

Comparison of the Fiscal Year Ended March 31, 2013, to the Fiscal Year Ended March 31, 2012



|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|--------------------------------------------------------- |  | ------------------------------------ | ------ | - | ---- | - | ------ | -------- |  | - | -------- | - |  |  | -------- | -
|                                                          |  | For the Fiscal Years Ended March 31, |       
|                                                          |  | 2013                                 |        |   | 2012 |   |        | $ Change |  |   | % Change |  
|INVESTMENT INCOME                                         |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Interest income                                           |  | $                                    | 24,798 |   |      | $ | 19,588 |          |  | $ | 5,210    |   |  |  | 26.6     | %
|Other income                                              |  |                                      | 5,740  |   |      |   | 1,654  |          |  |   | 4,086    |   |  |  | 247.0    |  
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Total investment income                                   |  |                                      | 30,538 |   |      |   | 21,242 |          |  |   | 9,296    |   |  |  | 43.8     |  
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|                                                          |  |                                      |        |  
|EXPENSES                                                  |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Base management fee                                       |  |                                      | 5,412  |   |      |   | 4,386  |          |  |   | 1,026    |   |  |  | 23.4     |  
|Incentive fee                                             |  |                                      | 2,585  |   |      |   | 19     |          |  |   | 2,566    |   |  |  | 13,505.3 |  
|Administration fee                                        |  |                                      | 785    |   |      |   | 684    |          |  |   | 101      |   |  |  | 14.8     |  
|Interest and dividend expense                             |  |                                      | 3,977  |   |      |   | 966    |          |  |   | 3,011    |   |  |  | 311.7    |  
|Amortization of deferred financing costs                  |  |                                      | 791    |   |      |   | 459    |          |  |   | 332      |   |  |  | 72.3     |  
|Other                                                     |  |                                      | 1,828  |   |      |   | 2,145  |          |  |   | (317     | ) |  |  | (14.8    | )
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Total expenses before credits from Adviser                |  |                                      | 15,378 |   |      |   | 8,659  |          |  |   | 6,719    |   |  |  | 77.6     |  
|Credits to fees                                           |  |                                      | (1,328 | ) |      |   | (1,160 | )        |  |   | (168     | ) |  |  | 14.5     |  
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Total expenses net of credits to fees                     |  |                                      | 14,050 |   |      |   | 7,499  |          |  |   | 6,551    |   |  |  | 87.4     |  
|                                                          |  |                                      |        |  
|NET INVESTMENT INCOME                                     |  |                                      | 16,488 |   |      |   | 13,743 |          |  |   | 2,745    |   |  |  | 20.0     |  
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|                                                          |  |                                      |        |  
|REALIZED AND UNREALIZED GAIN ON:                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Net realized gain on investments                          |  |                                      | 843    |   |      |   | 5,091  |          |  |   | (4,248   | ) |  |  | (83.4    | )
|Net realized loss on other                                |  |                                      | (41    | ) |      |   | (40    | )        |  |   | (1       | ) |  |  | 2.5      |  
|Net unrealized appreciation of investments                |  |                                      | 804    |   |      |   | 3,163  |          |  |   | (2,359   | ) |  |  | NM       |  
|Net unrealized (depreciation) appreciation of other       |  |                                      | (815   | ) |      |   | 9      |          |  |   | (824     | ) |  |  | NM       |  
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Net realized and unrealized gain on investments and other |  |                                      | 791    |   |      |   | 8,223  |          |  |   | (7,432   | ) |  |  | (90.4    | )
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|                                                          |  |                                      |        |  
|NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS      |  | $                                    | 17,279 |   |      | $ | 21,966 |          |  | $ | (4,687   | ) |  |  | (21.3    | )
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|                                                          |  |                                      |        |  
|BASIC AND DILUTED PER COMMON SHARE:                       |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Net investment income                                     |  | $                                    | 0.68   |   |      | $ | 0.62   |          |  | $ | 0.06     |   |  |  | 9.7      | %
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  
|Net increase in net assets resulting from operations      |  |                                      | 0.71   |   |      |   | 0.99   |          |  |   | (0.28    | ) |  |  | (28.3    | )
|                                                          |  |                                      |        |   |      |   |        |          |  |   |          |   |  |  |          |  

NM = Not Meaningful

Investment Income

Total investment income increased by
43.8% for the year ended March 31, 2013, as compared to the prior year. This increase was primarily due to a significant amount of other income, including success fee and dividend income, that we recorded in the current year and due to an
overall increase in interest income as a result of an increase in the size of our loan portfolio and holding higher-yielding debt investments during the year ended March 31, 2013.

Interest income from our investments in debt securities increased 26.6% for the year ended March 31, 2013, as compared to the prior year. The level of
interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period, multiplied by the weighted average yield. The weighted average principal balance of our
interest-bearing investment portfolio during the year ended March 31, 2013, was $198.1 million, compared to $159 million for the prior year. This increase was primarily due to investments originated during the period in Ginsey, Drew Foam and
Frontier and the recapitalization of Galaxy. As of March 31, 2013, two loans, ASH and Tread, were on non-accrual, with an aggregate weighted average principal balance of $20.5 million during the year ended March 31, 2013. Tread was put on
non-accrual and CCE was taken off non-accrual during the three months ended December 31, 2012. As of March 31, 2012, two loans, ASH and CCE, were on non-accrual, with a weighted average principal balance of $14.3 million during the year
ended March 31, 2012.

The weighted average yield on our interest-bearing investments, excluding cash and cash equivalents and excluding receipts
recorded as other income, for the year ended March 31, 2013, was 12.5%, compared to 12.3% for the prior year. The weighted average yield



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varies from period to period, based on the current stated interest rate on interest-bearing investments. The increase in the weighted average yield for the year ended March 31, 2013, is a
result of the addition of higher-yielding debt investments throughout the past two fiscal years, which had an aggregate, weighted average interest rate of 13.2% as of March 31, 2013.

The following table lists the investment income for our five largest portfolio company investments at fair value during the respective fiscal years:



|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|-------------------------------------- |  | -------------------- | ------- |  | ------------------------- |  | ----- | ---------------- |  | - | -------------------------- |  |  |  | ----- | -
|                                       |  | As of March 31, 2013 |         |  | Year Ended March 31, 2013 | 
|Company                                |  | Fair Value           |         |  | % of Portfolio            |  |       | InvestmentIncome |  |   | % of TotalInvestmentIncome | 
|Venyu Solutions, Inc.                  |  | $                    | 43,970  |  |                           |  | 15.4  | %                |  | $ | 2,502                      |  |  |  | 8.2   | %
|SOG Specialty Knives and Tools, LLC    |  |                      | 29,822  |  |                           |  | 10.4  |                  |  |   | 2,657                      |  |  |  | 8.7   |  
|Acme Cryogenics, Inc.                  |  |                      | 27,340  |  |                           |  | 9.5   |                  |  |   | 2,368                      |  |  |  | 7.8   |  
|Ginsey Home Solutions, Inc.(A)         |  |                      | 21,833  |  |                           |  | 7.6   |                  |  |   | 1,331                      |  |  |  | 4.4   |  
|Galaxy Tool Holding, Inc.(B)           |  |                      | 20,876  |  |                           |  | 7.3   |                  |  |   | 4,711                      |  |  |  | 15.4  |  
|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Subtotalfive largest investments      |  |                      | 143,841 |  |                           |  | 50.2  |                  |  |   | 13,569                     |  |  |  | 44.5  |  
|Other portfolio companies              |  |                      | 142,641 |  |                           |  | 49.8  |                  |  |   | 16,969                     |  |  |  | 55.5  |  
|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Total investment portfolio             |  | $                    | 286,482 |  |                           |  | 100.0 | %                |  | $ | 30,538                     |  |  |  | 100.0 | %
|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|                                       |  |                     
|                                       |  | As of March 31, 2012 |         |  | Year Ended March 31, 2012 | 
|Company                                |  | Fair Value           |         |  | % of Portfolio            |  |       | InvestmentIncome |  |   | % of TotalInvestmentIncome | 
|SOG Specialty Knives and Tools, LLC(A) |  | $                    | 30,096  |  |                           |  | 13.3  | %                |  | $ | 1,725                      |  |  |  | 8.1   | %
|Acme Cryogenics, Inc.                  |  |                      | 28,301  |  |                           |  | 12.6  |                  |  |   | 1,704                      |  |  |  | 8.0   |  
|Venyu Solutions, Inc.                  |  |                      | 23,330  |  |                           |  | 10.3  |                  |  |   | 2,509                      |  |  |  | 11.8  |  
|Channel Technologies Group, LLC (A)    |  |                      | 19,066  |  |                           |  | 8.5   |                  |  |   | 484                        |  |  |  | 2.3   |  
|Mitchell Rubber Products, Inc.(A)      |  |                      | 18,491  |  |                           |  | 8.2   |                  |  |   | 1,758                      |  |  |  | 8.3   |  
|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Subtotalfive largest investments      |  |                      | 119,284 |  |                           |  | 52.9  |                  |  |   | 8,180                      |  |  |  | 38.5  |  
|Other portfolio companies              |  |                      | 106,368 |  |                           |  | 47.1  |                  |  |   | 13,062                     |  |  |  | 61.5  |  
|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  
|Total investment portfolio             |  | $                    | 225,652 |  |                           |  | 100.0 | %                |  | $ | 21,242                     |  |  |  | 100.0 | %
|                                       |  |                      |         |  |                           |  |       |                  |  |   |                            |  |  |  |       |  



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

|(B) | Investment income includes $4.1 million non-cash dividend recognized from recapitalization.
|--- | -------------------------------------------------------------------------------------------

Other
income increased 247% from the prior year, primarily due to $4.1 million of dividend income from the Galaxy recapitalization, $0.7 million in cash dividends received on preferred shares of Acme and elections by each of Mathey and Cavert to prepay
$0.4 million of success fees during the fiscal year ended March 31, 2013. Other income for the year ended March 31, 2012, primarily consisted of $0.7 million of cash dividends received on preferred shares of Cavert, in connection with its
recapitalization in April 2011, as well as an aggregate of $0.7 million of success fee income resulting from prepayments received from Mathey and Cavert during the year ended March 31, 2012.

Expenses

Total expenses, excluding any voluntary and
irrevocable credits to the base management and incentive fees, increased 77.6% for the year ended March 31, 2013, primarily due to an increase in the incentive fee and dividend expense, as compared to the prior year.



45



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The base management fee increased for the year ended March 31, 2013, as compared to the prior year, which is
reflective of the increased size of our loan portfolio over the respective periods. An incentive fee was earned by the Adviser throughout the fiscal year ended March 31, 2013; however, the incentive fee was partially waived by the Adviser to
ensure distributions to stockholders were covered entirely by net investment income during each respective quarter. The base management and incentive fees are computed quarterly, as described under Investment Advisory and Management
Agreement in Note 4 of the notes to our accompanying Consolidated Financial Statements and are summarized in the following table:



|                                                                 |  |                      |         |   |      |   |         |  
|---------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | -
|                                                                 |  | Year Ended March 31, |        
|                                                                 |  | 2013                 |         |   | 2012 |  
|Average total assets subject to base management fee(A)           |  | $                    | 270,600 |   |      | $ | 219,300 |  
|Multiplied by prorated annual base management fee of 2%          |  |                      | 2.0     | % |      |   | 2.0     | %
|                                                                 |  |                      |         |   |      |   |         |  
|Base management fee(B)                                           |  |                      | 5,412   |   |      |   | 4,386   |  
|Credit for fees received by Adviser from the portfolio companies |  |                      | (1,107  | ) |      |   | (1,106  | )
|                                                                 |  |                      |         |   |      |   |         |  
|Net base management fee                                          |  | $                    | 4,305   |   |      | $ | 3,280   |  
|                                                                 |  |                      |         |   |      |   |         |  
|                                                                 |  |                     
|Incentive fee(B)                                                 |  |                      | 2,585   |   |      |   | 19      |  
|Credit from waiver issued by Advisers board of directors        |  |                      | (221    | ) |      |   | (54     | )
|                                                                 |  |                      |         |   |      |   |         |  
|Net Incentive fee                                                |  | $                    | 2,364   |   |      | $ | (35     | )
|                                                                 |  |                      |         |   |      |   |         |  
|                                                                 |  |                     
|Total credits to fees:                                           |  |                      |         |   |      |   |         |  
|Credit for fees received by Adviser from the portfolio companies |  |                      | (1,107  | ) |      |   | (1,106  | )
|Credit from waiver issued by Advisers board of directors        |  |                      | (221    | ) |      |   | (54     | )
|                                                                 |  |                      |         |   |      |   |         |  
|Credit to fees(B)                                                |  | $                    | (1,328  | ) |      | $ | (1,160  | )
|                                                                 |  |                      |         |   |      |   |         |  



|(A) | Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings,
valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Interest and
dividend expense increased 311.7% for the year ended March 31, 2013, as compared to the prior year, primarily due to $2.8 million of dividends we paid on our Term Preferred Stock during the fiscal year 2013, compared to $0.2 million for
a portion of the prior year. Removing the effect of the preferred stock dividend payment, interest expense for the year ended March 31, 2013, increased 46.7% over the prior year, due mainly to increased average borrowings under the Credit
Facility, partially offset by a decreased average borrowing rate upon renewal of the Credit Facility in October 2011, which resulted in the removal of the LIBOR minimum rate of 2%. The average balance outstanding on our Credit Facility during the
year ended March 31, 2013, was $15.5 million, as compared to $7.3 million in the prior year. The effective interest rate charged on our borrowings for the year ended March 31, 2013, excluding the impact of deferred financing fees, was
5.5%, as compared to 10% for the prior year.

Amortization of deferred financing costs increased $0.3 million, or 72.3%, during the fiscal year ended
March 31, 2013, as compared to the prior year, primarily due to the Term Preferred Stock offering costs being deferred and amortized, resulting in $0.4 million in amortization during the fiscal year ended March 31, 2013. Minimal
amortization was recorded in the prior year, as the Term Preferred Stock offering was not completed until March 2012.

Realized and Unrealized Gain on
Investments

Realized Gain

During the fiscal year
ended March 31, 2013, we recorded a realized gain of $0.8 million consisting of post-closing adjustments on our previous investment exit of A. Stucki. In April 2011, we recapitalized our investment in Cavert, receiving $8.5 million in proceeds
and realizing a gain of $5.5 million. Additionally, we recorded post-closing adjustments related to the A. Stucki exit in June 2010 and the Chase II Holding Corp (Chase) exit in December 2010, which resulted in a net aggregate loss of
$0.3 million during the year ended March 31, 2012.



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Unrealized Appreciation and Depreciation

During the year ended March 31, 2013, we recorded net unrealized depreciation on investments in the aggregate amount of $0.8 million. The realized
gains (losses) and unrealized appreciation (depreciation) across our investments for the year ended March 31, 2013, were as follows:



|                                |  |                           |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  
|------------------------------- |  | ------------------------- | --- | - | ------------------------------------ | - | ------- | ----------------------------------------------- |  | - | -------------- |  |  | - | ------- | -
|                                |  | Year Ended March 31, 2013 |    
|Portfolio Company               |  | RealizedGain (Loss)       |     |   | UnrealizedAppreciation(Depreciation) |   |         | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) | 
|Venyu Solutions, Inc.           |  | $                         |    |   |                                      | $ | 20,640  |                                                 |  | $ |               |  |  | $ | 20,640  |  
|Galaxy Tool Holdings, Inc.      |  |                           |    |   |                                      |   | 12,057  |                                                 |  |   |                |  |  |   | 12,057  |  
|Country Club Enterprises, LLC   |  |                           |    |   |                                      |   | 7,467   |                                                 |  |   |               |  |  |   | 7,467   |  
|Mathey Investments, Inc.        |  |                           |    |   |                                      |   | 1,653   |                                                 |  |   |               |  |  |   | 1,653   |  
|Precision Southeast, Inc.       |  |                           |    |   |                                      |   | 1,594   |                                                 |  |   |               |  |  |   | 1,594   |  
|SBS, Industries, LLC            |  |                           |    |   |                                      |   | 1,238   |                                                 |  |   |               |  |  |   | 1,238   |  
|A. Stucki Holding Corp.         |  |                           | 861 |   |                                      |   |        |                                                 |  |   |               |  |  |   | 861     |  
|Drew Foam Company, Inc.         |  |                           |    |   |                                      |   | 750     |                                                 |  |   |               |  |  |   | 750     |  
|SOG Specialty K&T, LLC          |  |                           |    |   |                                      |   | (273    | )                                               |  |   |               |  |  |   | (273    | )
|Ginsey Home Solutions, Inc.     |  |                           |    |   |                                      |   | (618    | )                                               |  |   |               |  |  |   | (618    | )
|Frontier Packaging, Inc.        |  |                           |    |   |                                      |   | (872    | )                                               |  |   |               |  |  |   | (872    | )
|Quench Holdings Corp.           |  |                           |    |   |                                      |   | (944    | )                                               |  |   |               |  |  |   | (944    | )
|Acme Cryogenics, Inc.           |  |                           |    |   |                                      |   | (962    | )                                               |  |   |               |  |  |   | (962    | )
|Channel Technologies Group, LLC |  |                           |    |   |                                      |   | (1,288  | )                                               |  |   |               |  |  |   | (1,288  | )
|ASH Holdings Corp.              |  |                           |    |   |                                      |   | (1,458  | )                                               |  |   |               |  |  |   | (1,458  | )
|Mitchell Rubber Products, Inc.  |  |                           |    |   |                                      |   | (1,762  | )                                               |  |   |               |  |  |   | (1,762  | )
|Packerland Whey Products, Inc.  |  |                           |    |   |                                      |   | (2,131  | )                                               |  |   |               |  |  |   | (2,131  | )
|B-Dry, LLC                      |  |                           |    |   |                                      |   | (3,953  | )                                               |  |   |               |  |  |   | (3,953  | )
|Noble Logistics, Inc.           |  |                           |    |   |                                      |   | (6,420  | )                                               |  |   |               |  |  |   | (6,420  | )
|Danco Acquisition Corp.         |  |                           |    |   |                                      |   | (8,225  | )                                               |  |   |               |  |  |   | (8,225  | )
|Tread Corp.                     |  |                           |    |   |                                      |   | (15,930 | )                                               |  |   |               |  |  |   | (15,930 | )
|Other, net (<$250 Net)          |  |                           | (18 | ) |                                      |   | 241     |                                                 |  |   |               |  |  |   | 223     |  
|                                |  |                           |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  
|Total                           |  | $                         | 843 |   |                                      | $ | 804     |                                                 |  | $ |               |  |  | $ | 1,647   |  
|                                |  |                           |     |   |                                      |   |         |                                                 |  |   |                |  |  |   |         |  

The primary changes in our net unrealized appreciation for the fiscal year ended March 31, 2013, were due to notable
unrealized appreciation of our equity investment in Venyu, primarily due to increased portfolio company performance and an increase in certain comparable multiples used to estimate the fair value. We also experienced notable appreciation in our
investments in Galaxy and CCE, primarily due to increased portfolio company performance. This unrealized appreciation was partially offset by notable depreciation of our debt investments in Danco and in our debt and equity investments in Tread,
Noble and B-Dry, primarily due to decreased portfolio company performance and, to a lesser extent, a decrease in certain comparable multiples used to estimate the fair value of our investments. Excluding the impact of the aforementioned portfolio
companies, the net unrealized depreciation of $4.8 million recognized on our investments was primarily due to a decrease in certain comparable multiples used to estimate the fair value of our investments, partially offset by increases in the
performance of certain of our portfolio companies.

During the year ended March 31, 2012, we recorded net unrealized appreciation on investments in
the aggregate amount of $3.2 million, which included the reversal of $6 million in aggregate unrealized appreciation, primarily related to the Cavert recapitalization. Excluding reversals, we had $9.2 million in net unrealized appreciation for
the year ended March 31, 2012.



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



|                               |  |                           |       |   |                                      |   |        |                                                 |  |   |                |   |  |   |        |  
|------------------------------ |  | ------------------------- | ----- | - | ------------------------------------ | - | ------ | ----------------------------------------------- |  | - | -------------- | - |  | - | ------ | -
|                               |  | Year Ended March 31, 2012 |      
|Portfolio Company              |  | RealizedGain (Loss)       |       |   | UnrealizedAppreciation(Depreciation) |   |        | Reversal ofUnrealized(Appreciation)Depreciation |  |   | Net Gain(Loss) |  
|Acme Cryogenics, Inc.          |  | $                         |      |   |                                      | $ | 8,811  |                                                 |  | $ |               |   |  | $ | 8,811  |  
|Mathey Investments, Inc.       |  |                           |      |   |                                      |   | 4,366  |                                                 |  |   |               |   |  |   | 4,366  |  
|SBS, Industries, LLC           |  |                           |      |   |                                      |   | 3,434  |                                                 |  |   |               |   |  |   | 3,434  |  
|Mitchell Rubber Products, Inc. |  |                           |      |   |                                      |   | 2,114  |                                                 |  |   |               |   |  |   | 2,114  |  
|Tread Corp.                    |  |                           |      |   |                                      |   | 2,003  |                                                 |  |   |               |   |  |   | 2,003  |  
|Quench Holdings Corp.          |  |                           |      |   |                                      |   | 1,996  |                                                 |  |   |               |   |  |   | 1,996  |  
|SOG Specialty K&T, LLC         |  |                           |      |   |                                      |   | 1,948  |                                                 |  |   |               |   |  |   | 1,948  |  
|Survey Sampling, LLC           |  |                           | (1    | ) |                                      |   | 807    |                                                 |  |   | 1              |   |  |   | 807    |  
|A. Stucki Holding Corp.        |  |                           | 412   |   |                                      |   |       |                                                 |  |   |               |   |  |   | 412    |  
|Cavert II Holding Corp.        |  |                           | 5,507 |   |                                      |   | 351    |                                                 |  |   | (6,194         | ) |  |   | (336   | )
|Noble Logistics, Inc.          |  |                           |      |   |                                      |   | (460   | )                                               |  |   | 95             |   |  |   | (365   | )
|Chase II Holding Corp.         |  |                           | (563  | ) |                                      |   |       |                                                 |  |   |               |   |  |   | (563   | )
|Precision Southeast, Inc.      |  |                           |      |   |                                      |   | (619   | )                                               |  |   |               |   |  |   | (619   | )
|Venyu Solutions, Inc.          |  |                           |      |   |                                      |   | (1,682 | )                                               |  |   |               |   |  |   | (1,682 | )
|Danco Acquisition Corp.        |  |                           |      |   |                                      |   | (3,077 | )                                               |  |   |               |   |  |   | (3,077 | )
|ASH Holdings Corp.             |  |                           |      |   |                                      |   | (3,147 | )                                               |  |   |               |   |  |   | (3,147 | )
|Country Club Enterprises, LLC  |  |                           |      |   |                                      |   | (7,560 | )                                               |  |   |               |   |  |   | (7,560 | )
|Other, net (<$250 Net)         |  |                           | (264  | ) |                                      |   | (101   | )                                               |  |   | 77             |   |  |   | (288   | )
|                               |  |                           |       |   |                                      |   |        |                                                 |  |   |                |   |  |   |        |  
|Total                          |  | $                         | 5,091 |   |                                      | $ | 9,184  |                                                 |  | $ | (6,021         | ) |  | $ | 8,254  |  
|                               |  |                           |       |   |                                      |   |        |                                                 |  |   |                |   |  |   |        |  

The primary changes in our net unrealized appreciation for the year ended March 31, 2012, were notable appreciation in
our equity investments in Acme, Mathey and SBS Industries, LLC (SBS), primarily due to both improved performance and an increase in multiples, and appreciation of our debt investment in Quench, which was paid off at par during the three
months ended December 31, 2011. This appreciation was partially offset by increased notable depreciation in CCE, ASH and Danco, primarily due to decreased performance, as well as the reversal of previously-recorded unrealized appreciation on
the Cavert recapitalization. Excluding the impact of the aforementioned portfolio companies, the net unrealized appreciation of $4.2 million recognized on our investments was primarily due to an increase in certain comparable multiples used to
estimate the fair value of our investments, partially offset by decreases in the performance of certain of our portfolio companies.

Over our entire
investment portfolio, we recorded, in the aggregate, $23.2 million of net unrealized depreciation and $24 million of net unrealized appreciation on our debt positions and equity holdings, respectively, for the year ended March 31, 2013. As of
March 31, 2013, the fair value of our investment portfolio was less than our cost basis by $39.9 million, as compared to $40.7 million as of March 31, 2012, representing net unrealized appreciation of $0.8 million for fiscal year 2013. We
believe that our aggregate investment portfolio as of March 31, 2013 was valued at a depreciated value due to the lingering effects of the recession that began in late 2007 and its effects on the performance of certain of our portfolio
companies. Our entire investment portfolio was fair valued at 87.8% of cost as of March 31, 2013. The unrealized depreciation of our investments does not have an impact on our current ability to pay distributions to stockholders; however, it
may be an indication of future realized losses, which could ultimately reduce our income available for distribution.

Realized and Unrealized Loss on
Other

Realized Loss on Interest Rate Caps

For
the fiscal years ended March 31, 2013 and 2012, we recorded a net realized loss of $41 and $40, respectively, due to the expiration of interest rate cap agreements in each year.

Net Unrealized Appreciation on Borrowings

For the fiscal
years ended March 31, 2013 and 2012, we recorded $0.9 million and $0, respectively, of net unrealized appreciation primarily due to increased borrowings outstanding and comparable market rates decreasing during the current year. Our Credit
Facility was fair valued at $31.9 million as of March 31, 2013. There were no borrowings outstanding as of March 31, 2012.



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LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash used in operating
activities for the year ended March 31, 2014, was $33.6 million, as compared to $39.7 million during the year ended March 31, 2013. This decrease in cash used in operating activities was primarily due to an increase in principal
repayments and sales proceeds of $55 million over the prior year, largely due to our exit of Venyu in August 2013, partially offset by increased investment originations of $48.7 million over the prior year. Our cash flows from operations generally
come from cash collections of interest and dividend income from our portfolio companies, as well as cash proceeds received through repayments of loan investments and sales of equity investments. These cash collections are primarily used to invest in
securities of new and existing portfolio companies, pay distributions to our stockholders, interest payments on our Credit Facility, management fees to the Adviser, and other entity-level expenses.

As of March 31, 2014, we had equity investments in or loans to 29 private companies with an aggregate cost basis of $383.5 million. As of
March 31, 2013, we had investments in equity of, loans to or syndicated participations in 21 private companies with an aggregate cost basis of $326.4 million. The following table summarizes our total portfolio investment activity during the
years ended March 31, 2014 and 2013:



|                                              |  |                       |         |   |      |   |         |  
|--------------------------------------------- |  | --------------------- | ------- | - | ---- | - | ------- | -
|                                              |  | Years Ended March 31, |        
|                                              |  | 2014                  |         |   | 2013 |  
|Beginning investment portfolio, at fair value |  | $                     | 286,482 |   |      | $ | 225,652 |  
|New investments                               |  |                       | 125,567 |   |      |   | 68,004  |  
|Disbursements to existing portfolio companies |  |                       | 6,636   |   |      |   | 15,498  |  
|Increase in investment balance due to PIK     |  |                       | 88      |   |      |   |        |  
|Scheduled principal repayments                |  |                       | (110    | ) |      |   | (363    | )
|Unscheduled principal repayments              |  |                       | (51,718 | ) |      |   | (24,856 | )
|Proceeds from sales                           |  |                       | (31,587 | ) |      |   | (3,182  | )
|Net realized gain                             |  |                       | 8,241   |   |      |   | 843     |  
|Net unrealized (depreciation) appreciation    |  |                       | (28,416 | ) |      |   | 804     |  
|Reversal of net unrealized appreciation       |  |                       | (790    | ) |      |   |        |  
|Other cash activity, net                      |  |                       |        |   |      |   | (24     | )
|Other non-cash activity(A)                    |  |                       |        |   |      |   | 4,106   |  
|                                              |  |                       |         |   |      |   |         |  
|Ending investment portfolio, at fair value    |  | $                     | 314,393 |   |      | $ | 286,482 |  
|                                              |  |                       |         |   |      |   |         |  



|(A) | In February 2013, we recapitalized our investment in Galaxy, converting $8.2 million of Galaxy preferred stock and its related $4.1 million in accrued dividends into a new $12.3 million senior debt investment in a
non-cash transaction. The $4.1 million in accrued dividends increased our cost basis in Galaxy.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes the
contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of March 31, 2014:



|                                     |  |                                                            |  |        |         | 
|------------------------------------ |  | ---------------------------------------------------------- |  | ------ | ------- | 
|                                     |  |                                                            |  | Amount |        
|For the fiscal year ending March 31: |  | 2015                                                       |  | $      | 56,386  | 
|                                     |  | 2016                                                       |  |        | 30,190  | 
|                                     |  | 2017                                                       |  |        | 43,314  | 
|                                     |  | 2018                                                       |  |        | 51,983  | 
|                                     |  | 2019                                                       |  |        | 89,181  | 
|                                     |  | Thereafter                                                 |  |        | 7,587   | 
|                                     |  |                                                            |  |        |         | 
|                                     |  | Total contractual repayments                               |  | $      | 278,641 | 
|                                     |  | Investments in equity securities                           |  |        | 104,896 | 
|                                     |  |                                                            |  |        |         | 
|                                     |  | Total cost basis of investments held as of March 31, 2014: |  | $      | 383,537 | 
|                                     |  |                                                            |  |        |         | 

Financing Activities

Net
cash used in financing activities for the year ended March 31, 2014, was $47.7 million and consisted primarily of net repayments of our short-term borrowings of $58 million and distributions to common stockholders of $18.8 million,
partially offset by $30.3 million in net borrowings from our Credit Facility. Net cash provided by financing activities for the year ended March 31, 2013, was $34.1 million, consisting primarily of proceeds from the common stock
issuance of $31 million and net borrowings on the short-term loan and Credit Facility in excess of repayments by $18 million, partially offset by $14.5 million in distributions to common stockholders.



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Distributions

To qualify to be taxed as a RIC and thus avoid corporate level tax on the income we distribute to our stockholders, we are required under Subchapter M of the
Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. In accordance with these requirements, we declared and paid monthly cash distributions of $0.05 per common share for the six
months from April 2013 through September 2013. From October 2013 through March 2014 our Board of Directors declared and paid monthly cash distributions of $0.06 per common share, which represented a 20% increase from the per common share
distributions from April 2013 through September 2013. Additionally, our Board of Directors declared a one-time special distribution of $0.05 per common share for November 2013. In April 2014, our Board of Directors also declared a monthly
distribution of $0.06 per common share for each of April, May and June 2014. Our Board of Directors declared these distributions based on estimates of net taxable income for the fiscal year ending March 31, 2015.

For the fiscal years ended March 31, 2014 and 2013, our distributions to common stockholders totaled $18.8 million and $14.5 million, respectively, and
were less than our taxable income over the same years. At March 31, 2014 and 2013, we elected to treat $3.9 million and $3.1 million, respectively, of the first distribution paid after year-end as having been paid in the prior year, in
accordance with Section 855(a) of the Code. Additionally, the covenants in our Credit Facility generally restrict the amount of distributions that we can pay out to be no greater than our net investment income.

We also declared and paid monthly cash distributions of $0.1484375 per share of Term Preferred Stock for each of the twelve months from April 2013 through
March 2014. In April 2014, our Board of Directors also declared a monthly distribution of $0.1484375 per preferred share for each of April, May and June 2014. In accordance with accounting principles generally accepted in the U.S.
(GAAP), we treat these monthly distributions as an operating expense. For tax purposes, these preferred distributions are deemed to be paid entirely out of ordinary income to preferred stockholders.

Equity

Registration Statement

We filed a registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed a Pre-effective
Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective on July 26, 2012. On June 7, 2013, we filed Post-Effective Amendment No. 2 to the registration statement, which the SEC
declared effective on July 26, 2013. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300 million in securities, consisting of common stock, preferred stock, subscription rights, debt
securities and warrants to purchase common stock, including through a combined offering of two or more of such securities.

Common Stock

Pursuant to our registration statement on Form N-2 (Registration No. 333-181879), on October 5, 2012, we completed a public offering of
4 million shares of our common stock at a public offering price of $7.50 per share, which was below then current NAV of $8.65 per share. Gross proceeds totaled $30 million and net proceeds, after deducting underwriting discounts and offering
expenses borne by us, were $28.3 million, which was used to repay borrowings under our Credit Facility. In connection with the offering, the underwriters exercised their option to purchase an additional 395,825 shares at the public offering price to
cover over-allotments, which resulted in gross proceeds of $3 million and net proceeds, after deducting underwriting discounts, of $2.8 million.

We
anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. When our common
stock is trading below NAV per share, as it has consistently since September 30, 2008, the 1940 Act places regulatory constraints on our ability to obtain additional capital by issuing common stock. Generally, the 1940 Act provides that we may
not issue and sell our common stock at a price below our NAV per common share, other than to our then existing common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors.
On May 12, 2014, the closing market price of our common stock was $7.92 per share, representing a 5.0% discount to our NAV of $8.34 as of March 31, 2014. To the extent that our common stock continues to trade at a market price below our
NAV per common share, we will generally be precluded from raising equity capital through public offerings of our common stock, other than pursuant to stockholder approval or through a rights offering to existing common stockholders. At our 2013
Annual Meeting of Stockholders held on August 8, 2013, our stockholders approved a proposal authorizing us to issue and sell shares of our common stock at a price below our then current NAV per common share for a period of one year from the
date of such approval, provided that our Board of Directors makes certain determinations prior to any such sale. At our 2014 Annual Meeting of Stockholders, scheduled to take place in August 2014, we expect to ask our stockholders to vote in favor
of this proposal again so that it may be in effect for another year.



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Term Preferred Stock

Pursuant to our prior registration statement on Form N-2 (File No. 333-160720), in March 2012, we completed an offering of 1.6 million shares of Term
Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $40 million, and net proceeds, after deducting underwriting discounts and offering expenses borne by us were $38 million, a portion of which was used to repay
borrowings under our Credit Facility, with the remaining proceeds being held to make additional investments and for general corporate purposes. We incurred $2 million in total offering costs related to the offering, which have been recorded as an
asset in accordance with GAAP and are being amortized over the redemption period ending February 28, 2017.

The Term Preferred Stock provides for a
fixed dividend equal to 7.125% per year, payable monthly (which equates to $2.9 million per year). We are required to redeem all of the outstanding Term Preferred Stock on February 28, 2017, for cash at a redemption price equal to $25.00
per share plus an amount equal to accumulated but unpaid dividends, if any, to the date of redemption. The Term Preferred Stock has a preference over our common stock with respect to dividends, whereby no distributions are payable on our common
stock unless the stated dividends, including any accrued and unpaid dividends, on the Term Preferred Stock have been paid in full. The Term Preferred Stock is not convertible into our common stock or any other security. In addition, three other
potential redemption triggers are as follows: (1) upon the occurrence of certain events that would constitute a change in control of us, we would be required to redeem all of the outstanding Term Preferred Stock; (2) if we fail to maintain
an asset coverage ratio of at least 200%, we are required to redeem a portion of the outstanding Term Preferred Stock or otherwise cure the ratio redemption trigger and (3) at our sole option, at any time on or after February 28, 2016, we
may redeem some or all of the Term Preferred Stock.

The Term Preferred Stock has been recorded as a liability in accordance with GAAP and, as such,
affects our asset coverage, exposing us to additional leverage risks.

Revolving Credit Facility

On April 30, 2013, we, through our wholly-owned subsidiary, Business Investment, entered into a fifth amended and restated credit agreement with Key
Equipment Finance Inc., as administrative agent, lead arranger and a lender (the Administrative Agent), Branch Banking and Trust Company as a lender and managing agent, and the Adviser, as servicer, to increase the commitment amount of
the revolving line of credit (the Credit Facility) from $60 million to $70 million and to extend the revolving period, which was extended to April 30, 2016. If not renewed or extended by April 30, 2016, all principal and
interest will be due and payable on or before April 30, 2017 (one year after the revolving period end date). In addition, there is one remaining one-year extension option to be agreed upon by all parties, which may be exercised on or before
April 30, 2015. Subject to certain terms and conditions, the Credit Facility may be expanded up to a total of $200 million through the addition of other lenders to the facility. Advances under the Credit Facility generally bear interest at
30-day LIBOR, plus 3.75% per annum, and the Credit Facility includes an unused fee of 0.50% on undrawn amounts. We incurred fees of $0.3 million in connection with this amendment.

On June 12, 2013, we further increased the borrowing capacity under the Credit Facility from $70 million to $105 million by entering into Joinder
Agreements pursuant to the Credit Facility by and among Business Investment, the Administrative Agent, the Adviser and each of Alostar Bank of Commerce and Everbank Commercial Finance, Inc.

The Credit Facility contains covenants that require Business Investment to maintain its status as a separate legal entity; prohibit certain significant
corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict material changes to our credit and collection policies without lenders consent. The facility generally also limits payments as distributions to
the aggregate net investment income for each of the twelve month periods ending March 31, 2015, 2016 and 2017. We are also subject to certain limitations on the type of loan investments we can make, including restrictions on geographic
concentrations, sector concentrations, loan size, dividend payout, payment frequency and status, average life and lien property. The Credit Facility also requires us to comply with other financial and operational covenants, which obligate us to,
among other things, maintain certain financial ratios, including asset and interest coverage, a minimum net worth and a minimum number of obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a performance
guaranty that requires us to maintain (i) a minimum net worth of $170 million plus 50% of all equity and subordinated debt raised after April 30, 2013, which equates to $170 million as of March 31, 2014, (ii) asset
coverage with respect to senior securities representing indebtedness of at least 200%, in accordance with Section 18 of the 1940 Act and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of
March 31, 2014, and as defined in the performance guaranty of our Credit Facility, we had a minimum net worth of $260.8 million, an asset coverage of 298% and an active status as a BDC and RIC. As of May 12, 2014, we were in compliance
with all covenants.

In December 2011, we entered into a forward interest rate cap agreement, effective May 2012, for a notional amount of
$50 million. We incurred a premium fee of $29 in conjunction with this agreement, which expired in October 2013 and has resulted in a $29 realized loss for the year ended March 31, 2014. In July 2013, we entered into a forward
interest rate cap agreement, effective October 2013 and expiring April 2016, for a notional amount of $45 million. We incurred a premium fee of $75 in conjunction with this agreement. Both of these interest rate cap agreements effectively limit
the interest rate on a portion of the borrowings pursuant to the terms of the Credit Facility.



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

Short-Term Loan

As of March 31, 2014, our asset
composition satisfied the 50% threshold. However, excluding March 31, 2014, for each quarter end since June 30, 2009 (the measurement dates), we satisfied the 50% threshold to maintain our status as a RIC, in part, through the
purchase of short-term qualified securities, which were funded primarily through a short-term loan agreement. Subsequent to each of the measurement dates, the short-term qualified securities matured, and we repaid the short-term loan, at which time
we again fell below the 50% threshold. For example, for the December 31, 2013 measurement date, we purchased $10 million of T-Bills through Jefferies on December 27, 2013. The T-Bills were purchased on margin using $1.5 million in cash and
the proceeds from an $8.5 million short-term loan from Jefferies with an effective annual interest rate of 1.35%. On January 2, 2014, when the T-Bills matured, we repaid the $8.5 million loan from Jefferies and received the $1.5 million
margin payment sent to Jefferies to complete the transaction.

Contractual Obligations and Off-Balance Sheet Arrangements

We have lines of credit to certain of our portfolio companies that have not been fully drawn. Since these lines of credit have expiration dates and we expect
many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the unused line of credit commitments as of March 31, 2014 and 2013 to be minimal.

In addition to the lines of credit to our portfolio companies, we have also extended certain guaranties on behalf of some our portfolio companies,
whereby we have guaranteed an aggregate of $3.6 million of obligations of ASH and CCE. As of March 31, 2014, we have not been required to make any payments on any of the guaranties, and we consider the credit risks to be remote and the fair
value of the guaranties to be minimal.

The following table shows our contractual obligations as of March 31, 2014, at cost:



|                                    |  |                        |         |  |                 |   |       |           |  |   |           |  |  |                  |        |  |  |   |   | 
|----------------------------------- |  | ---------------------- | ------- |  | --------------- | - | ----- | --------- |  | - | --------- |  |  | ---------------- | ------ |  |  | - | - | 
|                                    |  | Payments Due by Period |        
|Contractual Obligations(A)          |  | Total                  |         |  | Less than1 Year |   |       | 1-3 Years |  |   | 3-5 Years |  |  | More than5 Years |       
|                                    |  |                        |         |  |                
|Credit Facility                     |  | $                      | 61,250  |  |                 | $ |      |           |  | $ | 61,250    |  |  | $                |       |  |  | $ |  | 
|Term Preferred Stock                |  |                        | 40,000  |  |                 |   |      |           |  |   |          |  |  |                  | 40,000 |  |  |   |  | 
|Other secured borrowings            |  |                        | 5,000   |  |                 |   |      |           |  |   |          |  |  |                  | 5,000  |  |  |   |  | 
|Interest payments on obligations(B) |  |                        | 15,169  |  |                 |   | 5,851 |           |  |   | 9,048     |  |  |                  | 270    |  |  |   |  | 
|                                    |  |                        |         |  |                 |   |       |           |  |   |           |  |  |                  |        |  |  |   |   | 
|Total                               |  | $                      | 121,419 |  |                 | $ | 5,851 |           |  | $ | 70,298    |  |  | $                | 45,270 |  |  | $ |  | 
|                                    |  |                        |         |  |                 |   |       |           |  |   |           |  |  |                  |        |  |  |   |   | 



|(A) | Excludes our unused line of credit commitments and guaranties to our portfolio companies in the aggregate amount of $10.4 million.
|--- | ----------------------------------------------------------------------------------------------------------------------------------

|(B) | Includes interest payments due on our Credit Facility and dividend obligations on the Term Preferred Stock. Interest payments on the Credit Facility include the principal interest and unused commitment fee. Dividend
payments on the Term Preferred Stock assume quarterly declarations and monthly distributions through the date of mandatory redemption.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Litigation

We have been named a party to litigation
described in Part 1 Item 3 above. While we believe plaintiffs claims are without merit and we intend to vigorously defend the case, we expect to incur attorneys fees and defense costs in the current quarter, which may negatively
impact our liquidity and results. Depending on the duration of the suit and the outcome, defense costs, any damages resulting from litigation, a ruling against us or a settlement of the litigation could have a negative impact on our liquidity,
including our cash flows, and our financial results in future periods.

Critical Accounting Policies

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



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Investment Valuation

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of
unrealized appreciation and depreciation of investments recorded.

General Valuation Policy: We value our investments in accordance with the
requirements of the 1940 Act. As discussed more fully below, we value securities for which market quotations are readily available and reliable at their market value. We value all other securities and assets at fair value, as determined in good
faith by our Board of Directors. Such determination of fair values may involve subjective judgments and estimates.

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



| |  |  | Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  |  | Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active or inactive markets and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices
vary substantially over time or among brokered market makers; and
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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

As
of March 31, 2014 and 2013, all of our investments were valued using Level 3 inputs. See Note 3Investments in our accompanying notes to our Consolidated Financial Statements included elsewhere in this report for additional
information regarding fair value measurements and our application of ASC 820.

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

In determining the value of our investments, the Valuation Team has established an investment valuation policy (the Policy). The
Policy has been approved by our Board of Directors, and each quarter, our Board of Directors reviews the Policy to determine if changes thereto are advisable and also reviews whether the Valuation Team have applied the Policy consistently and votes
whether to accept the recommended valuation of our investment portfolio. Such determination of fair values may involve subjective judgments and estimates.

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

Valuation Methods:

Publicly traded securities:
The Valuation Team determines the value of a publicly traded security based on the closing price for the security on the exchange or securities market on which it is listed and primarily traded on the valuation date. To the extent that we own a
restricted security that is not freely tradable, but for which a public market otherwise exists, the Valuation Team will use the market value of that security adjusted for any decrease in value resulting from the restrictive feature. As of
March 31, 2014 and 2013, we did not have any investments in publicly traded securities.

Securities for which a limited market exists:The
Valuation Team values securities that are not traded on an established secondary securities market, but for which a limited market for the security exists, such as certain participations in, or assignments of, syndicated loans, at the quoted bid
price, which are non-binding. In valuing these assets, the Valuation Team assesses trading activity in an asset class and evaluates variances in prices and other market insights to determine if any available quoted prices are reliable. In general,
if the Valuation Team concludes that quotes based on active markets or trading activity may be relied upon, firm bid prices are requested; however, if firm bid prices are unavailable, the Valuation Team bases the value of the security upon the
indicative bid price



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(IBP) offered by the respective originating syndication agents trading desk, or secondary desk, on or near the valuation date. To the extent that the Valuation Team uses the IBP
as a basis for valuing the security, it may take further steps to consider additional information to validate that price in accordance with the Policy, including but not limited to reviewing a range of indicative bids to the extent the Valuation
Team has ready access to such qualified information.

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

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



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

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

SPSE opinions of the value of our debt securities that are issued by portfolio companies in which we do not own equity, or equity-like
securities are submitted to our Board of Directors along with the Valuation Teams supplemental assessment and recommendation regarding valuation of each of these investments. The Valuation Team generally accepts the opinion of value given by
SPSE; however, in certain limited circumstances, such as when the Valuation Team may learn new information regarding an investment between the time of submission to SPSE and the date of our Board of Directors assessment, the Valuation
Teams conclusions as to value may differ from the opinion of value delivered by SPSE. Our Board of Directors then reviews whether the Valuation Team has followed its established procedures for determinations of fair value and votes to accept
or reject the recommended valuation of our investment portfolio.



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Because there is a delay between when we close an investment and when the investment can be
evaluated by SPSE, new loans are not valued immediately by SPSE; rather, the Valuation Team makes its own determination about the value of these investments in accordance with our Policy using the methods described herein.



|(B) | Portfolio investments in controlled companies comprised of a bundle of securities, which can include debt and equity securities: The fair value of these investments is determined based on the total enterprise
value (TEV) of the portfolio company, or issuer, utilizing a liquidity waterfall approach under ASC 820 for our Non-Public Debt Securities and equity or equity-like securities (e.g., preferred equity, common equity or other equity-like
securities) that are purchased together as part of a package, where we control or could gain control through an option or warrant security; both the debt and equity securities of the portfolio investment would exit in the mergers and acquisitions
market as the principal market, generally through a sale or recapitalization of the portfolio company. We generally exit the debt and equity securities of an issuer at the same time. Applying the liquidity waterfall approach to all of our
investments in an issuer, the Valuation Team first calculates the TEV of the issuer by incorporating some or all of the following factors:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the issuers ability to make payments;
| | - |  | --------------------------------------



| |  |  | the earnings of the issuer;
| | - |  | ---------------------------



| |  |  | recent sales to third parties of similar securities;
| | - |  | ----------------------------------------------------



| |  |  | the comparison to publicly traded securities; and
| | - |  | -------------------------------------------------



| |  |  | DCF or other pertinent factors.
| | - |  | -------------------------------

In gathering the sales to third parties of similar securities,
the Valuation Team generally references industry statistics and may use outside experts. TEV is only an estimate of value and may not be the value received in an actual sale. Once the Valuation Team has estimated the TEV of the issuer, it will
subtract the value of all the debt securities of the issuer, which are valued at the contractual principal balance. Fair values of these debt securities are discounted for any shortfall of TEV over the total debt outstanding for the issuer. Once the
values for all outstanding senior securities, which include all the debt securities, have been subtracted from the TEV of the issuer, the remaining amount, if any, is used to determine the value of the issuers equity or equity-like securities.
If, in the Valuation Teams judgment, the liquidity waterfall approach does not accurately reflect the value of the debt component, the Valuation Team may recommend that we use a valuation by SPSE, or, if that is unavailable, a DCF valuation
technique.



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



|(D) | Portfolio investments comprised of non-publicly traded non-control equity securities of other funds: The Valuation Team generally values any uninvested capital of the non-control fund at par value and values any
invested capital at the NAV provided by the non-control fund.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to the uncertainty inherent in the valuation process, such estimates of
fair value may differ significantly and materially from the values that would have been obtained had a ready market for the securities existed. Additionally, changes in the market environment and other events that may occur over the life of the
investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. There is no single standard for determining fair value in good faith, as fair value depends upon circumstances
of each individual case. At times, the estimates of fair value calculated by the various valuation techniques (inclusive of the third-party valuations we receive) may materially differ from one another, resulting in a range of potential
values. In these circumstances, the Valuation Team comes to its valuation conclusion based on all facts and circumstances considered, which is then presented to the Board for review and ultimate approval. In general, fair value is the amount
that the Valuation Team might reasonably expect to receive upon the current sale of the security in an orderly transaction between market participants at the measurement date.



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Other Valuation Considerations

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



| |  |  | the nature and realizable value of the collateral;
| | - |  | --------------------------------------------------



| |  |  | the portfolio companys earnings and cash flows and its ability to make payments on its obligations;
| | - |  | ----------------------------------------------------------------------------------------------------



| |  |  | the markets in which the portfolio company does business;
| | - |  | ---------------------------------------------------------



| |  |  | the comparison to publicly traded companies; and
| | - |  | ------------------------------------------------



| |  |  | DCF and other relevant factors.
| | - |  | -------------------------------

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

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

Loan Grading and Risk Rating: As part of our valuation procedures above, we risk rate all of our investments in debt
securities. We use a proprietary risk rating system. Our risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default. This system is used to estimate the probability of default on debt securities and the
expected loss if there is a default. These types of systems are referred to as risk rating systems and are used by banks and rating agencies. The risk rating system covers both qualitative and quantitative aspects of the business and the securities
we hold.

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



|                 |  |             |  |              |  |                                                                                                                  
|---------------- |  | ----------- |  | ------------ |  | -----------------------------------------------------------------------------------------------------------------
|Advisers System |  | First NRSRO |  | Second NRSRO |  | Description(A)                                                                                                   
|>10              |  | Baa2        |  | BBB          |  | Probability of Default (PD) during the next ten years is 4% and the Expected Loss upon Default (EL) is 1% or less
|10               |  | Baa3        |  | BBB-         |  | PD is 5% and the EL is 1% to 2%                                                                                  
|9                |  | Ba1         |  | BB+          |  | PD is 10% and the EL is 2% to 3%                                                                                 
|8                |  | Ba2         |  | BB           |  | PD is 16% and the EL is 3% to 4%                                                                                 
|7                |  | Ba3         |  | BB-          |  | PD is 17.8% and the EL is 4% to 5%                                                                               
|6                |  | B1          |  | B+           |  | PD is 22% and the EL is 5% to 6.5%                                                                               
|5                |  | B2          |  | B            |  | PD is 25% and the EL is 6.5% to 8%                                                                               
|4                |  | B3          |  | B-           |  | PD is 27% and the EL is 8% to 10%                                                                                
|3                |  | Caa1        |  | CCC+         |  | PD is 30% and the EL is 10% to 13.3%                                                                             
|2                |  | Caa2        |  | CCC          |  | PD is 35% and the EL is 13.3% to 16.7%                                                                           
|1                |  | Caa3        |  | CC           |  | PD is 65% and the EL is 16.7% to 20%                                                                             
|0                |  | N/A         |  | D            |  | PD is 85% or there is a payment default and the EL is greater than 20%                                           



|(A) | The default rates set forth are for a ten year term debt security. If a debt security is less than ten years, then the probability of default is adjusted to a lower percentage for the shorter period, which may move the
security higher on this risk rating scale.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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The above scale gives an indication of the probability of default and the magnitude of the expected loss if there
is a default. Generally, our policy is to stop accruing interest on an investment if we determine that interest is no longer collectable. As of March 31, 2014, Tread was the only portfolio investment on non-accrual with an aggregate fair value
of $0. As of March 31, 2013, two investments, ASH and Tread, were on non-accrual with an aggregate fair value of $0. Additionally, we do not risk rate our equity securities.

The following table lists the risk ratings for all proprietary loans in our portfolio as of March 31, 2014 and 2013, representing 100%, of the principal
balance of all loans in our portfolio at the end of each period:



|                 |  |                     |     |  |                     |  |     | 
|---------------- |  | ------------------- | --- |  | ------------------- |  | --- | 
|Rating           |  | As of March 31,2014 |     |  | As of March 31,2013 | 
|Highest          |  |                     | 9.1 |  |                     |  | 7.4 | 
|Average          |  |                     | 5.7 |  |                     |  | 5.2 | 
|Weighted Average |  |                     | 5.2 |  |                     |  | 5.3 | 
|Lowest           |  |                     | 2.6 |  |                     |  | 1.3 | 

Tax Status

Federal
Income Taxes

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

In an effort to limit certain excise taxes imposed on RICs, we
generally distribute during each calendar year, an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on
October 31 of the calendar year and (3) any ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years. However, we did incur an excise tax of $0.3 million and $31 for the
calendar years ended December 31, 2013 and 2012, respectively. Under the RIC Modernization Act (the RIC Act), we are permitted to carry forward capital losses incurred in taxable years beginning after March 31, 2011, for an
unlimited period. However, any losses incurred during those future taxable years must be used prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. Additionally, post-enactment capital loss carryforwards will
retain their character as either short-term or long-term capital losses rather than only being considered short-term as permitted under previous regulation. Our total capital loss carryforward balance was $8.7 million as of March 31, 2013, and,
primarily as a result of the net $8.2 million capital gain related to the Venyu, ASH, Packerland and Noble exits or partial exits and other tax realized loss adjustments during the year ended March 31, 2014, we expect that all but $0.2 million
in realized losses incurred in pre-enactment taxable years will be utilized during the fiscal year ended March 31, 2014.

Revenue Recognition

Interest Income Recognition

Interest income,
adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more
past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has
demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon
managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid, and, in managements judgment, are likely to remain current, or due to a restructuring, the interest income
is deemed to be collectible. As of March 31, 2014, our loans to Tread were on non-accrual, with an aggregate debt cost basis of $11.7 million, or 4.2% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of
$0. As of March 31, 2013, ASH and Tread were on non-accrual, with an aggregate debt cost basis of $24.9 million, or 10.4% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $0.

PIK interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income.
To maintain our status as a RIC, this non-cash source of income must be included in our calculation of distributable income for purposes of complying with our distribution requirements, even though we have not yet collected the cash. During the year
ended March 31, 2014, we recorded PIK income of $0.1 million. We did not hold any loans in our portfolio that contained a PIK provision during the year ended March 31, 2013.



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Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company. We recorded $4.2
million of success fees in aggregate during the year ended March 31, 2014 related to debt exits or prepayments from Venyu, Channel, Cavert, SOG, Mathey and Frontier. We recorded $0.8 million of success fees during the year ended March 31,
2013, representing prepayments received from Mathey and Cavert.

We accrue dividend income on preferred and common equity securities to the extent that
such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration. For the year ended March 31, 2014, we recorded $1.4 million in dividend income related to the exit of Venyu. We recorded
$4.1 million and $0.7 million in dividend income during the year ended March 31, 2013, on accrued preferred shares of Galaxy and Acme, respectively.

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

Recent Accounting Pronouncements

In June 2013, the FASB
issued ASU 2013-08, Financial Services  Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, which amends the criteria that define an investment company and clarifies the measurement
guidance and requires new disclosures for investment companies. Under ASU 2013-08, an entity already regulated under the 1940 Act is automatically an investment company under the new GAAP definition, so we anticipate no impact from adopting this
standard on our financial position or results of operations. We are currently assessing whether additional disclosure requirements will be necessary. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after
December 15, 2013.



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|ITEM 7A. | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
|-------- | ----------------------------------------------------------

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

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

Currently, all of our variable-rate loans have rates associated with either the current LIBOR
or prime rate. As of March 31, 2014, our portfolio consisted of the following breakdown based on total principal balance of all outstanding debt investments:



| |       |   |  |                            
| | ----- | - |  | ---------------------------
| | 82.5  | % |  | Variable rates with a floor
| | 17.5  |   |  | Fixed rates                
| |       |   |  |                            
| | 100.0 | % |  | Total                      
| |       |   |  |                            

On April 30, 2013, we, through our wholly-owned subsidiary, Business Investment, entered into a Credit Facility providing
for a $70 million revolving line of credit. On June 12, 2013, we further increased the borrowing capacity under the Credit Facility from $70 million to $105 million by adding two additional lenders. The Credit Facility revolving period ends on
April 30, 2016, and, if not renewed or extended by the revolving period end date, all principal and interest will be due and payable on or before April 30, 2017 (one year after the revolving period end date). Advances under the Credit
Facility will generally bear interest at the 30-day LIBOR, plus 3.75% per annum, with an unused fee of 0.50% on undrawn amounts. In connection with Credit Facility, in July 2013, we entered into a forward interest rate cap agreement, effective
October 2013 and expiring in April 2016. As of March 31, 2014, the interest rate cap agreement had a minimal fair value.

The current interest rate
cap agreement entitles us to receive payments, if any, equal to the amount by which interest payments on the current notional amount at the one month LIBOR exceed the payments on the current notional amount at 6%. This agreement effectively caps our
interest payments on our line of credit borrowings, up to the notional amount of the interest rate cap over the remaining term of the agreement. This mitigates our exposure to increases in interest rates on our borrowings on our line of credit,
which are at variable rates.

To illustrate the potential impact of changes in interest rates on our net (decrease) increase in net assets resulting from
operations, we have performed the following hypothetical analysis, which assumes that our balance sheet and interest rates remain constant as of March 31, 2014 and no further actions are taken to alter our existing interest rate sensitivity.



|                       |  |                            |       |  |                                        |   |       |                                                               |  |   |      |  
|---------------------- |  | -------------------------- | ----- |  | -------------------------------------- | - | ----- | ------------------------------------------------------------- |  | - | ---- | -
|Basis Point Change (a) |  | Increase inInterest Income |       |  | Increase (Decrease) inInterest Expense |   |       | Net (Decrease) Increase inNet Assets Resulting fromOperations | 
|Up 300 basis points    |  | $                          | 1,563 |  |                                        | $ | 1,838 |                                                               |  | $ | (275 | )
|Up 200 basis points    |  |                            | 306   |  |                                        |   | 1,225 |                                                               |  |   | (919 | )
|Up 100 basis points    |  |                            | 22    |  |                                        |   | 612   |                                                               |  |   | (590 | )
|Down 15 basis points   |  |                            |      |  |                                        |   | (93   | )                                                             |  |   | 93   |  



|(a) | As of March 31, 2014, our effective average LIBOR was 0.15%, therefore the largest decrease in basis points that could occur was 15 basis points.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------

Although management believes that this analysis is indicative of our existing interest rate sensitivity, it does not adjust for potential changes in credit
quality, size and composition of our loan portfolio on the balance sheet and other business developments that could affect net (decrease) increase in net assets resulting from operations. Accordingly, actual results could differ significantly from
those in the hypothetical analysis in the table above.

We may also experience risk associated with investing in securities of companies with foreign
operations. Some of our portfolio companies have operations located outside the U.S. These risks include, but are not limited to, fluctuations in foreign currency exchange rates, imposition of foreign taxes, changes in exportation regulations and
political and social instability.



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|ITEM 8. | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
|------- | -------------------------------------------

Index to Consolidated Financial Statements



|                                                                                                   |  |  |    | 
|-------------------------------------------------------------------------------------------------- |  |  | -- | 
|Report of Management on Internal Controls and Financial Reporting                                  |  |  | 61 | 
|Report of Independent Registered Public Accounting Firm                                            |  |  | 62 | 
|Consolidated Statements of Assets and Liabilities as of March 31, 2014 and March 31, 2013          |  |  | 63 | 
|Consolidated Statements of Operations for the years ended March 31, 2014, 2013 and 2012            |  |  | 64 | 
|Consolidated Statements of Changes in Net Assets for the years ended March 31, 2014, 2013 and
2012 |  |  | 65 | 
|Consolidated Statements of Cash Flows for the years ended March 31, 2014, 2013 and 2012            |  |  | 66 | 
|Consolidated Schedules of Investments as of March 31, 2014 and March 31, 2013                      |  |  | 67 | 
|Notes to Consolidated Financial Statements                                                         |  |  | 73 | 



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Managements Annual Report on Internal Control over Financial
Reporting

To the Stockholders and Board of Directors of Gladstone Investment Corporation:

Our management is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under
the Securities Exchange Act of 1934. Our internal control over financial reporting is designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in
accordance with generally accepted accounting principles and include those policies and procedures that: (1) pertain to the maintenance of records that in reasonable detail accurately and fairly reflect our transactions and the dispositions of
our assets; (2) provide reasonable assurance that our transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with appropriate authorizations; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on our
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation.

Under the supervision and with the participation of our management, we assessed the effectiveness of our internal control over financial reporting as of
March 31, 2014, using the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) in Internal ControlIntegrated Framework (1992). Based on its assessment, management has concluded that our
internal control over financial reporting was effective as of March 31, 2014.

The effectiveness of our internal control over financial reporting as
of March 31, 2014 has been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, as stated in their report which is included herein.

May 13, 2014



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Report of Independent Registered Public
Accounting Firm

To the Stockholders and Board of Directors of Gladstone Investment Corporation:

In our opinion, the accompanying consolidated statements of assets and liabilities, including the consolidated schedules of investments, and the related
consolidated statements of operations, of changes in net assets and of cash flows and the financial highlights present fairly, in all material respects, the financial position of Gladstone Investment Corporation and its subsidiaries (the
Company) as of March 31, 2014 and 2013, and the results of their operations and their cash flows for each of the three years in the period ended March 31, 2014, in conformity with accounting principles generally accepted in the
United States of America. In addition, in our opinion, the financial statement schedule listed in the index appearing under Item 15(a)(2) presents fairly, in all material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements. Also, in our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of March 31, 2014, based on criteria established in Internal
Control - Integrated Framework (1992) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO). The Companys management is responsible for these financial statements and financial statement schedule, for
maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Managements Annual Report on Internal Control over Financial
Reporting. Our responsibility is to express opinions on these financial statements, on the financial statement schedule, and on the Companys internal control over financial reporting based on our integrated audits. We conducted our audits in
accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material
misstatement and whether effective internal control over financial reporting was maintained in all material respects. Our audits of the financial statements included examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. Our audit of internal control over financial reporting included obtaining an
understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audits also
included performing such other procedures as we considered necessary in the circumstances. Our procedures included confirmation of securities as of March 31, 2014 by correspondence with the custodian. We believe that our audits provide a
reasonable basis for our opinions.

A companys internal control over financial reporting is a process designed to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A companys internal control over financial reporting includes those
policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations
of management and directors of the company; and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ PricewaterhouseCoopers LLP

McLean, VA

May 13, 2014



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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)



|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | --------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                                         |  | March 31, |        
|                                                                                                                                                                                         |  | 2014      |         |   | 2013 |  
|                                                                                                                                                                                         |  |          
|ASSETS                                                                                                                                                                                   |  |           |         |   |      |   |         |  
|Investments at fair value                                                                                                                                                                |  |           |         |   |      |   |         |  
|Control investments (Cost of $29,632 and $98,071 respectively)                                                                                                                           |  | $         | 21,104  |   |      | $ | 98,515  |  
|Affiliate investments (Cost of $120,010 and $36,528, respectively)                                                                                                                       |  |           | 87,849  |   |      |   | 18,216  |  
|Non-Control/Non-Affiliate investments (Cost of $233,895 and $191,822, respectively)                                                                                                      |  |           | 205,440 |   |      |   | 169,751 |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|Total investments at fair value (Cost of $383,537 and $326,421, respectively)                                                                                                            |  |           | 314,393 |   |      |   | 286,482 |  
|Cash and cash equivalents                                                                                                                                                                |  |           | 4,553   |   |      |   | 85,904  |  
|Restricted cash                                                                                                                                                                          |  |           | 5,314   |   |      |   | 626     |  
|Interest receivable                                                                                                                                                                      |  |           | 1,289   |   |      |   | 1,309   |  
|Due from custodian                                                                                                                                                                       |  |           | 1,704   |   |      |   | 1,677   |  
|Deferred financing costs                                                                                                                                                                 |  |           | 2,355   |   |      |   | 2,336   |  
|Other assets                                                                                                                                                                             |  |           | 1,086   |   |      |   | 1,469   |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|TOTAL ASSETS                                                                                                                                                                             |  | $         | 330,694 |   |      | $ | 379,803 |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|                                                                                                                                                                                         |  |          
|LIABILITIES                                                                                                                                                                              |  |           |         |   |      |   |         |  
|Borrowings:                                                                                                                                                                              |  |           |         |   |      |   |         |  
|Short-term loan at fair value (Cost of $0 and $58,016, respectively)                                                                                                                     |  | $         |        |   |      | $ | 58,016  |  
|Line of credit at fair value (Cost of $61,250 and $31,000, respectively)                                                                                                                 |  |           | 61,701  |   |      |   | 31,854  |  
|Other secured borrowings                                                                                                                                                                 |  |           | 5,000   |   |      |   | 5,000   |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|Total borrowings                                                                                                                                                                         |  |           | 66,701  |   |      |   | 94,870  |  
|Mandatorily redeemable preferred stock, $0.001 par value, $25 liquidation preference; 1,610,000 shares authorized, 1,600,000
shares issued and outstanding as of March 31, 2014 and 2013 |  |           | 40,000  |   |      |   | 40,000  |  
|Accounts payable and accrued expenses                                                                                                                                                    |  |           | 665     |   |      |   | 1,069   |  
|Fees due to Adviser(A)                                                                                                                                                                   |  |           | 1,225   |   |      |   | 2,067   |  
|Fee due to Administrator(A)                                                                                                                                                              |  |           | 224     |   |      |   | 221     |  
|Other liabilities                                                                                                                                                                        |  |           | 1,042   |   |      |   | 613     |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|TOTAL LIABILITIES                                                                                                                                                                        |  |           | 109,857 |   |      |   | 138,840 |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|Commitments and contingencies(B)                                                                                                                                                         |  |           |         |   |      |   |         |  
|                                                                                                                                                                                         |  |          
|NET ASSETS                                                                                                                                                                               |  | $         | 220,837 |   |      | $ | 240,963 |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|                                                                                                                                                                                         |  |          
|ANALYSIS OF NET ASSETS                                                                                                                                                                   |  |           |         |   |      |   |         |  
|Common stock, $0.001 par value per share, 100,000,000 shares authorized, 26,475,958 shares issued and outstanding as of
March 31, 2014 and 2013, respectively                            |  | $         | 26      |   |      | $ | 26      |  
|Capital in excess of par value                                                                                                                                                           |  |           | 287,062 |   |      |   | 287,713 |  
|Cumulative net unrealized depreciation of investments                                                                                                                                    |  |           | (69,144 | ) |      |   | (39,939 | )
|Cumulative net unrealized depreciation of other                                                                                                                                          |  |           | (525    | ) |      |   | (883    | )
|Net investment income in excess of distributions                                                                                                                                         |  |           | 3,616   |   |      |   | 2,691   |  
|Accumulated net realized loss                                                                                                                                                            |  |           | (198    | ) |      |   | (8,645  | )
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|TOTAL NET ASSETS                                                                                                                                                                         |  | $         | 220,837 |   |      | $ | 240,963 |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  
|                                                                                                                                                                                         |  |          
|NET ASSET VALUE PER SHARE AT END OF YEAR                                                                                                                                                 |  | $         | 8.34    |   |      | $ | 9.10    |  
|                                                                                                                                                                                         |  |           |         |   |      |   |         |  



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

|(B) | Refer to Note 11Commitments and Contingencies for additional information.
|--- | --------------------------------------------------------------------------

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



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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS EXCEPT PER SHARE AMOUNTS)



|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|--------------------------------------------------------------- |  | -------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | -
|                                                                |  | Year Ended March 31, |           
|                                                                |  | 2014                 |            |   | 2013 |   |            | 2012 | 
|INVESTMENT INCOME                                               |  |                      |            |   |      |   |            |      |  |   |            |  
|Interest income:                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Control investments                                             |  | $                    | 5,642      |   |      | $ | 6,388      |      |  | $ | 4,972      |  
|Affiliate investments                                           |  |                      | 3,625      |   |      |   | 3,114      |      |  |   | 1,497      |  
|Non-Control/Non-Affiliate investments                           |  |                      | 21,190     |   |      |   | 15,292     |      |  |   | 13,112     |  
|Cash and cash equivalents                                       |  |                      | 3          |   |      |   | 4          |      |  |   | 7          |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total interest income                                           |  |                      | 30,460     |   |      |   | 24,798     |      |  |   | 19,588     |  
|Other income:                                                   |  |                      |            |   |      |   |            |      |  |   |            |  
|Control investments                                             |  |                      | 3,295      |   |      |   | 4,106      |      |  |   |           |  
|Affiliate investments                                           |  |                      | 1,299      |   |      |   |           |      |  |   |           |  
|Non-Control/Non-Affiliate investments                           |  |                      | 1,210      |   |      |   | 1,634      |      |  |   | 1,654      |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total other income                                              |  |                      | 5,804      |   |      |   | 5,740      |      |  |   | 1,654      |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total investment income                                         |  |                      | 36,264     |   |      |   | 30,538     |      |  |   | 21,242     |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|                                                                |  |                      |           
|EXPENSES                                                        |  |                      |            |   |      |   |            |      |  |   |            |  
|Base management fee(A)                                          |  |                      | 6,207      |   |      |   | 5,412      |      |  |   | 4,386      |  
|Incentive fee(A)                                                |  |                      | 3,983      |   |      |   | 2,585      |      |  |   | 19         |  
|Administration fee(A)                                           |  |                      | 863        |   |      |   | 785        |      |  |   | 684        |  
|Interest expense on borrowings                                  |  |                      | 2,075      |   |      |   | 1,127      |      |  |   | 768        |  
|Dividends on mandatorily redeemable preferred stock             |  |                      | 2,850      |   |      |   | 2,850      |      |  |   | 198        |  
|Amortization of deferred financing costs                        |  |                      | 1,024      |   |      |   | 791        |      |  |   | 459        |  
|Professional fees                                               |  |                      | 805        |   |      |   | 541        |      |  |   | 591        |  
|Other general and administrative expenses                       |  |                      | 1,459      |   |      |   | 1,287      |      |  |   | 1,554      |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Expenses before credits from Adviser                            |  |                      | 19,266     |   |      |   | 15,378     |      |  |   | 8,659      |  
|Credits to fees(A)                                              |  |                      | (2,309     | ) |      |   | (1,328     | )    |  |   | (1,160     | )
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total expenses net of credits to fees                           |  |                      | 16,957     |   |      |   | 14,050     |      |  |   | 7,499      |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|NET INVESTMENT INCOME                                           |  | $                    | 19,307     |   |      | $ | 16,488     |      |  | $ | 13,743     |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|                                                                |  |                      |           
|REALIZED AND UNREALIZED (LOSS) GAIN                             |  |                      |            |   |      |   |            |      |  |   |            |  
|Net realized gain:                                              |  |                      |            |   |      |   |            |      |  |   |            |  
|Control investments                                             |  |                      | 24,838     |   |      |   | (6         | )    |  |   | (269       | )
|Affiliate investments                                           |  |                      | (1,763     | ) |      |   |           |      |  |   |           |  
|Non-Control/Non-Affiliate investments                           |  |                      | (14,834    | ) |      |   | 849        |      |  |   | 5,360      |  
|Other                                                           |  |                      | (29        | ) |      |   | (41        | )    |  |   | (40        | )
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total net realized gain                                         |  |                      | 8,212      |   |      |   | 802        |      |  |   | 5,051      |  
|Net unrealized (depreciation) appreciation:                     |  |                      |            |   |      |   |            |      |  |   |            |  
|Control investments                                             |  |                      | (21,343    | ) |      |   | 27,740     |      |  |   | 396        |  
|Affiliate investments                                           |  |                      | (1,481     | ) |      |   | (19,214    | )    |  |   | 1,945      |  
|Non-Control/Non-Affiliate investments                           |  |                      | (6,382     | ) |      |   | (7,722     | )    |  |   | 822        |  
|Other                                                           |  |                      | 358        |   |      |   | (815       | )    |  |   | 9          |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Total net unrealized (depreciation) appreciation                |  |                      | (28,848    | ) |      |   | (11        | )    |  |   | 3,172      |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Net realized and unrealized (loss) gain                         |  |                      | (20,636    | ) |      |   | 791        |      |  |   | 8,223      |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|                                                                |  |                      |           
|NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS |  | $                    | (1,329     | ) |      | $ | 17,279     |      |  | $ | 21,966     |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|                                                                |  |                      |           
|BASIC AND DILUTED PER COMMON SHARE:                             |  |                      |            |   |      |   |            |      |  |   |            |  
|Net investment income                                           |  | $                    | 0.73       |   |      | $ | 0.68       |      |  | $ | 0.62       |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|Net (decrease) increase in net assets resulting from operations |  | $                    | (0.05      | ) |      | $ | 0.71       |      |  | $ | 0.99       |  
|                                                                |  |                      |            |   |      |   |            |      |  |   |            |  
|                                                                |  |                      |           
|WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:            |  |                      |            |   |      |   |            |      |  |   |            |  
|Basic and diluted                                               |  |                      | 26,475,958 |   |      |   | 24,189,148 |      |  |   | 22,080,133 |  



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

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



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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)



|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------ |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                   |  | Year Ended March 31, |        
|                                                                   |  | 2014                 |         |   | 2013 |   |         | 2012 | 
|OPERATIONS:                                                        |  |                      |         |   |      |   |         |      |  |   |         |  
|Net investment income                                              |  | $                    | 19,307  |   |      | $ | 16,488  |      |  | $ | 13,743  |  
|Net realized gain on investments                                   |  |                      | 8,241   |   |      |   | 843     |      |  |   | 5,091   |  
|Net realized loss on other                                         |  |                      | (29     | ) |      |   | (41     | )    |  |   | (40     | )
|Net unrealized (depreciation) appreciation of investments          |  |                      | (29,206 | ) |      |   | 804     |      |  |   | 3,163   |  
|Net unrealized appreciation (depreciation) of other                |  |                      | 358     |   |      |   | (815    | )    |  |   | 9       |  
|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in net assets from operations              |  |                      | (1,329  | ) |      |   | 17,279  |      |  |   | 21,966  |  
|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                   |  |                      |        
|EQUITY CAPITAL ACTIVITY:                                           |  |                      |         |   |      |   |         |      |  |   |         |  
|Issuance of common stock                                           |  |                      |        |   |      |   | 32,969  |      |  |   |        |  
|Shelf offering registration costs, net                             |  |                      |        |   |      |   | (1,954  | )    |  |   |        |  
|Distributions to common stockholders from net investment income    |  |                      | (18,797 | ) |      |   | (14,547 | )    |  |   | (13,579 | )
|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|Net (decrease) increase in net assets from equity capital activity |  |                      | (18,797 | ) |      |   | 16,468  |      |  |   | (13,579 | )
|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                   |  |                      |        
|Total (decrease) increase in net assets                            |  |                      | (20,126 | ) |      |   | 33,747  |      |  |   | 8,387   |  
|Net assets at beginning of year                                    |  |                      | 240,963 |   |      |   | 207,216 |      |  |   | 198,829 |  
|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                   |  |                      |        
|Net assets at end of year                                          |  | $                    | 220,837 |   |      | $ | 240,963 |      |  | $ | 207,216 |  
|                                                                   |  |                      |         |   |      |   |         |      |  |   |         |  

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



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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)



|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|---------------------------------------------------------------------------------------------------------------------------------- |  | -------------------- | -------- | - | ---- | - | -------- | ---- |  | - | -------- | -
|                                                                                                                                   |  | Year Ended March 31, |         
|                                                                                                                                   |  | 2014                 |          |   | 2013 |   |          | 2012 | 
|CASH FLOWS FROM OPERATING ACTIVITIES                                                                                               |  |                      |          |   |      |   |          |      |  |   |          |  
|Net (decrease) increase in net assets resulting from operations                                                                    |  | $                    | (1,329   | ) |      | $ | 17,279   |      |  | $ | 21,966   |  
|Adjustments to reconcile net (decrease) increase in net assets resulting from operations to net cash used in operating
activities: |  |                      |          |   |      |   |          |      |  |   |          |  
|Purchase of investments                                                                                                            |  |                      | (132,203 | ) |      |   | (87,607  | )    |  |   | (91,298  | )
|Principal repayments of investments                                                                                                |  |                      | 51,828   |   |      |   | 25,243   |      |  |   | 19,154   |  
|Proceeds from the sale of investments                                                                                              |  |                      | 31,587   |   |      |   | 3,181    |      |  |   | 8,031    |  
|Increase in investment balance due to paid in kind interest                                                                        |  |                      | (88      | ) |      |   |         |      |  |   |         |  
|Net realized gain on investments                                                                                                   |  |                      | (8,241   | ) |      |   | (843     | )    |  |   | (5,091   | )
|Net realized loss on other                                                                                                         |  |                      | 29       |   |      |   | 41       |      |  |   | 40       |  
|Net unrealized depreciation (appreciation) of investments                                                                          |  |                      | 29,206   |   |      |   | (804     | )    |  |   | (3,163   | )
|Net unrealized (appreciation) depreciation of other                                                                                |  |                      | (358     | ) |      |   | 815      |      |  |   | (9       | )
|Amortization of deferred financing costs                                                                                           |  |                      | 1,024    |   |      |   | 791      |      |  |   | 459      |  
|(Increase) decrease in restricted cash                                                                                             |  |                      | (4,688   | ) |      |   | 1,302    |      |  |   | 2,571    |  
|Decrease (increase) in interest receivable                                                                                         |  |                      | 20       |   |      |   | (59      | )    |  |   | (513     | )
|Increase in due from custodian                                                                                                     |  |                      | (27      | ) |      |   | (150     | )    |  |   | (668     | )
|Decrease (increase) in other assets                                                                                                |  |                      | 383      |   |      |   | (867     | )    |  |   | 162      |  
|(Decrease) increase in accounts payable and accrued expenses                                                                       |  |                      | (345     | ) |      |   | 613      |      |  |   | 197      |  
|(Decrease) increase in fees due to Adviser(A)                                                                                      |  |                      | (842     | ) |      |   | 1,571    |      |  |   | (3       | )
|Increase in administration fee payable to Administrator(A)                                                                         |  |                      | 3        |   |      |   | 3        |      |  |   | 47       |  
|Increase (decrease) in other liabilities                                                                                           |  |                      | 429      |   |      |   | (243     | )    |  |   | (553     | )
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|Net cash used in operating activities                                                                                              |  |                      | (33,612  | ) |      |   | (39,734  | )    |  |   | (48,671  | )
|                                                                                                                                   |  |                      |         
|CASH FLOWS FROM FINANCING ACTIVITIES                                                                                               |  |                      |          |   |      |   |          |      |  |   |          |  
|Proceeds from issuance of common stock, net of expenses                                                                            |  |                      |         |   |      |   | 31,015   |      |  |   |         |  
|Proceeds from short-term loans                                                                                                     |  |                      | 56,514   |   |      |   | 250,063  |      |  |   | 254,507  |  
|Repayments on short-term loans                                                                                                     |  |                      | (114,530 | ) |      |   | (268,052 | )    |  |   | (218,502 | )
|Proceeds from Credit Facility                                                                                                      |  |                      | 145,350  |   |      |   | 144,000  |      |  |   | 59,200   |  
|Repayments on Credit Facility                                                                                                      |  |                      | (115,100 | ) |      |   | (113,000 | )    |  |   | (59,200  | )
|Proceeds from other secured borrowings                                                                                             |  |                      |         |   |      |   | 5,000    |      |  |   |         |  
|Proceeds from issuance of mandatorily redeemable preferred stock                                                                   |  |                      |         |   |      |   |         |      |  |   | 40,000   |  
|Purchase of derivatives                                                                                                            |  |                      | (75      | ) |      |   |         |      |  |   | (29      | )
|Payment of deferred financing costs                                                                                                |  |                      | (1,101   | ) |      |   | (387     | )    |  |   | (2,760   | )
|Distributions paid to common stockholders                                                                                          |  |                      | (18,797  | ) |      |   | (14,547  | )    |  |   | (13,579  | )
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|Net cash (used in) provided by financing activities                                                                                |  |                      | (47,739  | ) |      |   | 34,092   |      |  |   | 59,637   |  
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|                                                                                                                                   |  |                      |         
|NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS                                                                               |  |                      | (81,351  | ) |      |   | (5,642   | )    |  |   | 10,966   |  
|CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR                                                                                       |  |                      | 85,904   |   |      |   | 91,546   |      |  |   | 80,580   |  
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|                                                                                                                                   |  |                      |         
|CASH AND CASH EQUIVALENTS, END OF YEAR                                                                                             |  | $                    | 4,553    |   |      | $ | 85,904   |      |  | $ | 91,546   |  
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|                                                                                                                                   |  |                      |         
|CASH PAID DURING YEAR FOR INTEREST                                                                                                 |  | $                    | 1,952    |   |      | $ | 1,079    |      |  | $ | 777      |  
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  
|                                                                                                                                   |  |                      |         
|NON-CASH ACTIVITIES(B)                                                                                                             |  | $                    |         |   |      | $ | 4,106    |      |  | $ |         |  
|                                                                                                                                   |  |                      |          |   |      |   |          |      |  |   |          |  



|    |  |                                                                        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                             
|--- |  | ---------------------------------------------------------------------- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(A) |  | Refer to Note 4Related Party Transactions for additional information.
|(B) |  | 2013:                                                                  |  | In February 2013, we recapitalized our investment in Galaxy Tool Holdings Corp. (Galaxy), converting $8.2 million of Galaxy preferred stock and its related $4.1 million in accrued dividends into a new $12.3 million
senior debt investment in a non-cash transaction. We recognized $4.1 million in dividend income on our Consolidated Statements of Operations during the year ended March 31, 2013 related to this recapitalization.

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



66



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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2014

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|--------------------------------------------------------------------------------- |  | -------------------------------------------------- |  | ------------------------------------------------------- |  | --------- | ------- |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                        |  | Industry                                           |  | Investment(B)                                           |  | Principal |         |  | Cost |   |        | Fair Value | 
|                                                                                  |  |                                                    |  |                                                        
|CONTROL INVESTMENTS:                                                              |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |  
|Galaxy Tool Holding Corp.                                                         |  | Aerospace and Defense                              |  | Senior Subordinated Term Debt (13.5%, Due 8/2017)       |  | $         | 15,520  |  |      | $ | 15,520 |            |  | $ | 15,520 | 
|                                                                                  |  |                                                    |  | Preferred Stock (6,039,387 shares)(C)(F)                |  |           |         |  |      |   | 11,464 |            |  |   | 2,992  | 
|                                                                                  |  |                                                    |  | Common Stock (88,843 shares)(C)(F)                      |  |           |         |  |      |   | 48     |            |  |   |       | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 27,032 |            |  |   | 18,512 | 
|                                                                                  |  |                                                    |  |                                                         | 
|NDLI Acquisition Inc.                                                             |  | Cargo Transport                                    |  | Preferred Stock (2,600 shares)(C)(F)                    |  |           |         |  |      |   | 2,600  |            |  |   | 2,592  | 
|                                                                                  |  |                                                    |  | Common Stock (545 shares)(C)(F)                         |  |           |         |  |      |   |       |            |  |   |       | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 2,600  |            |  |   | 2,592  | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|Total Control Investments (represents 6.7% of total investments at fair value)    |  |                                                    |  |                                                         |  | $         | 29,632  |  |      | $ | 21,104 |           
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                        
|AFFILIATE INVESTMENTS:                                                            |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |  
|Behrens Manufacturing, LLC                                                        |  | Diversified/Conglomerate Manufacturing             |  | Senior Term Debt (13.0%, Due 12/2018)                   |  | $         | 9,975   |  |      | $ | 9,975  |            |  | $ | 9,975  | 
|                                                                                  |  |                                                    |  | Preferred Stock (2,923 shares)(C)(F)                    |  |           |         |  |      |   | 2,922  |            |  |   | 2,754  | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 12,897 |            |  |   | 12,729 | 
|                                                                                  |  |                                                    |  |                                                         | 
|Channel Technologies Group, LLC                                                   |  | Diversified/Conglomerate Manufacturing             |  | Preferred Stock (2,279 shares)(C)(F)                    |  |           |         |  |      |   | 2,864  |            |  |   | 3,122  | 
|                                                                                  |  |                                                    |  | Common Stock (2,279,020 shares)(C)(F)                   |  |           |         |  |      |   |       |            |  |   |       | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 2,864  |            |  |   | 3,122  | 
|                                                                                  |  |                                                    |  |                                                         | 
|Danco Acquisition Corp.                                                           |  | Diversified/Conglomerate Manufacturing             |  | Line of Credit, $700 available (4.0%, Due 8/2015)(D)    |  |           | 3,450   |  |      |   | 3,450  |            |  |   | 690    | 
|                                                                                  |  |                                                    |  | Senior Term Debt (4.0%, Due 8/2015)(D)                  |  |           | 2,575   |  |      |   | 2,575  |            |  |   | 515    | 
|                                                                                  |  |                                                    |  | Senior Term Debt (4.0%, Due 8/2015)(D)                  |  |           | 8,795   |  |      |   | 8,795  |            |  |   | 1,759  | 
|                                                                                  |  |                                                    |  | Senior Term Debt (5.0%, Due 8/2015)(D)(E)               |  |           | 1,150   |  |      |   | 1,150  |            |  |   | 236    | 
|                                                                                  |  |                                                    |  | Preferred Stock (25 shares)(C)(F)                       |  |           |         |  |      |   | 2,500  |            |  |   |       | 
|                                                                                  |  |                                                    |  | Common Stock (1,241 shares)(C)(F)                       |  |           |         |  |      |   | 3      |            |  |   |       | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 18,473 |            |  |   | 3,200  | 
|                                                                                  |  |                                                    |  |                                                         | 
|Edge Adhesives Holdings, Inc.                                                     |  | Diversified/Conglomerate Manufacturing             |  | Line of Credit, $705 available (10.5%, Due 8/2014)(H)   |  |           | 795     |  |      |   | 795    |            |  |   | 795    | 
|                                                                                  |  |                                                    |  | Senior Term Debt (12.5%, Due 2/2019)(H)                 |  |           | 9,300   |  |      |   | 9,300  |            |  |   | 9,300  | 
|                                                                                  |  |                                                    |  | Senior Subordinated Term Debt (13.5%, Due 2/2019)(H)    |  |           | 2,400   |  |      |   | 2,400  |            |  |   | 2,400  | 
|                                                                                  |  |                                                    |  | Preferred Stock (3,474 shares)(C)(F)(H)                 |  |           |         |  |      |   | 3,474  |            |  |   | 3,474  | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 15,969 |            |  |   | 15,969 | 
|                                                                                  |  |                                                    |  |                                                         | 
|Head Country Food Products, Inc.                                                  |  | Beverage, Food and Tobacco                         |  | Line of Credit, $500 available (10.0%, Due 8/2014)(H)   |  |           |        |  |      |   |       |            |  |   |       | 
|                                                                                  |  |                                                    |  | Senior Term Debt (12.5%, Due 2/2019)(H)                 |  |           | 9,050   |  |      |   | 9,050  |            |  |   | 9,050  | 
|                                                                                  |  |                                                    |  | Preferred Stock (4,000 shares)(C)(F)(H)                 |  |           |         |  |      |   | 4,000  |            |  |   | 4,000  | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 13,050 |            |  |   | 13,050 | 
|                                                                                  |  |                                                    |  |                                                         | 
|Meridian Rack & Pinion, Inc.                                                      |  | Automobile                                         |  | Senior Term Debt (13.5%, Due 12/2018)(D)                |  |           | 9,660   |  |      |   | 9,660  |            |  |   | 9,672  | 
|                                                                                  |  |                                                    |  | Preferred Stock (3,381 shares)(C)(F)                    |  |           |         |  |      |   | 3,381  |            |  |   | 3,468  | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 13,041 |            |  |   | 13,140 | 
|                                                                                  |  |                                                    |  |                                                         | 
|SOG Specialty K&T, LLC                                                            |  | Leisure, Amusement, Motion Pictures, Entertainment |  | Senior Term Debt (13.3%, Due 8/2016)                    |  |           | 6,200   |  |      |   | 6,200  |            |  |   | 6,200  | 
|                                                                                  |  |                                                    |  | Senior Term Debt (14.8%, Due 8/2016)                    |  |           | 12,199  |  |      |   | 12,199 |            |  |   | 12,199 | 
|                                                                                  |  |                                                    |  | Preferred Stock (9,749 shares)(C)(F)                    |  |           |         |  |      |   | 9,749  |            |  |   | 8,240  | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 28,148 |            |  |   | 26,639 | 
|                                                                                  |  |                                                    |  |                                                         | 
|Tread Corp.                                                                       |  | Oil and Gas                                        |  | Line of Credit, $779 available (12.5%, Due 6/2014)(G)   |  |           | 2,471   |  |      |   | 2,471  |            |  |   |       | 
|                                                                                  |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)    |  |           | 5,000   |  |      |   | 5,000  |            |  |   |       | 
|                                                                                  |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)    |  |           | 2,750   |  |      |   | 2,750  |            |  |   |       | 
|                                                                                  |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due 2/2015)(G)    |  |           | 1,000   |  |      |   | 1,000  |            |  |   |       | 
|                                                                                  |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due on Demand)(G) |  |           | 510     |  |      |   | 510    |            |  |   |       | 
|                                                                                  |  |                                                    |  | Preferred Stock (3,332,765 shares)(C)(F)                |  |           |         |  |      |   | 3,333  |            |  |   |       | 
|                                                                                  |  |                                                    |  | Common Stock (7,716,320 shares)(C)(F)                   |  |           |         |  |      |   | 501    |            |  |   |       | 
|                                                                                  |  |                                                    |  | Common Stock Warrants (2,372,727 shares)(C)(F)          |  |           |         |  |      |   | 3      |            |  |   |       | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   | 15,568 |            |  |   |       | 
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 
|Total Affiliate Investments (represents 27.9% of total investments at fair value) |  |                                                    |  |                                                         |  | $         | 120,010 |  |      | $ | 87,849 |           
|                                                                                  |  |                                                    |  |                                                         |  |           |         |  |      |   |        |            |  |   |        | 



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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2014

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|-------------------------------------- |  | ---------------------------------------------------------------------- |  | ------------------------------------------------------------------ |  | --------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                             |  | Industry                                                               |  | Investment(B)                                                      |  | Principal |        |  | Cost |   |        | Fair Value | 
|                                       |  |                                                                        | 
|NON-CONTROL/NON-AFFILIATE INVESTMENTS: |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |           
|Acme Cryogenics, Inc.                  |  | Chemicals, Plastics, and Rubber                                        |  | Senior Subordinated Term Debt (11.5%, Due 3/2015)                  |  | $         | 14,500 |  |      | $ | 14,500 |            |  | $ | 14,500 | 
|                                       |  |                                                                        |  | Preferred Stock (898,814 shares)(C)(F)                             |  |           |        |  |      |   | 6,984  |            |  |   | 11,276 | 
|                                       |  |                                                                        |  | Common Stock (418,072 shares)(C)(F)                                |  |           |        |  |      |   | 1,045  |            |  |   |       | 
|                                       |  |                                                                        |  | Common Stock Warrants (465,639shares)(C)(F)                        |  |           |        |  |      |   | 25     |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 22,554 |            |  |   | 25,776 | 
|                                       |  |                                                                        |  |                                                                    | 
|Alloy Die Casting Corp.                |  | Diversified/Conglomerate Manufacturing                                 |  | Senior Term Debt (13.5%, Due 10/2018)(D)                           |  |           | 12,215 |  |      |   | 12,215 |            |  |   | 12,261 | 
|                                       |  |                                                                        |  | Preferred Stock (4,064 shares)(C)(F)                               |  |           |        |  |      |   | 4,064  |            |  |   | 1,948  | 
|                                       |  |                                                                        |  | Common Stock (630 share)(C)(F)                                     |  |           |        |  |      |   | 41     |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 16,320 |            |  |   | 14,209 | 
|                                       |  |                                                                        |  |                                                                    | 
|Auto Safety House, LLC                 |  | Automobile                                                             |  | Revolving Credit Facility, $1,000 available (7.0%, Due 10/2018)(D) |  |           | 5,000  |  |      |   | 5,000  |            |  |   | 4,925  | 
|                                       |  |                                                                        |  | Guaranty ($500)                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  | Guaranty ($250)                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 5,000  |            |  |   | 4,925  | 
|                                       |  |                                                                        |  |                                                                    | 
|B-Dry, LLC                             |  | Buildings and Real Estate                                              |  | Line of Credit, $0 available (6.5%, Due 5/2014)                    |  |           | 750    |  |      |   | 750    |            |  |   | 566    | 
|                                       |  |                                                                        |  | Senior Term Debt (13.5%, Due 5/2014)                               |  |           | 6,433  |  |      |   | 6,443  |            |  |   | 4,865  | 
|                                       |  |                                                                        |  | Senior Term Debt (13.5%, Due 5/2014)                               |  |           | 2,840  |  |      |   | 2,840  |            |  |   | 2,144  | 
|                                       |  |                                                                        |  | Common Stock Warrants (85 shares)(C)(F)                            |  |           |        |  |      |   | 300    |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 10,333 |            |  |   | 7,575  | 
|                                       |  |                                                                        |  |                                                                    | 
|Cavert II Holding Corp.                |  | Containers, Packaging, and Glass                                       |  | Preferred Stock (18,446 shares)(C)(F)                              |  |           |        |  |      |   | 1,845  |            |  |   | 3,023  | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 1,845  |            |  |   | 3,023  | 
|                                       |  |                                                                        |  |                                                                    | 
|Country Club Enterprises, LLC          |  | Automobile                                                             |  | Senior Subordinated Term Debt (18.6%, Due 11/2014)                 |  |           | 4,000  |  |      |   | 4,000  |            |  |   | 4,000  | 
|                                       |  |                                                                        |  | Preferred Stock (7,079,792 shares)(C)(F)                           |  |           |        |  |      |   | 7,725  |            |  |   | 3,670  | 
|                                       |  |                                                                        |  | Guaranty ($2,000)                                                  |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  | Guaranty ($878)                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 11,725 |            |  |   | 7,670  | 
|                                       |  |                                                                        |  |                                                                    | 
|Drew Foam Company, Inc.                |  | Chemicals, Plastics, and Rubber                                        |  | Senior Term Debt (13.5%, Due 8/2017)                               |  |           | 10,913 |  |      |   | 10,913 |            |  |   | 10,913 | 
|                                       |  |                                                                        |  | Preferred Stock (34,045 shares)(C)(F)                              |  |           |        |  |      |   | 3,375  |            |  |   | 1,351  | 
|                                       |  |                                                                        |  | Common Stock (5,372 shares)(C)(F)                                  |  |           |        |  |      |   | 63     |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 14,351 |            |  |   | 12,264 | 
|                                       |  |                                                                        |  |                                                                    | 
|Frontier Packaging, Inc.               |  | Containers, Packaging, and Glass                                       |  | Senior Term Debt (12.0%, Due 12/2017)                              |  |           | 12,500 |  |      |   | 12,500 |            |  |   | 12,500 | 
|                                       |  |                                                                        |  | Preferred Stock (1,373 shares)(C)(F)                               |  |           |        |  |      |   | 1,373  |            |  |   | 1,522  | 
|                                       |  |                                                                        |  | Common Stock (152 shares)(C)(F)                                    |  |           |        |  |      |   | 152    |            |  |   | 843    | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 14,025 |            |  |   | 14,865 | 
|                                       |  |                                                                        |  |                                                                    | 
|Funko, LLC                             |  | Personal and Non-Durable Consumer Products (Manufacturing Only)        |  | Senior Subordinated Term Debt (12.0% and 1.5% PIK, Due 5/2019)(D)  |  |           | 7,587  |  |      |   | 7,587  |            |  |   | 7,729  | 
|                                       |  |                                                                        |  | Preferred Stock (1,305 shares)(C)(F)                               |  |           |        |  |      |   | 1,305  |            |  |   | 2,276  | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 8,892  |            |  |   | 10,005 | 
|                                       |  |                                                                        |  |                                                                    | 
|Ginsey Home Solutions, Inc.            |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |  | Senior Subordinate Term Debt (13.5%, Due 1/2018)(I)                |  |           | 13,050 |  |      |   | 13,050 |            |  |   | 13,050 | 
|                                       |  |                                                                        |  | Preferred Stock (18,898 shares)(C)(F)                              |  |           |        |  |      |   | 9,393  |            |  |   | 3,082  | 
|                                       |  |                                                                        |  | Common Stock (63,747 shares)(C)(F)                                 |  |           |        |  |      |   | 8      |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 22,451 |            |  |   | 16,132 | 
|                                       |  |                                                                        |  |                                                                    | 
|Jackrabbit, Inc.                       |  | Farming and Agriculture                                                |  | Line of Credit, $3,000 available (13.5%, Due 4/2014)               |  |           |       |  |      |   |       |            |  |   |       | 
|                                       |  |                                                                        |  | Senior Term Debt (13.5%, Due 4/2018)                               |  |           | 11,000 |  |      |   | 11,000 |            |  |   | 11,000 | 
|                                       |  |                                                                        |  | Preferred Stock (3,556 shares)(C)(F)                               |  |           |        |  |      |   | 3,556  |            |  |   | 1,963  | 
|                                       |  |                                                                        |  | Common Stock (548 shares)(C)(F)                                    |  |           |        |  |      |   | 94     |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 14,650 |            |  |   | 12,963 | 
|                                       |  |                                                                        |  |                                                                    | 
|Mathey Investments, Inc.               |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |  | Senior Term Debt (10.0%, Due 3/2016)                               |  |           | 1,375  |  |      |   | 1,375  |            |  |   | 1,375  | 
|                                       |  |                                                                        |  | Senior Term Debt (12.0%, Due 3/2016)                               |  |           | 3,727  |  |      |   | 3,727  |            |  |   | 3,727  | 
|                                       |  |                                                                        |  | Senior Term Debt (12.5%, Due 3/2016)(E)                            |  |           | 3,500  |  |      |   | 3,500  |            |  |   | 3,500  | 
|                                       |  |                                                                        |  | Common Stock (29,102 shares)(C)(F)                                 |  |           |        |  |      |   | 777    |            |  |   | 4,895  | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 9,379  |            |  |   | 13,497 | 
|                                       |  |                                                                        |  |                                                                    | 
|Mitchell Rubber Products, Inc.         |  | Chemicals, Plastics, and Rubber                                        |  | Subordinated Term Debt (13.0%, Due 10/2016)(D)                     |  |           | 13,560 |  |      |   | 13,560 |            |  |   | 13,628 | 
|                                       |  |                                                                        |  | Preferred Stock (27,900 shares)(C)(F)                              |  |           |        |  |      |   | 2,790  |            |  |   | 1,086  | 
|                                       |  |                                                                        |  | Common Stock (27,900 shares)(C)(F)                                 |  |           |        |  |      |   | 28     |            |  |   |       | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                                    |  |           |        |  |      |   | 16,378 |            |  |   | 14,714 | 



68



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2014

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- |  | --------------------------------------------------- |  | --------- | ------- |  | ---- | - | ------- | ---------- |  |  | ------ | 
|Company(A)                                                                                        |  | Industry                                                               |  | Investment(B)                                       |  | Principal |         |  | Cost |   |         | Fair Value | 
|                                                                                                  |  |                                                                        |  |                                                     | 
|Noble Logistics, Inc.                                                                             |  | Cargo Transport                                                        |  | Line of Credit, $0 available (10.5%, Due 1/2015)(D) |  |           | 800     |  |      |   | 800     |            |  |  | 204    | 
|                                                                                                  |  |                                                                        |  | Senior Term Debt (11.0%, Due 1/2015)(D)             |  |           | 7,227   |  |      |   | 7,227   |            |  |  | 1,842  | 
|                                                                                                  |  |                                                                        |  | Senior Term Debt (10.5%, Due 1/2015)(D)             |  |           | 3,650   |  |      |   | 3,650   |            |  |  | 931    | 
|                                                                                                  |  |                                                                        |  | Senior Term Debt (10.5%, Due 1/2015)(D)(E)          |  |           | 3,650   |  |      |   | 3,650   |            |  |  | 931    | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   | 15,327  |            |  |  | 3,908  | 
|                                                                                                  |  |                                                                        |  |                                                     | 
|Precision Southeast, Inc.                                                                         |  | Diversified/Conglomerate Manufacturing                                 |  | Senior Term Debt (14.0%, Due 12/2015)               |  |           | 5,617   |  |      |   | 5,617   |            |  |  | 5,617  | 
|                                                                                                  |  |                                                                        |  | Preferred Stock (19,091 shares)(C)(F)               |  |           |         |  |      |   | 1,909   |            |  |  |       | 
|                                                                                                  |  |                                                                        |  | Common Stock (90,909 shares)(C)(F)                  |  |           |         |  |      |   | 91      |            |  |  |       | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   | 7,617   |            |  |  | 5,617  | 
|                                                                                                  |  |                                                                        |  |                                                     | 
|Quench Holdings Corp.                                                                             |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |  | Common Stock (4,770,391 shares)(C)(F)               |  |           |         |  |      |   | 3,397   |            |  |  | 5,056  | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   | 3,397   |            |  |  | 5,056  | 
|                                                                                                  |  |                                                                        |  |                                                     | 
|SBS, Industries, LLC                                                                              |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |  | Senior Term Debt (14.0%, Due 8/2016)                |  |           | 11,355  |  |      |   | 11,355  |            |  |  | 11,355 | 
|                                                                                                  |  |                                                                        |  | Preferred Stock (19,935 shares)(C)(F)               |  |           |         |  |      |   | 1,994   |            |  |  | 1,064  | 
|                                                                                                  |  |                                                                        |  | Common Stock (221,500 shares)(C)(F)                 |  |           |         |  |      |   | 221     |            |  |  |       | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   | 13,570  |            |  |  | 12,419 | 
|                                                                                                  |  |                                                                        |  |                                                     | 
|Schylling Investments, LLC                                                                        |  | Leisure, Amusement, Motion Pictures, Entertainment                     |  | Senior Term Debt (13.0%, Due 8/2017)(D)             |  |           | 13,081  |  |      |   | 13,081  |            |  |  | 13,228 | 
|                                                                                                  |  |                                                                        |  | Preferred Stock (4,000 shares)(C)(F)                |  |           |         |  |      |   | 4,000   |            |  |  |       | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   | 17,081  |            |  |  | 13,228 | 
|                                                                                                  |  |                                                                        |  |                                                     | 
|Star Seed, Inc.                                                                                   |  | Farming and Agriculture                                                |  | Senior Term Debt (12.5%, Due 4/2018)(D)             |  |           | 7,500   |  |      |   | 7,500   |            |  |  | 7,594  | 
|                                                                                                  |  |                                                                        |  | Preferred Stock (1,499 shares)(C)(F)                |  |           |         |  |      |   | 1,499   |            |  |  |       | 
|                                                                                                  |  |                                                                        |  | Common Stock (600 shares)(C)(F)                     |  |           |         |  |      |   | 1       |            |  |  |       | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   | 9,000   |            |  |  | 7,594  | 
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|Total Non-Control/Non-Affiliate Investments (represents 65.4% of total investments at fair value) |  |                                                                        |  |                                                     |  | $         | 233,895 |  |      | $ | 205,440 |           
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 
|                                                                                                  |  |                                                                        | 
|TOTAL INVESTMENTS(J)                                                                              |  |                                                                        |  |                                                     |  | $         | 383,537 |  |      | $ | 314,393 |           
|                                                                                                  |  |                                                                        |  |                                                     |  |           |         |  |      |   |         |            |  |  |        | 



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

|(B) | Percentages represent the weighted average cash interest rates in effect at March 31, 2014, and due date represents the contractual maturity date. If applicable, paid-in-kind (PIK) interest rates are
noted separately from the cash interest rates.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(D) | Fair value based primarily on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. as of March 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

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

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

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

|(H) | New proprietary portfolio investment valued at cost, as it was determined that the price paid during the three months ended March 31, 2014 best represents fair value as of March 31, 2014.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(I) | $5 million of the debt security participated to a third party but accounted for as collateral for a secured borrowing for accounting principles generally accepted in the U.S. (GAAP) purposes.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(J) | Cumulative gross unrealized depreciation for federal income tax purposes is $83,197; cumulative gross unrealized appreciation for federal income tax purposes is $13,913. Cumulative net unrealized depreciation is
$69,284, based on a tax cost of $383,677.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



69



---

##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2013

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|-------------------------------------------------------------------------------- |  | -------------------------------------------------- |  | ---------------------------------------------------------- |  | --------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                       |  | Industry                                           |  | Investment(B)                                              |  | Principal |        |  | Cost |   |        | Fair Value | 
|                                                                                 |  |                                                    | 
|CONTROL INVESTMENTS:                                                             |  |                                                    |  |                                                            |  |           |        |  |      |   |        |           
|Danco Acquisition Corp.                                                          |  | Diversified/Conglomerate Manufacturing             |  | Line of Credit, $282 available (4.0%, Due 8/2015)(D)       |  | $         | 2,868  |  |      | $ | 2,868  |            |  | $ | 717    | 
|                                                                                 |  |                                                    |  | Senior Term Debt (4.0%, Due 8/2015)(D)                     |  |           | 2,575  |  |      |   | 2,575  |            |  |   | 644    | 
|                                                                                 |  |                                                    |  | Senior Term Debt (4.0%, Due 8/2015)(D)                     |  |           | 8,795  |  |      |   | 8,795  |            |  |   | 2,199  | 
|                                                                                 |  |                                                    |  | Senior Term Debt (5.0%, Due 8/2015)(D)(E)                  |  |           | 1,150  |  |      |   | 1,150  |            |  |   | 287    | 
|                                                                                 |  |                                                    |  | Preferred Stock (25 shares)(C)(F)                          |  |           |        |  |      |   | 2,500  |            |  |   |       | 
|                                                                                 |  |                                                    |  | Common Stock Warrants (420 shares)(C)(F)                   |  |           |        |  |      |   | 3      |            |  |   |       | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 17,891 |            |  |   | 3,847  | 
|                                                                                 |  |                                                    |  |                                                            | 
|Galaxy Tool Holding Corp.                                                        |  | Aerospace and Defense                              |  | Senior Subordinated Term Debt (13.5%, Due 8/2017)          |  |           | 15,520 |  |      |   | 15,520 |            |  |   | 15,520 | 
|                                                                                 |  |                                                    |  | Preferred Stock (5,373,186 shares)(F)                      |  |           |        |  |      |   | 11,464 |            |  |   | 5,356  | 
|                                                                                 |  |                                                    |  | Common Stock (48,093 shares)(C)(F)                         |  |           |        |  |      |   | 48     |            |  |   |       | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 27,032 |            |  |   | 20,876 | 
|                                                                                 |  |                                                    |  |                                                            | 
|SOG Specialty K&T, LLC                                                           |  | Leisure, Amusement, Motion Pictures, Entertainment |  | Senior Term Debt (13.3%, Due 8/2016)                       |  |           | 6,200  |  |      |   | 6,200  |            |  |   | 6,200  | 
|                                                                                 |  |                                                    |  | Senior Term Debt (14.8%, Due 8/2016)                       |  |           | 12,199 |  |      |   | 12,199 |            |  |   | 12,199 | 
|                                                                                 |  |                                                    |  | Preferred Stock (9,749 shares)(C)(F)                       |  |           |        |  |      |   | 9,749  |            |  |   | 11,423 | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 28,148 |            |  |   | 29,822 | 
|                                                                                 |  |                                                    |  |                                                            | 
|Venyu Solutions, Inc.                                                            |  | Electronics                                        |  | Senior Subordinated Term Debt (11.3%, Due 10/2015)         |  |           | 7,000  |  |      |   | 7,000  |            |  |   | 7,000  | 
|                                                                                 |  |                                                    |  | Senior Subordinated Term Debt (14.0%, Due 10/2015)         |  |           | 12,000 |  |      |   | 12,000 |            |  |   | 12,000 | 
|                                                                                 |  |                                                    |  | Preferred Stock (5,400 shares)(C)(F)                       |  |           |        |  |      |   | 6,000  |            |  |   | 24,970 | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 25,000 |            |  |   | 43,970 | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|Total Control Investments (represents 34.4% of total investments at fair value)  |  |                                                    |  |                                                            |  | $         | 98,701 |  |      | $ | 98,515 |           
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    | 
|AFFILIATE INVESTMENTS:                                                           |  |                                                    |  |                                                            |  |           |        |  |      |   |        |           
|Channel Technologies Group, LLC                                                  |  | Diversified/Conglomerate Manufacturing             |  | Line of Credit, $0 available (7.0%, Due 5/2013)(D)         |  | $         | 1,250  |  |      | $ | 1,250  |            |  | $ | 1,248  | 
|                                                                                 |  |                                                    |  | Senior Term Debt (8.3%, Due 12/2014)(D)                    |  |           | 5,596  |  |      |   | 5,596  |            |  |   | 5,589  | 
|                                                                                 |  |                                                    |  | Senior Term Debt (12.3%, Due 12/2016)(D)                   |  |           | 10,750 |  |      |   | 10,750 |            |  |   | 10,737 | 
|                                                                                 |  |                                                    |  | Preferred Stock (1,599 shares)(C)(F)                       |  |           |        |  |      |   | 1,599  |            |  |   | 275    | 
|                                                                                 |  |                                                    |  | Common Stock (1,598,616 shares)(C)(F)                      |  |           |        |  |      |   |       |            |  |   |       | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 19,195 |            |  |   | 17,849 | 
|                                                                                 |  |                                                    |  |                                                            | 
|Packerland Whey Products, Inc.                                                   |  | Beverage, Food, and Tobacco                        |  | Preferred Stock (248 shares)(C)(F)                         |  |           |        |  |      |   | 2,479  |            |  |   | 367    | 
|                                                                                 |  |                                                    |  | Common Stock (247 shares)(C)(F)                            |  |           |        |  |      |   | 21     |            |  |   |       | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 2,500  |            |  |   | 367    | 
|                                                                                 |  |                                                    |  |                                                            | 
|Tread Corp.                                                                      |  | Oil and Gas                                        |  | Line of Credit, $1,014 available (12.5%, Due 6/2013)(G)    |  |           | 1,736  |  |      |   | 1,736  |            |  |   |       | 
|                                                                                 |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due 5/2013)(G)       |  |           | 5,000  |  |      |   | 5,000  |            |  |   |       | 
|                                                                                 |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due 5/2013)(G)       |  |           | 2,750  |  |      |   | 2,750  |            |  |   |       | 
|                                                                                 |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due 5/2015)(G)       |  |           | 1,000  |  |      |   | 1,000  |            |  |   |       | 
|                                                                                 |  |                                                    |  | Senior Subordinated Term Debt (12.5%, Due on Demand)(D)(G) |  |           | 510    |  |      |   | 510    |            |  |   |       | 
|                                                                                 |  |                                                    |  | Preferred Stock (3,332,765 shares)(C)(F)                   |  |           |        |  |      |   | 3,333  |            |  |   |       | 
|                                                                                 |  |                                                    |  | Common Stock (7,716,320 shares)(C)(F)                      |  |           |        |  |      |   | 501    |            |  |   |       | 
|                                                                                 |  |                                                    |  | Common Stock Warrants (2,372,727 shares)(C)(F)             |  |           |        |  |      |   | 3      |            |  |   |       | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   | 14,833 |            |  |   |       | 
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 
|Total Affiliate Investments (represents 6.4% of total investments at fair value) |  |                                                    |  |                                                            |  | $         | 36,528 |  |      | $ | 18,216 |           
|                                                                                 |  |                                                    |  |                                                            |  |           |        |  |      |   |        |            |  |   |        | 



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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2013

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|-------------------------------------- |  | ---------------------------------------------------------------------- |  | ---------------------------------------------------- |  | --------- | ------ |  | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                             |  | Industry                                                               |  | Investment(B)                                        |  | Principal |        |  | Cost |   |        | Fair Value | 
|                                       |  |                                                                        | 
|NON-CONTROL/NON-AFFILIATE INVESTMENTS: |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |           
|Acme Cryogenics, Inc.                  |  | Chemicals, Plastics, and Rubber                                        |  | Senior Subordinated Term Debt (11.5%, Due 3/2015)    |  | $         | 14,500 |  |      | $ | 14,500 |            |  | $ | 14,500 | 
|                                       |  |                                                                        |  | Preferred Stock (898,814 shares)(F)                  |  |           |        |  |      |   | 6,984  |            |  |   | 11,292 | 
|                                       |  |                                                                        |  | Common Stock (418,072 shares)(C)(F)                  |  |           |        |  |      |   | 1,045  |            |  |   | 1,179  | 
|                                       |  |                                                                        |  | Common Stock Warrants (465,639shares)(C)(F)          |  |           |        |  |      |   | 25     |            |  |   | 369    | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 22,554 |            |  |   | 27,340 | 
|                                       |  |                                                                        |  |                                                      | 
|Auto Safety House, LLC                 |  | Automobile                                                             |  | Line of Credit, $288 available (3.0%, Due 3/2015)(G) |  |           | 7,912  |  |      |   | 7,856  |            |  |   |       | 
|                                       |  |                                                                        |  | Senior Subordinated Term Debt (2.0%, Due 3/2015)(G)  |  |           | 6,250  |  |      |   | 6,050  |            |  |   |       | 
|                                       |  |                                                                        |  | Preferred Stock (4,644 shares)(C)(F)                 |  |           |        |  |      |   | 2,500  |            |  |   |       | 
|                                       |  |                                                                        |  | Common Stock (1 share)(C)(F)                         |  |           |        |  |      |   |       |            |  |   |       | 
|                                       |  |                                                                        |  | Common Stock Warrants (73,599shares)(C)(F)           |  |           |        |  |      |   | 4      |            |  |   |       | 
|                                       |  |                                                                        |  | Guaranty ($500)                                      |  |           |        |  |      |   |       |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 16,410 |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      | 
|B-Dry, LLC                             |  | Buildings and Real Estate                                              |  | Line of Credit, $0 available (6.5%, Due 5/2014)(D)   |  |           | 750    |  |      |   | 750    |            |  |   | 450    | 
|                                       |  |                                                                        |  | Senior Term Debt (14.0%, Due 5/2014)(D)              |  |           | 6,433  |  |      |   | 6,443  |            |  |   | 3,866  | 
|                                       |  |                                                                        |  | Senior Term Debt (14.0%, Due 5/2014)(D)              |  |           | 2,840  |  |      |   | 2,840  |            |  |   | 1,704  | 
|                                       |  |                                                                        |  | Common Stock Warrants (85 shares)(C)(F)              |  |           |        |  |      |   | 300    |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 10,333 |            |  |   | 6,020  | 
|                                       |  |                                                                        |  |                                                      | 
|Cavert II Holding Corp.                |  | Containers, Packaging, and Glass                                       |  | Senior Subordinated Term Debt (11.8%, Due 4/2016)(D) |  |           | 2,200  |  |      |   | 2,200  |            |  |   | 2,258  | 
|                                       |  |                                                                        |  | Subordinated Term Debt (13.0%, Due 4/2016)(D)        |  |           | 4,671  |  |      |   | 4,671  |            |  |   | 4,805  | 
|                                       |  |                                                                        |  | Preferred Stock (18,446 shares)(C)(F)                |  |           |        |  |      |   | 1,844  |            |  |   | 2,803  | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 8,715  |            |  |   | 9,866  | 
|                                       |  |                                                                        |  |                                                      | 
|Country Club Enterprises, LLC          |  | Automobile                                                             |  | Senior Subordinated Term Debt (18.6%, Due 11/2014)   |  |           | 4,000  |  |      |   | 4,000  |            |  |   | 4,000  | 
|                                       |  |                                                                        |  | Preferred Stock (7,304,792 shares)(C)(F)             |  |           |        |  |      |   | 7,725  |            |  |   | 3,467  | 
|                                       |  |                                                                        |  | Guaranty ($2,000)                                    |  |           |        |  |      |   |       |            |  |   |       | 
|                                       |  |                                                                        |  | Guaranty ($1,370)                                    |  |           |        |  |      |   |       |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 11,725 |            |  |   | 7,467  | 
|                                       |  |                                                                        |  |                                                      | 
|Drew Foam Company, Inc.                |  | Chemicals, Plastics, and Rubber                                        |  | Senior Term Debt (13.5%, Due 8/2017)                 |  |           | 10,913 |  |      |   | 10,913 |            |  |   | 10,913 | 
|                                       |  |                                                                        |  | Preferred Stock (34,045 shares)(F)                   |  |           |        |  |      |   | 3,375  |            |  |   | 3,511  | 
|                                       |  |                                                                        |  | Common Stock (5,372 shares)(C)(F)                    |  |           |        |  |      |   | 63     |            |  |   | 676    | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 14,351 |            |  |   | 15,100 | 
|                                       |  |                                                                        |  |                                                      | 
|Frontier Packaging, Inc.               |  | Containers, Packaging, and Glass                                       |  | Senior Term Debt (12.0%, Due 12/2017)                |  |           | 12,500 |  |      |   | 12,500 |            |  |   | 12,500 | 
|                                       |  |                                                                        |  | Preferred Stock (1,373 shares)(C)(F)                 |  |           |        |  |      |   | 1,373  |            |  |   | 653    | 
|                                       |  |                                                                        |  | Common Stock (152 shares)(C)(F)                      |  |           |        |  |      |   | 153    |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 14,026 |            |  |   | 13,153 | 
|                                       |  |                                                                        |  |                                                      | 
|Ginsey Home Solutions, Inc.            |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |  | Senior Subordinate Term Debt (13.5%, Due 1/2018)(H)  |  |           | 13,050 |  |      |   | 13,050 |            |  |   | 13,050 | 
|                                       |  |                                                                        |  | Preferred Stock (18,898 shares)(C)(F)                |  |           |        |  |      |   | 9,393  |            |  |   | 8,783  | 
|                                       |  |                                                                        |  | Common Stock (63,747 shares)(C)(F)                   |  |           |        |  |      |   | 8      |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 22,451 |            |  |   | 21,833 | 
|                                       |  |                                                                        |  |                                                      | 
|Mathey Investments, Inc.               |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |  | Senior Term Debt (10.0%, Due 3/2014)                 |  |           | 1,375  |  |      |   | 1,375  |            |  |   | 1,375  | 
|                                       |  |                                                                        |  | Senior Term Debt (12.0%, Due 3/2014)                 |  |           | 3,727  |  |      |   | 3,727  |            |  |   | 3,727  | 
|                                       |  |                                                                        |  | Senior Term Debt (12.5%, Due 3/2014)(E)              |  |           | 3,500  |  |      |   | 3,500  |            |  |   | 3,500  | 
|                                       |  |                                                                        |  | Common Stock (29,102 shares)(C)(F)                   |  |           |        |  |      |   | 777    |            |  |   | 5,817  | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 9,379  |            |  |   | 14,419 | 
|                                       |  |                                                                        |  |                                                      | 
|Mitchell Rubber Products, Inc.         |  | Chemicals, Plastics, and Rubber                                        |  | Subordinated Term Debt (13.0%, Due 10/2016)(D)       |  |           | 13,560 |  |      |   | 13,560 |            |  |   | 13,679 | 
|                                       |  |                                                                        |  | Preferred Stock (27,900 shares)(C)(F)                |  |           |        |  |      |   | 2,790  |            |  |   | 3,051  | 
|                                       |  |                                                                        |  | Common Stock (27,900 shares)(C)(F)                   |  |           |        |  |      |   | 28     |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 16,378 |            |  |   | 16,730 | 
|                                       |  |                                                                        |  |                                                      | 
|Noble Logistics, Inc.                  |  | Cargo Transport                                                        |  | Line of Credit, $0 available (10.5%, Due 1/2015)(D)  |  |           | 800    |  |      |   | 800    |            |  |   | 360    | 
|                                       |  |                                                                        |  | Senior Term Debt (11.0%, Due 1/2015)(D)              |  |           | 7,227  |  |      |   | 7,227  |            |  |   | 3,252  | 
|                                       |  |                                                                        |  | Senior Term Debt (10.5%, Due 1/2015)(D)              |  |           | 3,650  |  |      |   | 3,650  |            |  |   | 1,643  | 
|                                       |  |                                                                        |  | Senior Term Debt (10.5%, Due 1/2015)(D)(E)           |  |           | 3,650  |  |      |   | 3,650  |            |  |   | 1,643  | 
|                                       |  |                                                                        |  | Preferred Stock (1,075,000 shares)(C)(F)             |  |           |        |  |      |   | 1,750  |            |  |   |       | 
|                                       |  |                                                                        |  | Common Stock (1,682,444 shares)(C)(F)                |  |           |        |  |      |   | 1,682  |            |  |   |       | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 18,759 |            |  |   | 6,898  | 
|                                       |  |                                                                        |  |                                                      | 
|Precision Southeast, Inc.              |  | Diversified/Conglomerate Manufacturing                                 |  | Senior Term Debt (14.0%, Due 12/2015)                |  |           | 7,775  |  |      |   | 7,775  |            |  |   | 7,775  | 
|                                       |  |                                                                        |  | Preferred Stock (19,091 shares)(C)(F)                |  |           |        |  |      |   | 1,909  |            |  |   | 2,273  | 
|                                       |  |                                                                        |  | Common Stock (90,909 shares)(C)(F)                   |  |           |        |  |      |   | 90     |            |  |   | 955    | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   |        |            |  |   |        | 
|                                       |  |                                                                        |  |                                                      |  |           |        |  |      |   | 9,774  |            |  |   | 11,003 | 



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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

MARCH 31, 2013

(DOLLAR
AMOUNTS IN THOUSANDS)



|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   |        |            |  |   |        | 
|------------------------------------------------------------------------------------------------- |  | ---------------------------------------------------------------------- | - | ------------------------------------- |  | --------- | ------ | ------- | ---- | - | ------ | ---------- |  | - | ------ | 
|Company(A)                                                                                        |  | Industry                                                               |   | Investment(B)                         |  | Principal |        |         | Cost |   |        | Fair Value | 
|                                                                                                  |  |                                                                        |   |                                       | 
|Quench Holdings Corp.                                                                             |  | Home and Office Furnishings, Housewares, and Durable Consumer Products |   | Preferred Stock (388 shares)(C)(F)    |  |           |        |         |      | $ | 2,950  |            |  | $ | 1,679  | 
|                                                                                                  |  |                                                                        |   | Common Stock (35,242 shares)(C)(F)    |  |           |        |         |      |   | 447    |            |  |   |       | 
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   | 3,397  |            |  |   | 1,679  | 
|                                                                                                  |  |                                                                        |   |                                       | 
|SBS, Industries, LLC                                                                              |  | Machinery (Nonagriculture, Nonconstruction, Nonelectronic)             |   | Senior Term Debt (14.0%, Due 8/2016)  |  |           | 11,355 |         |      |   | 11,355 |            |  |   | 11,355 | 
|                                                                                                  |  |                                                                        |   | Preferred Stock (19,935 shares)(C)(F) |  |           |        |         |      |   | 1,994  |            |  |   | 2,253  | 
|                                                                                                  |  |                                                                        |   | Common Stock (221,500 shares)(C)(F)   |  |           |        |         |      |   | 221    |            |  |   | 4,635  | 
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   | 13,570 |            |  |   | 18,243 | 
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   |        |            |  |   |        | 
|Total Non-Control/Non-Affiliate Investments (represents 59.2% of total investments at fair value) |  |                                                                        | $ | 191,822                               |  |           | $      | 169,751 |     
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   |        |            |  |   |        | 
|                                                                                                  |  |                                                                       
|TOTAL INVESTMENTS(I)                                                                              |  |                                                                        | $ | 326,421                               |  |           | $      | 286,482 |     
|                                                                                                  |  |                                                                        |   |                                       |  |           |        |         |      |   |        |            |  |   |        | 



|(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 as of March 31, 2013, and due date represents the contractual maturity date.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------

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

|(D) | Fair value based primarily on opinions of value submitted by Standard & Poors Securities Evaluations, Inc. as of March 31, 2013.
|--- | ---------------------------------------------------------------------------------------------------------------------------------

|(E) | 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.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

|(H) | $5 million of the debt security participated to a third party but accounted for as collateral for a secured borrowing for GAAP purposes.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------

|(I) | Aggregate gross unrealized depreciation for federal income tax purposes is $78,959; aggregate gross unrealized appreciation for federal income tax purposes is $38,650. Net unrealized depreciation is $40,309 based on a
tax cost of $326,792.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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



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GLADSTONE INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2013

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



|NOTE 1. | ORGANIZATION
|------- | ------------

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

Gladstone Business Investment, LLC (Business Investment), a wholly-owned subsidiary of ours, was established on August 11, 2006 for the sole
purpose of owning our portfolio of investments in connection with our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment. We also have significant subsidiaries whose financial
statements are not consolidated with ours. Refer to Note 14Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.

We are externally managed by Gladstone Management Corporation (the Adviser), an affiliate of ours and a Securities and Exchange Commission
(SEC) registered investment adviser, pursuant to an investment advisory agreement and management agreement. Administrative services are provided by Gladstone Administration, LLC (the Administrator), an affiliate of ours and
the Adviser, pursuant to an administration agreement.



|NOTE 2. | SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
|------- | ------------------------------------------

Basis of Presentation

These
Consolidated Financial Statements and the accompanying notes are prepared in accordance with GAAP and conform to Regulation S-X under the Securities Exchange Act of 1934, as amended. Management believes it has made all necessary adjustments
so that our accompanyingConsolidated Financial Statements are presented fairly and that all such adjustments are of a normal recurring nature. Our accompanying Consolidated Financial Statements include our accounts and the accounts of
our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Revisions

Certain amounts in the prior years financial statements have been revised to correct the presentation for the year ended March 31, 2014 with no
effect on our financial condition or results of operations. The specific amounts that were revised relate to our change in the classification of certain of our investments between control, affiliate and non-control/non-affiliate. See
Classification of Investments below for the current definition of each. The general change in the definition from prior reported periods to the year ended March 31, 2014, relate to the use of voting equity securities as the
primary determinate of classification compared to the use of both voting and non-voting equity securities in prior periods. Management evaluated this error in presentation and concluded it was not material to any previously issued financial
statements for the years ended March 31, 2013 and 2012. The impact of the revision is shown in the table below:





|                                      |  |                       |         |  |            |   |         | 
|------------------------------------- |  | --------------------- | ------- |  | ---------- | - | ------- | 
|                                      |  | As of March 31, 2013  |        
|                                      |  | As PreviouslyReported |         |  | As Revised |  
|Investments at fair value             |  |                       |         |  |            |   |         | 
|Control investments                   |  | $                     | 243,803 |  |            | $ | 98,515  | 
|Affiliate investments                 |  |                       | 36,659  |  |            |   | 18,216  | 
|Non-Control/Non-Affiliate investments |  |                       | 6,020   |  |            |   | 169,751 | 
|                                      |  |                       |         |  |            |   |         | 
|Total investments at fair value       |  | $                     | 286,482 |  |            | $ | 286,482 | 



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|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|------------------------------------------------ |  | ------------------------- | ------ | - | ------------------------- | - | ------- | --------------------- |  | - | ---------- | - |  | - | ------ | -
|                                                 |  | Year Ended March 31, 2013 |        |   | Year Ended March 31, 2012 |  
|                                                 |  | As PreviouslyReported     |        |   | As Revised                |   |         | As PreviouslyReported |  |   | As Revised |  
|Interest income                                  |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Control investments                              |  | $                         | 17,568 |   |                           | $ | 6,388   |                       |  | $ | 12,548     |   |  | $ | 4,972  |  
|Affiliate investments                            |  |                           | 5,897  |   |                           |   | 3,114   |                       |  |   | 5,593      |   |  |   | 1,497  |  
|Non-Control/Non-Affiliate investments            |  |                           | 1,329  |   |                           |   | 15,292  |                       |  |   | 1,440      |   |  |   | 13,112 |  
|Cash and cash equivalents                        |  |                           | 4      |   |                           |   | 4       |                       |  |   | 7          |   |  |   | 7      |  
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Total interest income                            |  |                           | 24,798 |   |                           |   | 24,798  |                       |  |   | 19,588     |   |  |   | 19,588 |  
|                                                 |  |                           |        |  
|Other income                                     |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Control investments                              |  |                           | 5,339  |   |                           |   | 4,106   |                       |  |   | 1,477      |   |  |   |       |  
|Affiliate investments                            |  |                           | 401    |   |                           |   |        |                       |  |   |           |   |  |   |       |  
|Non-Control/Non-Affiliate investments            |  |                           |       |   |                           |   | 1,634   |                       |  |   | 177        |   |  |   | 1,654  |  
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Total other income                               |  |                           | 5,740  |   |                           |   | 5,740   |                       |  |   | 1,654      |   |  |   | 1,654  |  
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|                                                 |  |                           |        |  
|Net realized gain                                |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Control investments                              |  |                           | 843    |   |                           |   | (6      | )                     |  |   | 5,087      |   |  |   | (269   | )
|Non-Control/Non-Affiliate investments            |  |                           |       |   |                           |   | 849     |                       |  |   | 4          |   |  |   | 5,360  |  
|Other                                            |  |                           | (41    | ) |                           |   | (41     | )                     |  |   | (40        | ) |  |   | (40    | )
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Total net realized gain                          |  |                           | 802    |   |                           |   | 802     |                       |  |   | 5,051      |   |  |   | 5,051  |  
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|                                                 |  |                           |        |  
|Net unrealized (depreciation) appreciation       |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Control investments                              |  |                           | 9,480  |   |                           |   | 27,740  |                       |  |   | 3,045      |   |  |   | 396    |  
|Affiliate investments                            |  |                           | (4,723 | ) |                           |   | (19,214 | )                     |  |   | (596       | ) |  |   | 1,945  |  
|Non-Control/Non-Affiliate investments            |  |                           | (3,953 | ) |                           |   | (7,722  | )                     |  |   | 714        |   |  |   | 822    |  
|Other                                            |  |                           | (815   | ) |                           |   | (815    | )                     |  |   | 9          |   |  |   | 9      |  
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  
|Total net unrealized (depreciation) appreciation |  | $                         | (11    | ) |                           | $ | (11     | )                     |  | $ | 3,172      |   |  | $ | 3,172  |  
|                                                 |  |                           |        |   |                           |   |         |                       |  |   |            |   |  |   |        |  

Additionally, certain investments in our Consolidated Schedule of Investments as of March 31, 2013 were moved
based upon their new classifications.

Classification of Investments

In accordance with the BDC regulations in the 1940 Act, we classify portfolio investments on our accompanying Consolidated Statements of Assets and
Liabilities, Consolidated Statements of Operations and Consolidated Schedules of Investments into the following categories:



| |  | Control InvestmentsControl investments are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with
the power to vote, more than 25% of the issued and outstanding voting securities;
|- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Affiliate InvestmentsAffiliate investments are those in which we own, with the power to vote, between 5% and 25% of the issued and outstanding voting securities that are not otherwise classified as Control
Investments; and
|- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Non-Control/Non-Affiliate InvestmentsNon-Control/Non-Affiliate investments are those that are neither Control nor Affiliate investments and in which we typically own less than 5% of the issued and
outstanding voting securities.
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Consolidation

Under Article 6 of Regulation S-X under the Securities Act of 1933, as amended, and the authoritative accounting guidance provided by the American
Institute of Certified Public Accountants Audit and Accounting Guide for Investment Companies, we are not permitted to consolidate any subsidiary or other entity that is not an investment company, including those in which we have a controlling
interest.



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Use of Estimates

Preparing financial statements requires management to make estimates and assumptions that affect the amounts reported in our accompanying Consolidated
Financial Statements and accompanying notes. Actual results may differ from those estimates.

Cash and cash equivalents

We consider all short-term, highly liquid investments that are both readily convertible to cash and have a maturity of three months or less at the time of
purchase to be cash equivalents. Cash is carried at cost, which approximates fair value. We place our cash with financial institutions, and at times, cash held in checking accounts may exceed the Federal Deposit Insurance Corporation insured limit.
We seek to mitigate this concentration of credit risk by depositing funds with major financial institutions.

Restricted Cash

Restricted cash is cash held in escrow that was generally received as part of an investment exit. Restricted cash is carried at cost, which approximates fair
value.

Investment Valuation Policy

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

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

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

Publicly traded securities: The Valuation Team determines the value of a publicly traded security based on the closing price for the security on the
exchange or securities market on which it is listed and primarily traded on the valuation date. To the extent that we own a restricted security that is not freely tradable, but for which a public market otherwise exists, the Valuation Team will use
the market value of that security adjusted for any decrease in value resulting from the restrictive feature. As of March 31, 2014 and 2013, we did not have any investments in publicly traded securities.

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

In the event these limited markets become illiquid such that market prices are no longer readily available, the Valuation Team will value our syndicated loans
using alternative methods, such as estimated net present values of the future cash flows or discounted cash flows (DCF). The use of a DCF methodology follows that prescribed by the Financial Accounting Standards Board (the
FASB) Accounting Standards Codification (ASC) 820, Fair Value Measurements and Disclosures, which provides guidance on the use of a reporting entitys own assumptions about future cash flows and
risk-adjusted discount rates when relevant observable inputs, such as quotes in active markets, are not available. When relevant observable market data does not exist, an alternative outlined in ASC 820 is the valuation of investments based on DCF.
For the purposes of using DCF to provide fair value estimates, the Valuation Team considers multiple inputs, such as a risk-adjusted discount rate that incorporates adjustments that market participants would make,



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both for nonperformance and liquidity risks. As such, the Valuation Team develops a modified discount rate approach that incorporates risk premiums including, among other things, increased
probability of default, higher loss given default or increased liquidity risk. The DCF valuations applied to the syndicated loans provide an estimate of what the Valuation Team believes a market participant would pay to purchase a syndicated loan in
an active market, thereby establishing a fair value. The Valuation Team applies the DCF methodology in illiquid markets until quoted prices are available or are deemed reliable based on trading activity.

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



|(A) | Portfolio investments comprised solely of debt securities: Debt securities that are not publicly traded on an established securities market, or for which a market does not exist (Non-Public Debt
Securities), and that are issued by portfolio companies in which we have no equity or equity-like securities, are fair valued utilizing opinions of value submitted to the Valuation Team by Standard & Poors Securities
Evaluations, Inc. (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. The Valuation Team 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 securities, which can include debt and equity securities: The fair value of these investments is determined based on the total enterprise
value (TEV) of the portfolio company, or issuer, utilizing a liquidity waterfall approach under ASC 820 for our Non-Public Debt Securities and equity or equity-like securities (e.g., preferred equity, common equity or other equity-like
securities) that are purchased together as part of a package, where we control or could gain control through an option or warrant security; both the debt and equity securities of the portfolio investment would exit in the mergers and acquisitions
market as the principal market, generally through a sale or recapitalization of the portfolio company. We generally exit the debt and equity securities of an issuer at the same time. Applying the liquidity waterfall approach to all of our
investments in an issuer, the Valuation Team first calculates the TEV of the issuer by incorporating some or all of the following factors:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | the issuers ability to make payments;
| | - |  | --------------------------------------



| |  |  | the earnings of the issuer;
| | - |  | ---------------------------



| |  |  | recent sales to third parties of similar securities;
| | - |  | ----------------------------------------------------



| |  |  | the comparison to publicly traded securities; and
| | - |  | -------------------------------------------------



| |  |  | DCF or other pertinent factors.
| | - |  | -------------------------------

In gathering the sales to third parties of similar securities,
the Valuation Team generally references industry statistics and may use outside experts. TEV is only an estimate of value and may not be the value received in an actual sale. Once the Valuation Team has estimated the TEV of the issuer, it will
subtract the value of all the debt securities of the issuer, which are valued at the contractual principal balance. Fair values of these debt securities are discounted for any shortfall of TEV over the total debt outstanding for the issuer. Once the
values for all outstanding senior securities, which include all the debt securities, have been subtracted from the TEV of the issuer, the remaining amount, if any, is used to determine the value of the issuers equity or equity-like securities.
If, in the Valuation Teams judgment, the liquidity waterfall approach does not accurately reflect the value of the debt component, the Valuation Team may recommend that we use a valuation by SPSE, or, if that is unavailable, a DCF valuation
technique.



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



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| | contractual obligations that may impact the fair value of the equity. Furthermore, the Valuation Team may utilize comparable values of similar companies, recent investments and indices with
similar structures and risk characteristics or DCF valuation techniques and, in the absence of other observable market data, its own assumptions.
| | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(D) | Portfolio investments comprised of non-publicly traded, non-control equity securities of other funds: The Valuation Team generally values any uninvested capital of the non-control fund at par value and values any
invested capital at the net asset value (NAV) provided by the non-control fund.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Due to the uncertainty inherent in the
valuation process, such estimates of fair value may differ significantly and materially from the values that would have been obtained had a ready market for the securities existed. Additionally, changes in the market environment and other events
that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. There is no single standard for determining fair value in good faith, as
fair value depends upon circumstances of each individual case. At times, the estimates of fair value calculated by the various valuation techniques (inclusive of the third-party valuations we receive) may materially differ from one another,
resulting in a range of potential values. In these circumstances, the Valuation Team comes to its valuation conclusion based on all facts and circumstances considered, which is then presented to the Board for review and ultimate approval. In
general, fair value is the amount that the Valuation Team might reasonably expect us to receive upon the current sale of the security in an orderly transaction between market participants at the measurement date.

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

Interest Income Recognition

Interest income, adjusted
for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past
due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated
the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon
managements judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid, and, in managements judgment, are likely to remain current, or due to a restructuring, the interest income
is deemed to be collectible. As of March 31, 2014, our loans to Tread Corp. (Tread) were on non-accrual, with an aggregate debt cost basis of $11.7 million, or 4.2% of the cost basis of all debt investments in our portfolio, and an
aggregate fair value of $0. As of March 31, 2013, ASH Holdings Corp. (ASH) and Tread were on non-accrual, with an aggregate debt cost basis of $24.9 million, or 10.4% of the cost basis of all debt investments in our portfolio, and
an aggregate fair value of $0.

PIK interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the
loan and recorded as interest income. To maintain our status as a RIC, this non-cash source of income must be included in our calculation of distributable income for purposes of complying with our distribution requirements, even though we have not
yet collected the cash. During the year ended March 31, 2014, we recorded PIK income of $0.1 million. We did not hold any loans in our portfolio that contained a PIK provision during the year ended March 31, 2013. During the year ended
March 31, 2012, we recorded PIK income of $7.

Other Income Recognition

We generally record success fees upon receipt of cash. Success fees are contractually due upon a change of control in a portfolio company. We recorded $4.2
million of success fees in aggregate during the year ended March 31, 2014 related to debt exits or prepayments from Venyu Solutions, Inc. (Venyu), Channel Technologies Group, LLC (Channel), Cavert II Holding Corp.
(Cavert), SOG Specialty K&T, LLC (SOG), Mathey Investments, Inc. (Mathey) and Frontier Packaging, Inc. (Frontier). We recorded $0.8 million of success fees during the year ended March 31,
2013, representing prepayments received from Mathey and Cavert. During the year ended March 31, 2012, we recorded success fees of $0.7 million representing prepayments received from Mathey and Cavert.

We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to
collect such amounts in cash or other consideration. For the year ended March 31, 2014, we recorded $1.4 million in dividend income related to the exit of Venyu. We recorded $4.1 million and $0.7 million in dividend income during the year ended
March 31, 2013, on accrued preferred shares of Galaxy and Acme Cryogenics, Inc. (Acme), respectively. During the year ended March 31, 2012, we recorded and collected $0.7 million of dividends on accrued preferred shares in
connection with the recapitalization of Cavert.

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



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Realized Gain or Loss and Unrealized Appreciation or Depreciation of Portfolio Investments

Gains or losses on the sale of investments are calculated by using the specific identification method. A realized gain or loss is recognized at the trade date,
typically when an investment is disposed of, and is computed as the difference between our cost basis in the investment at the disposition date and the net proceeds received from such disposition. Unrealized appreciation or depreciation displays the
difference between the fair value of the investment and the cost basis of such investment. We must determine the fair value of each individual investment on a quarterly basis and record changes in fair value as unrealized appreciation or
depreciation in our Consolidated Statement of Operations.

Deferred Financing Costs

Deferred financing costs consist of costs incurred to obtain financing, including legal fees, origination fees and administration fees. Costs associated with
our line of credit and the issuance of the 7.125% Series A Cumulative Term Preferred Stock, par value $0.001 per share (Term Preferred Stock), are deferred and amortized using the straight-line method, which approximates the effective
interest method, over the terms of the respective financings. See Note 6Mandatorily Redeemable Preferred Stock for further discussion on the Term Preferred Stock.

Related Party Costs

We have entered into an investment
advisory and management agreement (the Advisory Agreement) with the Adviser, which is controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its
services, consisting of a base management fee and an incentive fee.

We have entered into an administration agreement (the Administration
Agreement) with the Administrator whereby we pay separately for administrative services. These fees are accrued when the services are performed and generally paid one month in arrears. Refer to Note 4Related Party Transactionsfor
additional information regarding these related party costs and agreements.

Federal Income Taxes

We intend to continue to qualify for treatment as a RIC under subchapter M of the Code, which generally allows us to avoid paying corporate income taxes
on any income or gains that we distribute to our stockholders. We have distributed and intend to distribute sufficient dividends to eliminate taxable income. In an effort to limit certain excise taxes imposed on RICs, we generally distribute during
each calendar year, an amount at least equal to the sum of (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar
year and (3) any ordinary income and capital gains in excess of capital losses for preceding years that were not distributed during such years.

ASC
740, Income Taxes requires the evaluation of tax positions taken or expected to be taken in the course of preparing our tax returns to determine whether the tax positions are more-likely-than-not of being sustained by the
applicable tax authorities. Tax positions not deemed to satisfy the more-likely-than-not threshold would be recorded as a tax benefit or expense in the current year. We have evaluated the implications of ASC 740 for all open tax years
and in all major tax jurisdictions and determined that there is no material impact on our Consolidated Financial Statements. Our federal tax returns for fiscal years 2011, 2012 and 2013 remain subject to examination by the Internal Revenue
Service.

Distributions

Distributions to
stockholders are recorded on the ex-dividend date. We are required to pay out at least 90% of our ordinary income and short-term capital gains for each taxable year as a distribution to our stockholders to maintain our status as a RIC under Subtitle
A, Chapter 1 of Subchapter M of the Code. It is our policy to pay out as a distribution up to 100% of those amounts. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is based on the
annual earnings estimated by our management. Based on that estimate, a distribution is declared each quarter and is paid out monthly over the course of the respective quarter. At year-end, we elected to treat a portion of the first distribution paid
after year-end as having been paid in the prior year, in accordance with Section 855(a) of the Code. Additionally, at year-end, we may pay a bonus distribution in addition to the monthly distributions to ensure that we have paid out at least
90% of its ordinary income and short-term capital gains for the year. We typically retain long-term capital gains, if any, and do not pay them out as distributions. If we decide to retain long-term capital gains, the portion of the retained capital
gains, net of any capital loss carryforward, if applicable, will be subject to a 35% tax.



Recent Accounting Pronouncements

In June 2013, the FASB
issued ASU 2013-08, Financial Services  Investment Companies (Topic 946): Amendments to the Scope, Measurement, and Disclosure Requirements, which amends the criteria that define an investment company and clarifies the measurement
guidance and requires new disclosures for investment companies. Under ASU 2013-08, an entity already regulated under the 1940 Act is automatically an investment company under the new GAAP definition, so we anticipate no impact from adopting this
standard on our financial position or results of operations. We are currently assessing whether additional disclosure requirements will be necessary. ASU 2013-08 is effective for interim and annual reporting periods in fiscal years that begin after
December 15, 2013.



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|NOTE 3. | INVESTMENTS
|------- | -----------

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



| |  | Level 1  inputs to the valuation methodology are quoted prices (unadjusted) for identical assets or liabilities in active markets;
|- |  | -----------------------------------------------------------------------------------------------------------------------------------



| |  | Level 2  inputs to the valuation methodology include quoted prices for similar assets and liabilities in active or inactive markets and inputs that are observable for the asset or liability, either
directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are in those markets for which there are few transactions, the prices are not current, little public information exists or instances where prices
vary substantially over time or among brokered market makers; and
|- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Level 3 inputs to the valuation methodology are unobservable and significant to the fair value measurement. Unobservable inputs are those inputs that reflect assumptions that market participants
would use when pricing the asset or liability and can include our own assumptions based upon the best available information.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

As of
March 31, 2014 and 2013, all of our investments were valued using Level 3 inputs. We transfer investments in and out of Level 1, 2 and 3 securities as of the beginning balance sheet date, based on changes in the use of observable and
unobservable inputs utilized to perform the valuation for the period. During the years ended March 31, 2014 and 2013, there were no transfers in or out of Level 1, 2 and 3.

The following table presents the financial assets carried at fair value as of March 31, 2014 and 2013, by caption on our accompanyingConsolidated
Statements of Assets and Liabilities and by security type for each of the three applicable levels of hierarchy established by ASC 820 that we used to value our financial assets:



|                                                     |  |                                                                                                   |         |  |                |   |         | 
|---------------------------------------------------- |  | ------------------------------------------------------------------------------------------------- | ------- |  | -------------- | - | ------- | 
|                                                     |  | Total Recurring Fair Value MeasurementReported inConsolidated Statementsof Assets and
Liabilities |        
|                                                     |  | March 31, 2014                                                                                    |         |  | March 31, 2013 |  
|Control Investments                                  |  |                                                                                                   |         |  |                |   |         | 
|Senior debt                                          |  | $                                                                                                 |        |  |                | $ | 22,246  | 
|Senior subordinated debt                             |  |                                                                                                   | 15,520  |  |                |   | 34,520  | 
|Preferred equity                                     |  |                                                                                                   | 5,584   |  |                |   | 41,749  | 
|                                                     |  |                                                                                                   |         |  |                |   |         | 
|Total Control Investments                            |  |                                                                                                   | 21,104  |  |                |   | 98,515  | 
|                                                     |  |                                                                                                  
|Affiliate Investments                                |  |                                                                                                   |         |  |                |   |         | 
|Senior debt                                          |  |                                                                                                   | 60,391  |  |                |   | 17,573  | 
|Senior subordinated debt                             |  |                                                                                                   | 2,400   |  |                |   |        | 
|Preferred equity                                     |  |                                                                                                   | 25,058  |  |                |   | 643     | 
|                                                     |  |                                                                                                   |         |  |                |   |         | 
|Total Affiliate Investments                          |  |                                                                                                   | 87,849  |  |                |   | 18,216  | 
|                                                     |  |                                                                                                  
|Non-Control/Non-Affiliate Investments                |  |                                                                                                   |         |  |                |   |         | 
|Senior debt                                          |  |                                                                                                   | 109,479 |  |                |   | 64,063  | 
|Senior subordinated debt                             |  |                                                                                                   | 52,907  |  |                |   | 52,291  | 
|Preferred equity                                     |  |                                                                                                   | 32,259  |  |                |   | 39,765  | 
|Common equity/equivalents                            |  |                                                                                                   | 10,795  |  |                |   | 13,632  | 
|                                                     |  |                                                                                                   |         |  |                |   |         | 
|Total Non-Control/Non-Affiliate Investments          |  |                                                                                                   | 205,440 |  |                |   | 169,751 | 
|                                                     |  |                                                                                                   |         |  |                |   |         | 
|                                                     |  |                                                                                                  
|Total Investments at fair value using Level 3 inputs |  | $                                                                                                 | 314,393 |  |                | $ | 286,482 | 
|                                                     |  |                                                                                                  
|Cash Equivalents using Level 1 inputs                |  |                                                                                                   |        |  |                |   | 65,000  | 
|                                                     |  |                                                                                                   |         |  |                |   |         | 
|                                                     |  |                                                                                                  
|Total Investments and Cash Equivalents               |  | $                                                                                                 | 314,393 |  |                | $ | 351,482 | 
|                                                     |  |                                                                                                   |         |  |                |   |         | 



79



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In accordance with ASU 2011-04, the following table provides quantitative information about our Level 3 fair
value measurements of our investments as of March 31, 2014 and 2013. In addition to the techniques and inputs noted in the table below, according to our valuation policy, the Adviser may also use other valuation techniques and methodologies
when determining our fair value measurements. The below table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted average calculations in
the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations for the particular input.



|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  |                                              |  |                                              |  |                           
|------------------------- |  | -------------------------------------------------------------- | ------- |  | ----------------------------- | - | ------- | ------------------------------ |  | ----------------- |  | -------------------------------------------- |  | -------------------------------------------- |  | --------------------------
|                          |  | Quantitative Information about Level 3 Fair Value Measurements
|                          |  | Fair Value asof March 31,2014                                  |         |  | Fair Value asof March 31,2013 |   |         | ValuationTechnique/Methodology |  | UnobservableInput |  | Range /
WeightedAverage as of March 31, 2014 |  | Range /
WeightedAverage as of March 31, 2013
|Senior debt               |  | $                                                              | 115,081 |  |                               | $ | 69,544  |                                |  | TEV               |  | EBITDAmultiples(B)                           |  | 3.4x  7.3x / 5.1x                           |  | 4.6x  7.3x / 5.6x        
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA(B)                                    |  | $1,558  $6,230 / $3,609                     |  | ($997)  $6,640 / $3,752  
|                          |  |                                                                | 54,789  |  |                               |   | 34,338  |                                |  | SPSE(A)           |  | EBITDA(B)                                    |  | $118  $3,818 / $1,956                       |  | $29  $3,225 / $1,248     
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | RiskRatings(C)                               |  | 4.3  6.0 / 5.2                              |  | 3.7  6.9 / 5.1           
|Senior subordinated debt  |  |                                                                | 49,470  |  |                               |   | 66,070  |                                |  | TEV               |  | EBITDAmultiples(B)                           |  | 4.1x  7.3x / 5.0x                           |  | 4.5x  9.7x / 6.5x        
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA(B)                                    |  | $36  $6,156 / $4,159                        |  | ($2,866)  $8,695 / $4,400
|                          |  |                                                                | 21,357  |  |                               |   | 20,741  |                                |  | SPSE(A)           |  | EBITDA(B)                                    |  | $5,446  $9,978 / $7,072                     |  | $5,169  $6,026 / $5,738  
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | RiskRatings(C)                               |  | 5.3  5.8 / 5.5                              |  | 4.1  6.2 / 4.8           
|Preferred equity          |  |                                                                | 62,901  |  |                               |   | 82,157  |                                |  | TEV               |  | EBITDAmultiples(B)                           |  | 3.5x  8.5x / 5.1x                           |  | 4.2x  9.7x / 5.9x        
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA(B)                                    |  | $36  $10,621 / $4,266                       |  | ($2,866)  $8,695 / $4,344
|Common equity/equivalents |  |                                                                | 10,795  |  |                               |   | 13,632  |                                |  | TEV               |  | EBITDAmultiples(B)                           |  | 3.4x  16.0x / 10.5x                         |  | 3.7x  7.8x / 6.2x        
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  | EBITDA(B)                                    |  | $36  $10,621 / $6,008                       |  | ($2,866)  $6,026 / $1,959
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  |                                              |  |                                              |  |                           
|Total                     |  | $                                                              | 314,393 |  |                               | $ | 286,482 |                                |  |                   |  |                                              |  |                                              |  |                           
|                          |  |                                                                |         |  |                               |   |         |                                |  |                   |  |                                              |  |                                              |  |                           



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

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

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

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

Changes in Level 3 Fair Value Measurements of Investments

The following tables provide the changes in fair value, broken out by security type, during the years ended March 31, 2014 and 2013 for all investments
for which we determine fair value using unobservable (Level 3) factors. When a determination is made to classify a financial instrument within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable
factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (that is, components that are actively quoted and can be validated to
external sources). In these cases, we categorize the fair value measurement in its entirety in the same level of the fair value hierarchy as the lowest level input that is significant to the entire measurement. Accordingly, the gains and losses in
the tables below include changes in fair value, due in part to observable factors that are part of the valuation methodology.



80



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##### Table of Contents

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

Fiscal Year 2014:



|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|------------------------------------------------------------------------------- |  | ---------- | ------- | - | ---------------------- | - | ------- | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                                                |  | SeniorDebt |         |   | SeniorSubordinatedDebt |   |         | PreferredEquity |  |   | CommonEquity/Equivalents |   |  | Total |       
|Year ended March 31, 2014:                                                      |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2013                                                 |  | $          | 103,882 |   |                        | $ | 86,811  |                 |  | $ | 82,157                   |   |  | $     | 13,632 |   |  | $ | 286,482 |  
|Total (loss) gain:                                                              |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized (loss) gain(A)                                                     |  |            | (2,856  | ) |                        |   | (6,050  | )               |  |   | 18,806                   |   |  |       | (1,659 | ) |  |   | 8,241   |  
|Net unrealized depreciation(B)                                                  |  |            | 3,165   |   |                        |   | (660    | )               |  |   | (25,000                  | ) |  |       | (5,921 | ) |  |   | (28,416 | )
|Reversal of previously-recorded depreciation (appreciation) upon
realization(B) |  |            | 2,274   |   |                        |   | 5,874   |                 |  |   | (10,644                  | ) |  |       | 1,706  |   |  |   | (790    | )
|New investments, repayments and settlements(C):                                 |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                                                        |  |            | 88,267  |   |                        |   | 11,818  |                 |  |   | 32,067                   |   |  |       | 139    |   |  |   | 132,291 |  
|Settlements / Repayments                                                        |  |            | (24,862 | ) |                        |   | (26,966 | )               |  |   |                         |   |  |       |       |   |  |   | (51,828 | )
|Sales                                                                           |  |            |        |   |                        |   |        |                 |  |   | (31,535                  | ) |  |       | (52    | ) |  |   | (31,587 | )
|Transfers(D)                                                                    |  |            |        |   |                        |   |        |                 |  |   | (2,950                   | ) |  |       | 2,950  |   |  |   |        |  
|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2014                                                 |  | $          | 169,870 |   |                        | $ | 70,827  |                 |  | $ | 62,901                   |   |  | $     | 10,795 |   |  | $ | 314,393 |  
|                                                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  

Fiscal Year 2013:



|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|----------------------------------------------- |  | ---------- | ------- | - | ---------------------- | - | ------- | --------------- |  | - | ------------------------ | - |  | ----- | ------ | - |  | - | ------- | -
|                                                |  | SeniorDebt |         |   | SeniorSubordinatedDebt |   |         | PreferredEquity |  |   | CommonEquity/Equivalents |   |  | Total |       
|Year ended March 31, 2013:                      |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2012                 |  | $          | 94,886  |   |                        | $ | 70,661  |                 |  | $ | 46,669                   |   |  | $     | 13,436 |   |  | $ | 225,652 |  
|Total gain (loss):                              |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Net realized gain(A)                            |  |            |        |   |                        |   |        |                 |  |   |                         |   |  |       | 843    |   |  |   | 843     |  
|Net unrealized (depreciation) appreciation(B)   |  |            | (16,273 | ) |                        |   | (6,935  | )               |  |   | 24,562                   |   |  |       | (550   | ) |  |   | 804     |  
|New investments, repayments and settlements(C): |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Issuances / Originations                        |  |            | 35,132  |   |                        |   | 33,271  |                 |  |   | 18,925                   |   |  |       | 279    |   |  |   | 87,607  |  
|Settlements / Repayments                        |  |            | (9,863  | ) |                        |   | (15,380 | )               |  |   |                         |   |  |       |       |   |  |   | (25,243 | )
|Sales                                           |  |            |        |   |                        |   |        |                 |  |   | (2,305                   | ) |  |       | (876   | ) |  |   | (3,181  | )
|Transfers(D)                                    |  |            |         |   |                        |   | 5,194   |                 |  |   | (5,694                   | ) |  |       | 500    |   |  |   |        |  
|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  
|Fair value as of March 31, 2013                 |  | $          | 103,882 |   |                        | $ | 86,811  |                 |  | $ | 82,157                   |   |  | $     | 13,632 |   |  | $ | 286,482 |  
|                                                |  |            |         |   |                        |   |         |                 |  |   |                          |   |  |       |        |   |  |   |         |  



|(A) | Included in Net realized (loss) gain on investments on our accompanying Consolidated Statements of Operations for the years ended March 31, 2014 and 2013.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------

|(B) | Included in Net unrealized (depreciation) appreciation of investments on our accompanying Consolidated Statements of Operations for the years ended March 31, 2014 and 2013.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

|(D) | 2014: Transfers represent $3 million of preferred equity of Quench Holding Corp. (Quench), at cost, as of September 30, 2013, which was converted into common equity during the quarter ended
December 31, 2013.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2013: Transfer represents $3 million of senior subordinated term debt from Tread, at cost, as of
June 30, 2012, that we converted into preferred and common equity during the quarter ended September 30, 2012, and $8.2 million of preferred stock from Galaxy, at cost, as of December 31, 2012, that we converted into senior
subordinated term debt as part of a recapitalization in the quarter ended March 31, 2013.

Investment Activity

During the year ended March 31, 2014, the following significant transactions occurred:



| |  |  | In April 2013, we invested $17.7 million in Jackrabbit, Inc. (Jackrabbit) through a combination of debt and equity. Jackrabbit, headquartered in Ripon, California, is a manufacturer of nut harvesting
equipment.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------





| |  |  | In May 2013, we invested $8.8 million in Funko, LLC (Funko) through a combination of debt and equity. Funko, headquartered in Lynnwood, Washington, is a designer, importer and marketer of pop-culture
collectibles. This was our first co-investment with one of our affiliated funds, Gladstone Capital Corporation (Gladstone Capital), pursuant to an exemptive order granted by the SEC in July 2012.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In June 2013, we invested $9 million in Star Seed, Inc. (Star Seed) through a combination of debt and equity. Based in Osborne, Kansas, Star Seed provides its customers with a variety of specialty seeds and
related products.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

| |  |  | In August 2013, we invested $20 million in Schylling, Inc. (Schylling) through a combination of debt and equity. Schylling, headquartered in Rowley, Massachusetts, is a premier provider of high quality
specialty toys.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In August 2013, Venyu was sold. As a result of the sale, we received net cash proceeds of $32.2 million, resulting in a realized gain of $24.8 million and dividend income of $1.4 million. In addition, we received full
repayment of our debt investment of $19 million in principal repayment and $1.9 million in fee income.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2013, we invested $16.3 million in Alloy Die Casting Co. (ADC) through a combination of debt and equity. ADC, headquartered in Buena Park, California, is a manufacturer of high quality, finished
aluminum and zinc castings for aerospace, defense, aftermarket automotive and industrial applications. Gladstone Capital also participated as a co-investor by providing $7 million of debt and equity financing at the same price and terms as our
investment.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2013, we received full repayment of our debt investments in Channel Technologies Group, LLC (Channel) in the aggregate amount of $16.2 million. We also received prepayment and success fee income
in the amount of $0.8 million. Simultaneously, we invested $1.3 million in additional preferred and common equity securities in Channel.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2013, ASH, which was on non-accrual, was sold to certain members of its existing management team. As a result of the sale, we received $12 in net cash proceeds, recognized a realized loss of $11.4 million and
have retained a $5 million accruing revolving credit facility in ASH.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In November 2013, Packerland Whey Products, Inc. (Packerland) was sold to other existing owners at Packerland. As a result of the sale, we received $0.7 million in net cash proceeds and recognized a realized
loss of $1.8 million.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, we received full repayment of our remaining debt investments in Cavert II Holding Corp. (Cavert) in the aggregate amount of $6.1 million. We also received prepayment and success fee income
in the amount of $0.2 million. As of December 31, 2013, we have an equity investment of preferred stock in Cavert with a cost basis of $1.8 million and fair value of $3 million.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, Quench was recapitalized, resulting in all preferred stock holders, including our preferred stock investment of $3 million, being converted into common stock.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, we invested $12.9 million in Behrens Manufacturing, LLC (Behrens) through a combination of debt and equity. Behrens, headquartered in Winona, Minnesota, is a manufacturer and marketer of
high quality, classic looking, utility products and containers. Gladstone Capital also participated as a co-investor by providing $5.5 million of debt and equity financing at the same price and terms as our investment.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In December 2013, we invested $13 million in Meridian Rack & Pinion, Inc. (Meridian) through a combination of debt and equity. Meridian, headquartered in San Diego, California, is a provider of
aftermarket and OEM replacement automotive parts, which it sells through both wholesale channels and online at www.BuyAutoParts.com. Gladstone Capital also participated as a co-investor by providing $5.6 million of debt and equity financing at the
same price and terms as our investment.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2014, we invested $13.1 million in Head Country Inc. (Head Country) through a combination of debt and equity. Head Country, headquartered in Ponca City, OK, is a manufacturer of a leading BBQ
sauce brand with three BBQ flavors currently as well as seasonings and marinades.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2014, we invested $15.7 million in Edge Adhesives Holdings, Inc. (Edge) through a combination of debt and equity. Edge, headquartered in Fort Worth, TX, is a developer and manufacturer of
innovative adhesives, sealants, tapes and related solutions used in building products, transportation and electrical, among other markets. Gladstone Capital also participated as a co-investor by providing $11.1 million of debt and equity financing
at the same price and terms as our investment.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2014, we invested $2.6 million in NDLI Acquisition Inc. (NDLI) through equity to facilitate its purchase of certain of Nobles assets out of bankruptcy. In connection with this transaction,
we wrote off our equity investments in Noble and recorded a realized loss of $3.4 million. Refer to Note 15, Subsequent Events, for further activity related to this investment occurring subsequent to March 31, 2014.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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##### Table of Contents

Investment Concentrations

As of March 31, 2014, our investment portfolio consisted of investments in 29 portfolio companies located in 14 states across 14 different industries with
an aggregate fair value of $314.4 million, of which our investments in SOG Specialty K&T, LLC (SOG), Acme Cryogenics, Inc. (Acme), and Galaxy Tool Holdings Corp. (Galaxy), our three largest portfolio
investments at fair value, collectively comprised $70.9 million, or 22.6%, of our total investment portfolio at fair value. The following table summarizes our investments by security type as of March 31, 2014 and 2013:



|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|------------------------- |  | -------------- | ------- |  | -------------- |  | ----- | ---- |  | - | ---------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | - |  | - | ------- |  |  |  | ----- | -
|                          |  | March 31, 2014 |         |  | March 31, 2013 | 
|                          |  | Cost           |         |  | Fair Value     |  |       | Cost |  |   | Fair Value | 
|Senior debt               |  | $              | 196,293 |  |                |  | 51.2  | %    |  | $ | 169,870    |  |  |  | 54.0  | % |  | $ | 135,745 |  |  |  | 41.6  | % |  | $ | 103,882 |  |  |  | 36.3  | %
|Senior subordinated debt  |  |                | 82,348  |  |                |  | 21.5  |      |  |   | 70,827     |  |  |  | 22.5  |   |  |   | 103,547 |  |  |  | 31.7  |   |  |   | 86,811  |  |  |  | 30.3  |  
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total debt                |  |                | 278,641 |  |                |  | 72.7  |      |  |   | 240,697    |  |  |  | 76.5  |   |  |   | 239,292 |  |  |  | 73.3  |   |  |   | 190,693 |  |  |  | 66.6  |  
|                          |  |                |         |  |                |  |       |     
|Preferred equity          |  |                | 98,099  |  |                |  | 25.6  |      |  |   | 62,901     |  |  |  | 20.0  |   |  |   | 81,710  |  |  |  | 25.0  |   |  |   | 82,157  |  |  |  | 28.7  |  
|Common equity/equivalents |  |                | 6,797   |  |                |  | 1.7   |      |  |   | 10,795     |  |  |  | 3.5   |   |  |   | 5,419   |  |  |  | 1.7   |   |  |   | 13,632  |  |  |  | 4.7   |  
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total equity/equivalents  |  |                | 104,896 |  |                |  | 27.3  |      |  |   | 73,696     |  |  |  | 23.5  |   |  |   | 87,129  |  |  |  | 26.7  |   |  |   | 95,789  |  |  |  | 33.4  |  
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  
|Total Investments         |  | $              | 383,537 |  |                |  | 100.0 | %    |  | $ | 314,393    |  |  |  | 100.0 | % |  | $ | 326,421 |  |  |  | 100.0 | % |  | $ | 286,482 |  |  |  | 100.0 | %
|                          |  |                |         |  |                |  |       |      |  |   |            |  |  |  |       |   |  |   |         |  |  |  |       |   |  |   |         |  |  |  |       |  

Investments at fair value consisted of the following industry classifications as of March 31, 2014 and 2013:



|                                                                       |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|---------------------------------------------------------------------- |  | -------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                                                                       |  | March 31, 2014 |         |  | March 31, 2013                 | 
|                                                                       |  | Fair Value     |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|Diversified/Conglomerate Manufacturing                                 |  | $              | 54,845  |  |                                |  | 17.4  | %          |  | $ | 32,698                         |  |  |  | 11.4  | %
|Chemicals, Plastics, and Rubber                                        |  |                | 52,753  |  |                                |  | 16.8  |            |  |   | 59,170                         |  |  |  | 20.7  |  
|Leisure, Amusement, Motion Pictures, Entertainment                     |  |                | 39,867  |  |                                |  | 12.7  |            |  |   | 29,822                         |  |  |  | 10.4  |  
|Machinery (Non-agriculture, Non-construction, Non-electronic)          |  |                | 25,917  |  |                                |  | 8.2   |            |  |   | 32,662                         |  |  |  | 11.4  |  
|Automobile                                                             |  |                | 25,735  |  |                                |  | 8.2   |            |  |   | 7,467                          |  |  |  | 2.6   |  
|Home and Office Furnishings, Housewares, and Durable Consumer Products |  |                | 21,188  |  |                                |  | 6.7   |            |  |   | 23,512                         |  |  |  | 8.2   |  
|Farming and Agriculture                                                |  |                | 20,557  |  |                                |  | 6.5   |            |  |   |                               |  |  |  |      |  
|Aerospace and Defense                                                  |  |                | 18,512  |  |                                |  | 5.9   |            |  |   | 20,876                         |  |  |  | 7.3   |  
|Containers, Packaging, and Glass                                       |  |                | 17,889  |  |                                |  | 5.7   |            |  |   | 23,019                         |  |  |  | 8.0   |  
|Beverage Food and Tobacco                                              |  |                | 13,050  |  |                                |  | 4.2   |            |  |   | 369                            |  |  |  | 0.1   |  
|Personal and Non-Durable Consumer Products (Manufacturing Only)        |  |                | 10,005  |  |                                |  | 3.2   |            |  |   |                               |  |  |  |      |  
|Buildings and Real Estate                                              |  |                | 7,575   |  |                                |  | 2.4   |            |  |   | 6,020                          |  |  |  | 2.2   |  
|Cargo Transport                                                        |  |                | 6,500   |  |                                |  | 2.1   |            |  |   | 6,897                          |  |  |  | 2.4   |  
|Electronics                                                            |  |                |        |  |                                |  |      |            |  |   | 43,970                         |  |  |  | 15.3  |  
|                                                                       |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments                                                      |  | $              | 314,393 |  |                                |  | 100.0 | %          |  | $ | 286,482                        |  |  |  | 100.0 | %
|                                                                       |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

Investments at fair value were included in the following geographic regions of the U.S. as of March 31, 2014 and 2013:



|                  |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|----------------- |  | -------------- | ------- |  | ------------------------------ |  | ----- | ---------- |  | - | ------------------------------ |  |  |  | ----- | -
|                  |  | March 31, 2014 |         |  | March 31, 2013                 | 
|                  |  | Fair Value     |         |  | Percentage ofTotal Investments |  |       | Fair Value |  |   | Percentage ofTotal Investments | 
|West              |  | $              | 117,781 |  |                                |  | 37.5  | %          |  | $ | 81,400                         |  |  |  | 28.4  | %
|South             |  |                | 89,915  |  |                                |  | 28.6  |            |  |   | 125,518                        |  |  |  | 43.8  |  
|Northeast         |  |                | 67,862  |  |                                |  | 21.6  |            |  |   | 58,319                         |  |  |  | 20.4  |  
|Midwest           |  |                | 38,835  |  |                                |  | 12.3  |            |  |   | 21,245                         |  |  |  | 7.4   |  
|                  |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  
|Total Investments |  | $              | 314,393 |  |                                |  | 100.0 | %          |  | $ | 286,482                        |  |  |  | 100.0 | %
|                  |  |                |         |  |                                |  |       |            |  |   |                                |  |  |  |       |  

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



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Investment Principal Repayments

The following table summarizes the contractual principal repayments and maturity of our investment portfolio for the next five fiscal years and thereafter,
assuming no voluntary prepayments, as of March 31, 2014:



|                                     |  |                                                            |  |        |         | 
|------------------------------------ |  | ---------------------------------------------------------- |  | ------ | ------- | 
|                                     |  |                                                            |  | Amount |        
|For the fiscal year ending March 31: |  | 2015                                                       |  | $      | 56,386  | 
|                                     |  | 2016                                                       |  |        | 30,190  | 
|                                     |  | 2017                                                       |  |        | 43,314  | 
|                                     |  | 2018                                                       |  |        | 51,983  | 
|                                     |  | 2019                                                       |  |        | 89,181  | 
|                                     |  | Thereafter                                                 |  |        | 7,587   | 
|                                     |  |                                                            |  |        |         | 
|                                     |  | Total contractual repayments                               |  | $      | 278,641 | 
|                                     |  | Investments in equity securities                           |  |        | 104,896 | 
|                                     |  |                                                            |  |        |         | 
|                                     |  | Total cost basis of investments held as of March 31, 2014: |  | $      | 383,537 | 
|                                     |  |                                                            |  |        |         | 

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies and are included in other assets on our
accompanying Consolidated Statements of Assets and Liabilities. We maintain an allowance for uncollectible receivables from portfolio companies, which is determined based on historical experience and managements expectations of future
losses. We charge the accounts receivable to the established provision when collection efforts have been exhausted and the receivables are deemed uncollectible. As of March 31, 2014 and 2013, we had gross receivables from portfolio companies of
$0.9 million and $1.2 million, respectively. The allowance for uncollectible receivables was $163 and $44 as of March 31, 2014 and 2013, respectively.



|NOTE 4. | RELATED PARTY TRANSACTIONS
|------- | --------------------------

Investment Advisory and Management Agreement

We entered into an investment advisory and management agreement with the Adviser (the Advisory Agreement). The Adviser is controlled by our
chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser certain fees as compensation for its services, such fees consisting of a base management fee and an incentive fee, each as described below. On
July 9, 2013, our Board of Directors approved the renewal of the Advisory Agreement through August 31, 2014.

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



|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|---------------------------------------------------------------- |  | -------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                 |  | Year Ended March 31, |        
|                                                                 |  | 2014                 |         |   | 2013 |   |         | 2012 | 
|Average total assets subject to base management fee(A)           |  | $                    | 310,350 |   |      | $ | 270,600 |      |  | $ | 219,300 |  
|Multiplied by prorated annual base management fee of 2%          |  |                      | 2.0     | % |      |   | 2.0     | %    |  |   | 2.0     | %
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Base management fee(B)                                           |  |                      | 6,207   |   |      |   | 5,412   |      |  |   | 4,386   |  
|Credit for fees received by Adviser from the portfolio companies |  |                      | (2,309  | ) |      |   | (1,107  | )    |  |   | (1,106  | )
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Net base management fee                                          |  | $                    | 3,898   |   |      | $ | 4,305   |      |  | $ | 3,280   |  
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                 |  |                      |        
|Incentive fee(B)                                                 |  |                      | 3,983   |   |      |   | 2,585   |      |  |   | 19      |  
|Credit from waiver issued by Advisers board of directors        |  |                      |        |   |      |   | (221    | )    |  |   | (54     | )
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Net Incentive fee                                                |  | $                    | 3,983   |   |      | $ | 2,364   |      |  | $ | (35     | )
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|                                                                 |  |                      |        
|Total credits to fees:                                           |  |                      |         |   |      |   |         |      |  |   |         |  
|Credit for fees received by Adviser from the portfolio companies |  |                      | (2,309  | ) |      |   | (1,107  | )    |  |   | (1,106  | )
|Credit from waiver issued by Advisers board of directors(C)     |  |                      |        |   |      |   | (221    | )    |  |   | (54     | )
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  
|Credit to fees(B)                                                |  | $                    | (2,309  | ) |      | $ | (1,328  | )    |  | $ | (1,160  | )
|                                                                 |  |                      |         |   |      |   |         |      |  |   |         |  



|(A) | Average total assets subject to the base management fee is defined as total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings,
valued at the end of the applicable quarters within the respective periods and adjusted appropriately for any share issuances or repurchases during the periods.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

Base Management Fee

The
base management fee is computed and payable quarterly and is assessed at an annual rate of 2%. It is computed on the basis of the value of our average gross assets at the end of the two most recently completed quarters, which are total assets,
including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings. As a



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BDC, we make available significant managerial assistance to our portfolio companies and provide other services to such portfolio companies. Although neither we nor our Adviser receive fees in
connection with managerial assistance, the Adviser provides other services to our portfolio companies and receives fees for these other services. 50% of certain of these fees and 100% of others historically have been credited against the base
management fee that we would otherwise be required to pay to our Adviser. Effective October 1, 2013, 100% of all these fees are credited against the base management fee that we would otherwise be required to pay to our Adviser; however,
pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees is retained by the Adviser in the form of reimbursement for certain tasks completed by personnel of the Adviser.

Incentive Fee

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



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



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



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

The second part of the incentive fee is a capital gains-based incentive fee that will be determined and payable in arrears as of the end of
each fiscal year (or upon termination of the Advisory Agreement, as of the termination date) and equals 20% of our realized capital gains as of the end of the fiscal year. In determining the capital gains-based incentive fee payable to the Adviser,
we will calculate the cumulative aggregate realized capital gains and cumulative aggregate realized capital losses since our inception, and the aggregate net unrealized capital depreciation as of the date of the calculation, as applicable, with
respect to each of the investments in our portfolio. For this purpose, cumulative aggregate realized capital gains, if any, equals the sum of the differences between the net sales price of each investment, when sold, and the original cost of such
investment since our inception. Cumulative aggregate realized capital losses equals the sum of the amounts by which the net sales price of each investment, when sold, is less than the original cost of such investment since our inception. Aggregate
net unrealized capital depreciation equals the sum of the difference, if negative, between the valuation of each investment as of the applicable calculation date and the original cost of such investment. At the end of the applicable year, the amount
of capital gains that serves as the basis for our calculation of the capital gains-based incentive fee equals the cumulative aggregate realized capital gains less cumulative aggregate realized capital losses, less aggregate net unrealized capital
depreciation, with respect to our portfolio of investments. If this number is positive at the end of such year, then the capital gains-based incentive fee for such year equals 20% of such amount, less the aggregate amount of any capital gains-based
incentive fees paid in respect of our portfolio in all prior years. No capital gains-based incentive fee has been recorded since our inception through March 31, 2014, as cumulative net unrealized capital depreciation has exceeded cumulative
realized capital gains net of cumulative realized capital losses.

Additionally, in accordance with GAAP, a capital gains-based incentive
fee accrual is calculated using the aggregate cumulative realized capital gains and losses and aggregate cumulative unrealized capital depreciation included in the calculation of the capital gains-based incentive fee plus the aggregate cumulative
unrealized capital appreciation. If such amount is positive at the end of a period, then GAAP requires us to record a capital gains-based incentive fee equal to 20% of such amount, less the aggregate amount of actual capital gains-based incentive
fees paid in all prior years. If such amount is negative, then there is no accrual for such year. GAAP requires that the capital gains-based incentive fee accrual consider the cumulative aggregate unrealized capital appreciation in the calculation,
as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that such unrealized capital appreciation will be realized in the future. No GAAP accrual for a capital
gains-based incentive fee has been recorded since our inception through March 31, 2014.

Administration Agreement

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



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Administrators total allocable expenses by the percentage of our total assets at the beginning of the quarter in comparison to the total assets at the beginning of the quarter of all
companies serviced by the Administrator under similar agreements. On July 9, 2013, our Board of Directors approved the annual renewal of the Administration Agreement through August 31, 2014.

Related Party Fees Due

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



|                                   |  |                 |       |  |      |   |       |  
|---------------------------------- |  | --------------- | ----- |  | ---- | - | ----- | -
|                                   |  | As of March 31, |      
|                                   |  | 2014            |       |  | 2013 |  
|Base management fee due to Adviser |  | $               | 63    |  |      | $ | 625   |  
|Incentive fee due to Adviser       |  |                 | 1,161 |  |      |   | 1,454 |  
|Other due to (from) Adviser        |  |                 | 1     |  |      |   | (12   | )
|                                   |  |                 |       |  |      |   |       |  
|Total fees due to Adviser          |  | $               | 1,225 |  |      | $ | 2,067 |  
|                                   |  |                
|Fee due to Administrator           |  | $               | 224   |  |      | $ | 221   |  
|                                   |  |                 |       |  |      |   |       |  
|                                   |  |                
|Total related party fees due       |  | $               | 1,449 |  |      | $ | 2,288 |  
|                                   |  |                 |       |  |      |   |       |  



|NOTE 5. | BORROWINGS
|------- | ----------

Line of Credit

On April 30, 2013,
we, through our wholly-owned subsidiary, Business Investment, entered into a fifth amended and restated credit agreement with Key Equipment Finance Inc., as administrative agent, lead arranger and a lender (the Administrative Agent),
Branch Banking and Trust Company (BB&T) as a lender and managing agent, and the Adviser, as servicer, to increase the commitment amount of the revolving line of credit (the Credit Facility) from $60 million to $70 million
and to extend the revolving period to April 30, 2016. If not renewed or extended by April 30, 2016, all principal and interest will be due and payable on or before April 30, 2017 (one year after the revolving period end date). In
addition, there is one remaining one-year extension option to be agreed upon by all parties, which may be exercised on or before April 30, 2015. Subject to certain terms and conditions, the Credit Facility may be expanded up to a total of $200
million through the addition of other lenders to the facility. Advances under the Credit Facility generally bear interest at 30-day LIBOR, plus 3.75% per annum, with an unused fee of 0.50% on undrawn amounts. We incurred fees of $0.3 million in
connection with this amendment.

On June 12, 2013, we further increased the borrowing capacity under the Credit Facility from $70 million to $105
million by entering into Joinder Agreements pursuant to the Credit Facility, by and among Business Investment, the Administrative Agent, the Adviser and each of Alostar Bank of Commerce and Everbank Commercial Finance, Inc.

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



|                               |  |                 |         |  |      |   |        | 
|------------------------------ |  | --------------- | ------- |  | ---- | - | ------ | 
|                               |  | As of March 31, |        
|                               |  | 2014            |         |  | 2013 |  
|Commitment amount              |  | $               | 105,000 |  |      | $ | 60,000 | 
|Borrowings outstanding at cost |  |                 | 61,250  |  |      |   | 31,000 | 
|Availability                   |  |                 | 43,750  |  |      |   | 29,000 | 



|                                        |  |                               |        |   |      |   |        |      |  |   |       |  
|--------------------------------------- |  | ----------------------------- | ------ | - | ---- | - | ------ | ---- |  | - | ----- | -
|                                        |  | For the Years Ended March 31, |       
|                                        |  | 2014                          |        |   | 2013 |   |        | 2012 | 
|Weighted average borrowings outstanding |  | $                             | 34,632 |   |      | $ | 15,533 |      |  | $ | 7,336 |  
|Effective interest rate(A)              |  |                               | 4.90   | % |      |   | 5.49   | %    |  |   | 10.0  | %
|Commitment (unused) fees incurred       |  | $                             | 318    |   |      | $ | 225    |      |  | $ | 371   |  



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

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

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

Generally, our Credit Facility contains covenants that require Business Investment to, among other things, maintain its status as a separate legal entity,
prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and collection policies without the lenders consent. Our Credit Facility
generally also limits payments on distributions to the aggregate net investment income for each of the twelve month periods ending March 31,



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2015, 2016 and 2017. Business Investment is also subject to certain limitations on the type of loan investments it can apply toward available credit in the borrowing base, including restrictions
on geographic concentrations, sector concentrations, loan size, payment frequency and status, average life and lien property. Our Credit Facility further requires Business Investment to comply with other financial and operational covenants, which
obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors required in the borrowing base of the credit agreement. Additionally, we are subject to a
performance guaranty that requires us to maintain (i) a minimum net worth (defined in our Credit Facility to include our mandatory redeemable term preferred stock) of $170 million plus 50% of all equity and subordinated debt raised after
April 30, 2013, which equates to $170 million as of March 31, 2014, (ii) asset coverage with respect to senior securities representing indebtedness of at least 200%, in accordance with Section 18 of the
1940 Act and (iii) its status as a BDC under the 1940 Act and as a RIC under the Code. As of March 31, 2014, and as defined in the performance guaranty of our Credit Facility, we had a minimum net worth of $260.8 million, an asset coverage
of 298% and an active status as a BDC and RIC. Our Credit Facility requires a minimum of 12 obligors in the borrowing base and, as of March 31, 2014, Business Investment had 21 obligors. As of March 31, 2014, we were in compliance with all
covenants.

We have entered into multiple interest rate cap agreements with BB&T and Keybank National Association that effectively limit the interest
rate on a portion of our borrowings under the line of credit pursuant to the terms of our Credit Facility. The current agreement, which expires April 2016, provides that the interest rate on $45 million of our borrowings is capped at 6% when 30-day
LIBOR is in excess of 6%that certain interest rate.

Short-Term Loan

As of March 31, 2014, our asset composition satisfied the 50% threshold. However, excluding March 31, 2014, for each quarter end since June 30,
2009 (the measurement dates), we satisfied the 50% threshold to maintain our status as a RIC, in part, through the purchase of short-term qualified securities, which were funded primarily through a short-term loan agreement. Subsequent
to each of the measurement dates, the short-term qualified securities matured, and we repaid the short-term loan, at which time we again fell below the 50% threshold. For example, for the December 31, 2013 measurement date, we purchased $10
million of short-term United States Treasury Bills (T-Bills) through Jefferies & Company, Inc. (Jefferies) on December 27, 2013. The T-Bills were purchased on margin using $1.5 million in cash and the proceeds
from an $8.5 million short-term loan from Jefferies with an effective annual interest rate of 1.35%. On January 2, 2014, when the T-Bills matured, we repaid the $8.5 million loan from Jefferies and received the $1.5 million margin payment sent
to Jefferies to complete the transaction.

Secured Borrowing

In August 2012, we entered into a participation agreement with a third-party related to $5 million of our senior subordinated term debt investment in Ginsey
Home Solutions, Inc. (Ginsey). We evaluated whether the transaction should be accounted for as a sale or a financing-type transaction under the applicable guidance of ASC 860. Based on the terms of the participation agreement, we are
required to treat the participation as a financing-type transaction. Specifically, the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of
interest lower than the contractual rate established at origination. Therefore, our accompanying Consolidated Statements of Assists and Liabilities reflects the entire senior subordinated term debt investment in Ginsey and a corresponding $5
million secured borrowing liability. The secured borrowing has a stated interest rate of 7%, a maturity date of January 3, 2018, and cost approximates fair value.

Fair Value

We elected to apply ASC 825, Financial
Instruments, specifically for our Credit Facility and short-term loan, which was consistent with the application of ASC 820 to our investments. Generally, the Adviser estimates the fair value of our Credit Facility using estimates of value
provided by an independent third party and its own assumptions in the absence of observable market data, including estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the
measurement date. Additionally, due to the seven-day duration of the short-term loan as of March 31, 2013, cost was deemed to approximate fair value. At each of March 31, 2014 and 2013, all of our borrowings were valued using Level 3
inputs. The following tables present the short-term loan, where applicable, and Credit Facility carried at fair value as of March 31, 2014 and 2013, by caption on our accompanying Consolidated Statements of Assets and Liabilities for
Level 3 of the hierarchy established by ASC 820 and a roll-forward of the changes in fair value during the year ended March 31, 2014 and 2013:



|                |  |                                                                                                   |        |  |                |   |        | 
|--------------- |  | ------------------------------------------------------------------------------------------------- | ------ |  | -------------- | - | ------ | 
|                |  | Level 3  Borrowings                                                                              |       
|                |  | Total Recurring Fair Value MeasurementReported inConsolidatedStatements of Assets and
Liabilities |       
|                |  | March 31, 2014                                                                                    |        |  | March 31, 2013 |  
|Short-Term Loan |  | $                                                                                                 |       |  |                | $ | 58,016 | 
|Credit Facility |  |                                                                                                   | 61,701 |  |                |   | 31,854 | 
|                |  |                                                                                                   |        |  |                |   |        | 
|Total           |  | $                                                                                                 | 61,701 |  |                | $ | 89,870 | 
|                |  |                                                                                                   |        |  |                |   |        | 



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



|                                |  |                |          |   |                |   |          |                                                                             |  |   |          |  
|------------------------------- |  | -------------- | -------- | - | -------------- | - | -------- | --------------------------------------------------------------------------- |  | - | -------- | -
|                                |  | Short-TermLoan |          |   | CreditFacility |   |          | Total Fair ValueReported inConsolidated Statementsof Assets and Liabilities | 
|Year ended March 31, 2014:      |  |                |          |   |                |   |          |                                                                             |  |   |          |  
|Fair value as of March 31, 2013 |  | $              | 58,016   |   |                | $ | 31,854   |                                                                             |  | $ | 89,870   |  
|Borrowings                      |  |                | 56,514   |   |                |   | 145,350  |                                                                             |  |   | 201,864  |  
|Repayments                      |  |                | (114,530 | ) |                |   | (115,100 | )                                                                           |  |   | (229,630 | )
|Net unrealized depreciation(a)  |  |                |         |   |                |   | (403     | )                                                                           |  |   | (403     | )
|                                |  |                |          |   |                |   |          |                                                                             |  |   |          |  
|Fair value as of March 31, 2014 |  | $              |         |   |                | $ | 61,701   |                                                                             |  | $ | 61,701   |  
|                                |  |                |          |   |                |   |          |                                                                             |  |   |          |  
|                                |  |                |         
|Year ended March 31, 2013:      |  |                |          |   |                |   |          |                                                                             |  |   |          |  
|Fair value as of March 31, 2012 |  | $              | 76,005   |   |                | $ |         |                                                                             |  | $ | 76,005   |  
|Borrowings                      |  |                | 250,063  |   |                |   | 144,000  |                                                                             |  |   | 394,063  |  
|Repayments                      |  |                | (268,052 | ) |                |   | (113,000 | )                                                                           |  |   | (381,052 | )
|Net unrealized appreciation(a)  |  |                |         |   |                |   | 854      |                                                                             |  |   | 854      |  
|                                |  |                |          |   |                |   |          |                                                                             |  |   |          |  
|Fair value as of March 31, 2013 |  | $              | 58,016   |   |                | $ | 31,854   |                                                                             |  | $ | 89,870   |  
|                                |  |                |          |   |                |   |          |                                                                             |  |   |          |  



|(A) | Included in net unrealized (depreciation) appreciation on our accompanying Consolidated Statement of Operations for the year ended March 31, 2014 and 2013.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------

The fair value of the collateral under our Credit Facility was $288.6 million and $263.7 million as of March 31, 2014 and 2013, respectively. The fair
value of the collateral under the short-term loan was $65 million as of March 31, 2013.



|NOTE 6. | MANDATORILY REDEEMABLE PREFERRED STOCK
|------- | --------------------------------------

In March 2012, we completed a public offering of 1,600,000 shares of 7.125% Series A Cumulative Term Preferred Stock (our Term
Preferred Stock) at a public offering price of $25.00 per share. Gross proceeds totaled $40 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $38 million. We incurred $2 million in total
offering costs related to these transactions, which have been recorded as deferred financing costs on our accompanyingConsolidated Statements of Assets and Liabilities and will be amortized over the redemption period ending February 28,
2017.

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

For the years ended March 31, 2014 and 2013, our Board of Directors declared and paid a monthly
distribution of $0.1484375 per share, or $1.78125 per share in aggregate, to preferred stockholders.

In accordance with ASC 480, Distinguishing
Liabilities from Equity, mandatorily redeemable financial instruments should be classified as liabilities on the balance sheet and, therefore, the related dividend payments are treated as dividend expense on our accompanyingConsolidated
Statements of Operations at the ex-dividend date. The fair value of the Term Preferred Stock, which we consider to be a level 1 liability within the fair value hierarchy, based on the last reported closing sale price as of March 31, 2014
and 2013, was $42.4 million and $42.7 million, respectively.

Aggregate Term Preferred Stock distributions declared and paid for the years ended
March 31, 2014 and 2013, were both $2.9 million. The tax character of distributions paid by us to preferred stockholders is from ordinary income.



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|NOTE 7. | COMMON STOCK
|------- | ------------

Registration Statement

We filed a
registration statement on Form N-2 (File No. 333-181879) with the SEC on June 4, 2012, and subsequently filed a Pre-effective Amendment No. 1 to the registration statement on July 17, 2012, which the SEC declared effective
on July 26, 2012. On June 7, 2013, we filed Post-Effective Amendment No. 2 to the registration statement, which the SEC declared effective on July 26, 2013. The registration statement permits us to issue, through one or more
transactions, up to an aggregate of $300 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities and warrants to purchase common stock, including through a combined offering of two or more of such
securities.

On October 5, 2012, we completed a public offering of 4 million shares of our common stock at a public offering price of $7.50 per
share, which was below our then current net asset value (NAV) per share. Gross proceeds totaled $30 million and net proceeds, after deducting underwriting discounts and offering expenses borne by us, were $28.3 million, which was used to
repay borrowings under our Credit Facility. In connection with the offering, the underwriters exercised their option to purchase an additional 395,825 shares at the public offering price to cover over-allotments, which resulted in gross proceeds of
$3 million and net proceeds, after deducting underwriting discounts, of $2.8 million.



|NOTE 8. | NET (DECREASE) INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE
|------- | --------------------------------------------------------------------------------

The following table sets forth the computation of basic and diluted net (decrease) increase in net assets resulting from operations per
common share for the years ended March 31, 2014, 2013, and 2012:



|                                                                                                                 |  |                      |            |   |      |   |            |      |  |   |            | 
|---------------------------------------------------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | 
|                                                                                                                 |  | Year Ended March 31, |           
|                                                                                                                 |  | 2014                 |            |   | 2013 |   |            | 2012 | 
|Numerator for basic and diluted net (decrease) increase in net assets resulting from operations per common share |  | $                    | (1,329     | ) |      | $ | 17,279     |      |  | $ | 21,966     | 
|Denominator for basic and diluted weighted average common shares                                                 |  |                      | 26,475,958 |   |      |   | 24,189,148 |      |  |   | 22,080,133 | 
|                                                                                                                 |  |                      |            |   |      |   |            |      |  |   |            | 
|Basic and diluted net (decrease) increase in net assets resulting from operations per common share               |  | $                    | (0.05      | ) |      | $ | 0.71       |      |  | $ | 0.99       | 
|                                                                                                                 |  |                      |            |   |      |   |            |      |  |   |            | 



|NOTE 9. | DISTRIBUTIONS TO COMMON STOCKHOLDERS
|------- | ------------------------------------

We are required to pay out as distributions 90% of our ordinary income and short-term capital gains for each taxable year in order to be
taxed as a RIC under Subtitle A, Chapter 1, Subchapter M of the Code. The amount to be paid out as a distribution is determined by our Board of Directors each quarter and is based on our estimated taxable income by management. Based on that
estimate, three monthly distributions are declared each quarter. For calendar years ended December 31, 2013, 2012 and 2011, 100% of our common distributions during these periods were deemed to be paid from ordinary income for 1099 shareholder
reporting purposes.



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Our Board of Directors declared the following monthly distributions to common stockholders for the years ended
March 31, 2014 and 2013:



|                           |  |                  |  |                    |  |                    |  |                              |       |    
|-------------------------- |  | ---------------- |  | ------------------ |  | ------------------ |  | ---------------------------- | ----- | ---
|Fiscal Year                |  | Declaration Date |  | Record Date        |  | Payment Date       |  | Distributionper Common Share |      
|2014                       |  | April 9, 2013    |  | April 22, 2013     |  | April 30, 2013     |  | $                            | 0.050 |    
|                           |  | April 9, 2013    |  | May 20, 2013       |  | May 31, 2013       |  |                              | 0.050 |    
|                           |  | April 9, 2013    |  | June 19, 2013      |  | June 28, 2013      |  |                              | 0.050 |    
|                           |  | July 9, 2013     |  | July 17, 2013      |  | July 31, 2013      |  |                              | 0.050 |    
|                           |  | July 9, 2013     |  | August 19, 2013    |  | August 30, 2013    |  |                              | 0.050 |    
|                           |  | July 9, 2013     |  | September 16, 2013 |  | September 30, 2013 |  |                              | 0.050 |    
|                           |  | October 8, 2013  |  | October 22, 2013   |  | October 31, 2013   |  |                              | 0.060 |    
|                           |  | October 8, 2013  |  | November 14, 2013  |  | November 29, 2013  |  |                              | 0.060 |    
|                           |  | October 8, 2013  |  | November 18, 2013  |  | November 29, 2013  |  |                              | 0.050 | (A)
|                           |  | October 8, 2013  |  | December 16, 2013  |  | December 31, 2013  |  |                              | 0.060 |    
|                           |  | January 7, 2014  |  | January 22, 2014   |  | January 31, 2014   |  |                              | 0.060 |    
|                           |  | January 7, 2014  |  | February 19. 2014  |  | February 28, 2014  |  |                              | 0.060 |    
|                           |  | January 7, 2014  |  | March 17, 2014     |  | March 31, 2014     |  |                              | 0.060 |    
|                           |  |                  |  |                    |  |                    |  |                              |       |    
|Year Ended March 31, 2014: |  |                  |  |                    |  |                    |  | $                            | 0.710 |    
|                           |  |                  |  |                    |  |                    |  |                              |       |    
|                           |  |                  |  |                   
|2013                       |  | April 11, 2012   |  | April 20, 2012     |  | April 30, 2012     |  | $                            | 0.050 |    
|                           |  | April 11, 2012   |  | May 18, 2012       |  | May 31, 2012       |  |                              | 0.050 |    
|                           |  | April 11, 2012   |  | June 20, 2012      |  | June 29, 2012      |  |                              | 0.050 |    
|                           |  | July 10, 2012    |  | July 20, 2012      |  | July 31, 2012      |  |                              | 0.050 |    
|                           |  | July 10, 2012    |  | August 22, 2012    |  | August 31, 2012    |  |                              | 0.050 |    
|                           |  | July 10, 2012    |  | September 19, 2012 |  | September 28, 2012 |  |                              | 0.050 |    
|                           |  | October 10, 2012 |  | October 22, 2012   |  | October 31, 2012   |  |                              | 0.050 |    
|                           |  | October 10, 2012 |  | November 19, 2012  |  | November 30, 2012  |  |                              | 0.050 |    
|                           |  | October 10, 2012 |  | December 19, 2012  |  | December 31, 2012  |  |                              | 0.050 |    
|                           |  | January 8, 2013  |  | January 18, 2013   |  | January 31, 2013   |  |                              | 0.050 |    
|                           |  | January 8, 2013  |  | February 15, 2013  |  | February 28, 2013  |  |                              | 0.050 |    
|                           |  | January 8, 2013  |  | March 15, 2013     |  | March 28, 2013     |  |                              | 0.050 |    
|                           |  |                  |  |                    |  |                    |  |                              |       |    
|Year Ended March 31, 2013: |  |                  |  |                    |  |                    |  | $                            | 0.600 |    
|                           |  |                  |  |                    |  |                    |  |                              |       |    



|(A) | A bonus dividend on our common stock of $0.05 per share was declared by our Board of Directors.
|--- | -----------------------------------------------------------------------------------------------

Aggregate
common distributions declared quarterly and paid for the years ended March 31, 2014 and 2013 were $18.8 million and $14.5 million, respectively, which were declared based on estimates of net investment income for the respective fiscal years.
For the fiscal years ended March 31, 2014 and 2013, taxable income available for common distributions exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $3.9 million and $3.1
million, respectively, of the first common distributions paid in fiscal year 2015 and 2014, respectively, as having been paid in the respective prior year.

The components of net assets on a tax basis were as follows:



|                                           |  |                      |         |   |      |   |         |  
|------------------------------------------ |  | -------------------- | ------- | - | ---- | - | ------- | -
|                                           |  | Year Ended March 31, |        
|                                           |  | 2014                 |         |   | 2013 |  
|Common stock                               |  | $                    | 26      |   |      | $ | 26      |  
|Paid-in-capital                            |  |                      | 287,062 |   |      |   | 287,713 |  
|Net unrealized depreciation of investments |  |                      | (69,283 | ) |      |   | (40,310 | )
|Net unrealized depreciation of other       |  |                      | (525    | ) |      |   | (883    | )
|Undistributed ordinary income              |  |                      | 3,918   |   |      |   | 3,106   |  
|Capital loss carryforward                  |  |                      | (216    | ) |      |   | (8,663  | )
|Post October loss deferral                 |  |                      |        |   |      |   |        |  
|Other temporary differences                |  |                      | (163    | ) |      |   | (44     | )
|Other                                      |  |                      | 18      |   |      |   | 18      |  
|                                           |  |                      |         |   |      |   |         |  
|Net assets                                 |  | $                    | 220,837 |   |      | $ | 240,963 |  
|                                           |  |                      |         |   |      |   |         |  

We generally intend to retain realized gains first to the extent we have available capital loss carryforwards and second,
through a deemed distribution. As of March 31, 2014, we had $0.2 million of capital loss carryforwards that expire in 2018.



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For the years ended March 31, 2014 and 2013, we recorded the following adjustments for permanent book-tax
differences to reflect tax character. Results of operations and net assets were not affected by this revision.



|                                    |  |                          |      |   |      |   |      |  
|----------------------------------- |  | ------------------------ | ---- | - | ---- | - | ---- | -
|                                    |  | Tax Year Ended March 31, |     
|                                    |  | 2014                     |      |   | 2013 |  
|Undistributed net investment income |  | $                        | 416  |   |      | $ | 428  |  
|Accumulated net realized gain       |  |                          | 235  |   |      |   |     |  
|Paid-in-capital                     |  |                          | (651 | ) |      |   | (428 | )

The tax character of distributions paid by us to common stockholders is summarized as follows:



|                                     |  |                          |        |  |      |   |        |      |  |   |        | 
|------------------------------------ |  | ------------------------ | ------ |  | ---- | - | ------ | ---- |  | - | ------ | 
|                                     |  | Tax Year Ended March 31, |       
|                                     |  | 2014                     |        |  | 2013 |   |        | 2012 | 
|Distributions from ordinary income   |  | $                        | 18,797 |  |      | $ | 14,547 |      |  | $ | 13,579 | 
|Distributions from capital gains     |  |                          |       |  |      |   |       |      |  |   |       | 
|Distributions from return of capital |  |                          |       |  |      |   |       |      |  |   |       | 
|                                     |  |                          |        |  |      |   |        |      |  |   |        | 
|Total common distributions           |  | $                        | 18,797 |  |      | $ | 14,547 |      |  | $ | 13,579 | 
|                                     |  |                          |        |  |      |   |        |      |  |   |        | 



|NOTE 10. | FEDERAL AND STATE INCOME TAXES
|-------- | ------------------------------

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

In an effort to limit certain excise taxes imposed on RICs, we generally distribute during each calendar year, an amount at least equal to the sum of
(1) 98% of our ordinary income for the calendar year, (2) 98.2% of our capital gains in excess of capital losses for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gains in
excess of capital losses for preceding years that were not distributed during such years. However, we did incur an excise tax of $0.3 million, $31 and $30 for the calendar years ended December 31, 2013, 2012, and 2011, respectively. Under the
RIC Modernization Act (the RIC Act), we are permitted to carry forward capital losses incurred in taxable years beginning after March 31, 2011, for an unlimited period. However, any losses incurred during those future taxable years
must be used prior to the losses incurred in pre-enactment taxable years, which carry an expiration date. Additionally, post-enactment capital loss carryforwards will retain their character as either short-term or long-term capital losses rather
than only being considered short-term as permitted under previous regulation. Our total capital loss carryforward balance was $8.7 million as of March 31, 2013, and, primarily as a result of the net $8.2 million capital gain related to the
Venyu, ASH, Packerland and Noble exits or partial exits and other tax realized loss adjustments during the year ended March 31, 2014, we anticipate that when we file taxes for the fiscal year ended March 31, 2014 we expect that all but
$0.2 million in realized losses incurred in pre-enactment taxable years will be utilized during the fiscal year ended March 31, 2014.



|NOTE 11. | COMMITMENTS AND CONTINGENCIES
|-------- | -----------------------------

As of March 31, 2014, we have lines of credit commitments to certain of our portfolio companies that have not been fully drawn. Since
these lines of credit have expiration dates and we expect many will never be fully drawn, the total line of credit commitment amounts do not necessarily represent future cash requirements.

In addition to the lines of credit to certain portfolio companies, we have also extended certain guarantees on behalf of some of our portfolio companies. As
of March 31, 2014, we have not been required to make any payments on the guarantees discussed below, and we consider the credit risk to be remote and the fair values of the guarantees to be minimal.



| |  |  | In October 2008, we executed a guarantee of a vehicle finance facility agreement (the Ford Finance Facility) between Ford Motor Credit Company (Ford) and ASH. The Ford Finance Facility
provides ASH with a line of credit of up to $0.5 million for component Ford parts used by ASH to build truck bodies under a separate contract. Ford retains title and ownership of the parts. The guarantee of the Ford Finance Facility will expire upon
termination of the separate parts supply contract with Ford or upon replacement of us as guarantor. In connection with this guarantee, we received a premium of $20 from ASH.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In February 2010, we executed a guarantee of a wholesale financing facility agreement (the Floor Plan Facility) between Agricredit
Acceptance, LLC (Agricredit) and Country Club Enterprises, LLC (CCE). The Floor Plan Facility provides CCE with financing of up to $2 million to bridge the time and cash flow gap between the order and delivery of golf carts
to
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | customers. The guarantee was renewed in February 2012, 2013 and 2014 and will expire in February 2015, unless it is renewed again by us, CCE and Agricredit. In connection with this guarantee and
its subsequent renewals, we recorded aggregate premiums of $0.4 million from CCE.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In April 2010, we executed a guarantee of vendor recourse for up to $2 million in individual customer transactions (the Recourse Facility) between Wells Fargo Financial Leasing, Inc. and CCE. The Recourse
Facility provides CCE with the ability to provide vendor recourse up to a limit of $2 million on transactions with long-time customers who lack the financial history to qualify for third-party financing. The terms to maturity of these individual
transactions range from October 2014 to October 2016. In connection with this guarantee, we received aggregate premiums of $0.1 million from CCE.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In October 2013, we executed a guarantee of a vehicle finance facility agreement (the Compass Finance Facility) between Compass Bank and ASH. The Compass Finance Facility provides ASH with a line of
credit of up to $0.3 million for component Ram parts used by ASH to build truck bodies under a separate contract. The guarantee will expire upon maturity of the Compass Finance Facility on October 16, 2014. In connection with this guarantee, we
received a premium of $10 from ASH.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

The following table summarizes the dollar balance of unused line of credit commitments and guarantees
as of March 31, 2014 and 2013:



|                                  |  |                 |        |  |      |   |       | 
|--------------------------------- |  | --------------- | ------ |  | ---- | - | ----- | 
|                                  |  | As of March 31, |       
|                                  |  | 2014            |        |  | 2013 |  
|Unused line of credit commitments |  | $               | 6,684  |  |      | $ | 1,584 | 
|Guarantees                        |  |                 | 3,628  |  |      |   | 3,870 | 
|                                  |  |                 |        |  |      |   |       | 
|Total                             |  | $               | 10,312 |  |      | $ | 5,454 | 
|                                  |  |                 |        |  |      |   |       | 

Escrow Holdbacks

From
time to time, we will enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow
amounts in restricted cash on our accompanying Consolidated Statements of Assets and Liabilities. In August 2013, the sale of Venyu resulted in $4.9 million in escrow amounts, of which $0.6 million is held on behalf of the other sellers. The
$0.6 million amount held on behalf of the other sellers is recorded in other liabilities on our accompanying Consolidated Statements of Assets and Liabilities. We establish a contingent liability against the escrow amounts if we determine
that it is probable and estimable that a portion of the escrow amounts will not be ultimately received at the end of the escrow period. The aggregate contingent liability recorded against the escrow amounts was $35 and $41 as of March 31, 2014
and 2013, respectively.



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|NOTE 12. | FINANCIAL HIGHLIGHTS
|-------- | --------------------



|                                                                        |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|----------------------------------------------------------------------- |  | -------------------- | ---------- | - | ---- | - | ---------- | ---- |  | - | ---------- | - |  | ---- | ---------- | - |  | - | ---------- | -
|                                                                        |  | Year Ended March 31, |           
|                                                                        |  | 2014                 |            |   | 2013 |   |            | 2012 |  |   | 2011       |   |  | 2010 |           
|Per Common Share Data:                                                  |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net asset value at beginning of year(A)                                 |  | $                    | 9.10       |   |      | $ | 9.38       |      |  | $ | 9.00       |   |  | $    | 8.74       |   |  | $ | 9.73       |  
|Income from investment operations(B)                                    |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net investment income                                                   |  |                      | 0.73       |   |      |   | 0.68       |      |  |   | 0.62       |   |  |      | 0.73       |   |  |   | 0.48       |  
|Net realized gain (loss) on investments and other                       |  |                      | 0.31       |   |      |   | 0.03       |      |  |   | 0.23       |   |  |      | 1.06       |   |  |   | (1.63      | )
|Net unrealized (depreciation) appreciation on investments and Other     |  |                      | (1.09      | ) |      |   |           |      |  |   | 0.14       |   |  |      | (1.05      | ) |  |   | 0.65       |  
|                                                                        |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total from investment operations                                        |  |                      | (0.05      | ) |      |   | 0.71       |      |  |   | 0.99       |   |  |      | 0.74       |   |  |   | (0.50      | )
|                                                                        |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Effect of equity capital activity                                       |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Cash distributions to common stockholders from net investment income(C) |  |                      | (0.71      | ) |      |   | (0.60      | )    |  |   | (0.61      | ) |  |      | (0.48      | ) |  |   | (0.48      | )
|Shelf registration offering costs                                       |  |                      |           |   |      |   | (0.08      | )    |  |   |           |   |  |      |           |   |  |   | (0.01      | )
|Net dilutive effect of equity offering(D)                               |  |                      |           |   |      |   | (0.31      | )    |  |   |           |   |  |      |           |   |  |   |           |  
|                                                                        |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total from equity capital activity                                      |  |                      | (0.71      | ) |      |   | (0.99      | )    |  |   | (0.61      | ) |  |      | (0.48      | ) |  |   | (0.49      | )
|                                                                        |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net asset value at end of year(A)                                       |  | $                    | 8.34       |   |      | $ | 9.10       |      |  | $ | 9.38       |   |  | $    | 9.00       |   |  | $ | 8.74       |  
|                                                                        |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|                                                                        |  |                      |            |   |     
|Per common share market value at beginning of year                      |  | $                    | 7.31       |   |      | $ | 7.57       |      |  | $ | 7.79       |   |  | $    | 6.01       |   |  | $ | 3.67       |  
|Per common share market value at end of year                            |  |                      | 8.27       |   |      |   | 7.31       |      |  |   | 7.57       |   |  |      | 7.76       |   |  |   | 5.98       |  
|Total return(E)                                                         |  |                      | 24.26      | % |      |   | 4.73       | %    |  |   | 5.58       | % |  |      | 38.56      | % |  |   | 79.80      | %
|Common stock outstanding at end of year(A)                              |  |                      | 26,475,958 |   |      |   | 26,475,958 |      |  |   | 22,080,133 |   |  |      | 22,080,133 |   |  |   | 22,080,133 |  
|                                                                        |  |                      |            |   |     
|Statement of Assets and Liabilities Data:                               |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Net assets at end of year                                               |  | $                    | 220,837    |   |      | $ | 240,963    |      |  | $ | 207,216    |   |  | $    | 198,829    |   |  | $ | 192,978    |  
|Average net assets(F)                                                   |  |                      | 231,356    |   |      |   | 216,751    |      |  |   | 204,595    |   |  |      | 192,893    |   |  |   | 191,112    |  
|                                                                        |  |                      |            |   |     
|Senior Securities Data:                                                 |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Total borrowings at cost                                                |  | $                    | 66,250     |   |      | $ | 94,016     |      |  | $ | 76,005     |   |  | $    | 40,000     |   |  | $ | 102,812    |  
|Mandatorily redeemable preferred stock                                  |  |                      | 40,000     |   |      |   | 40,000     |      |  |   | 40,000     |   |  |      |           |   |  |   |           |  
|Asset coverage ratio(G)                                                 |  |                      | 298        | % |      |   | 272        | %    |  |   | 268        | % |  |      | 534        | % |  |   | 281        | %
|Average coverage per unit(H)                                            |  | $                    | 2,978      |   |      | $ | 2,725      |      |  | $ | 2,676      |   |  | $    | 5,344      |   |  | $ | 2,814      |  
|                                                                        |  |                      |            |   |     
|Ratios/Supplemental Data:                                               |  |                      |            |   |      |   |            |      |  |   |            |   |  |      |            |   |  |   |            |  
|Ratio of expenses to average net assets(I)                              |  |                      | 8.33       | % |      |   | 7.09       | %    |  |   | 4.23       | % |  |      | 5.48       | % |  |   | 5.76       | %
|Ratio of net expenses to average net assets(J)(K)                       |  |                      | 7.33       |   |      |   | 6.48       |      |  |   | 3.67       |   |  |      | 5.13       |   |  |   | 5.33       |  
|Ratio of net investment income to average net assets(L)                 |  |                      | 8.35       |   |      |   | 7.61       |      |  |   | 6.72       |   |  |      | 8.38       |   |  |   | 5.55       |  



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

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

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

|(D) | In fiscal year ended March 31, 2013, the dilution is the result of issuing common shares at a price below then current NAV.
|--- | ---------------------------------------------------------------------------------------------------------------------------

|(E) | Total return equals the change in the market value of our common stock from the beginning of the year, taking into account dividends reinvested in accordance with the terms of our dividend reinvestment plan. Total
return does not take into account distributions that may be characterized as a return of capital. For further information on the estimated character of our distributions to common stockholders, please refer to Note 9Distributions to Common
Stockholders.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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

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

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

|(I) | 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.
|--- | ------------------------------------------------------------------------------------------------------------------

|(K) | Had we not received any voluntary waivers of fees due to the Adviser, the ratio of net expenses to average net assets would have been 7.33 %, 6.58%, 3.69%, 5.14%, and 5.54% for the fiscal years ended March 31,
2014, 2013, 2012, 2011, and 2010, respectively.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(L) | Had we not received any voluntary waivers of fees due to the Adviser, the ratio of net investment income to average net assets would have been 8.35%, 7.50%, 6.69%, 8.38%, and 5.34% for the fiscal years ended
March 31, 2014, 2013, 2012, 2011, and 2010, respectively.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



93



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|NOTE 13. | SELECTED QUARTERLY DATA (UNAUDITED)
|-------- | -----------------------------------



|                                                                                                                    |  |               |        |   |                    |   |        |                   |  |   |                |   |  |   |       | 
|------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ------------------ | - | ------ | ----------------- |  | - | -------------- | - |  | - | ----- | 
|                                                                                                                    |  | Quarter Ended |       
|Fiscal Year 2014                                                                                                    |  | June 30, 2013 |        |   | September 30, 2013 |   |        | December 31, 2013 |  |   | March 31, 2014 |  
|Total investment income                                                                                             |  | $             | 7,398  |   |                    | $ | 11,359 |                   |  | $ | 8,696          |   |  | $ | 8,811 | 
|Net investment income                                                                                               |  |               | 4,033  |   |                    |   | 6,228  |                   |  |   | 4,402          |   |  |   | 4,644 | 
|Net (decrease) increase in net assets resulting from operations                                                     |  |               | (6,519 | ) |                    |   | 14,939 |                   |  |   | (10,686        | ) |  |   | 937   | 
|Net (decrease) increase in net assets resulting from operations per weighted average common share  basic &
diluted |  | $             | (0.25  | ) |                    | $ | 0.57   |                   |  | $ | (0.40          | ) |  | $ | 0.03  | 



|                                                                                                                    |  |               |        |   |                    |   |       |                   |  |   |                |  |  |   |        | 
|------------------------------------------------------------------------------------------------------------------- |  | ------------- | ------ | - | ------------------ | - | ----- | ----------------- |  | - | -------------- |  |  | - | ------ | 
|                                                                                                                    |  | Quarter Ended |       
|Fiscal Year 2013                                                                                                    |  | June 30, 2012 |        |   | September 30, 2012 |   |       | December 31, 2012 |  |   | March 31, 2013 | 
|Total investment income                                                                                             |  | $             | 5,905  |   |                    | $ | 6,974 |                   |  | $ | 7,184          |  |  | $ | 10,475 | 
|Net investment income                                                                                               |  |               | 3,238  |   |                    |   | 3,451 |                   |  |   | 3,952          |  |  |   | 5,847  | 
|Net (decrease) increase in net assets resulting from operations                                                     |  |               | (3,017 | ) |                    |   | (353  | )                 |  |   | 4,699          |  |  |   | 15,950 | 
|Net (decrease) increase in net assets resulting from operations per weighted average common share  basic &
diluted |  | $             | (0.13  | ) |                    | $ | (0.02 | )                 |  | $ | 0.18           |  |  | $ | 0.60   | 



|NOTE 14. | UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES
|-------- | ---------------------------------------

In accordance with the SECs Regulation S-X, we have subsidiaries that are not required to be consolidated. We have an
unconsolidated subsidiary, Venyu, as of March 31, 2013 and for the years ended March 31, 2014 and 2013, that meets at least one of the significance conditions under Rule 1-02(w) of the SECs Regulation S-X. Accordingly, summarized,
comparative financial information is presented below for Venyu, which is a leader in commercial-grade, customizable solutions for data protection, data hosting, and disaster recovery.



|                 |  |                                             |        |   |                                  |   |        |                                  |  |   |        |  
|---------------- |  | ------------------------------------------- | ------ | - | -------------------------------- | - | ------ | -------------------------------- |  | - | ------ | -
|Income Statement |  | For the Five Months EndedAugust 30, 2013(A) |        |   | For the Year EndedMarch 31, 2013 |   |        | For the Year EndedMarch 31, 2012 | 
|Net sales        |  | $                                           | 10,120 |   |                                  | $ | 23,905 |                                  |  | $ | 23,635 |  
|Gross profit     |  |                                             | 5,254  |   |                                  |   | 12,861 |                                  |  |   | 9,987  |  
|Net loss         |  |                                             | (294   | ) |                                  |   | (329   | )                                |  |   | (5,300 | )



|                       |  |                      |        | 
|---------------------- |  | -------------------- | ------ | 
|Balance Sheet          |  | As of March 31, 2013 |       
|Current assets         |  | $                    | 6,382  | 
|Noncurrent assets      |  |                      | 31,092 | 
|Current liabilities    |  |                      | 2,235  | 
|Noncurrent liabilities |  |                      | 32,966 | 



|(A) | Venyu was exited in August 2013 and is no longer in our portfolio as of March 31, 2014. Rule 4-08(g) information is being provided herein in lieu of Rule 3-09 separate financial statements pursuant to relief
provided by the Staff of the SECs Office of Chief Accountant in the Division of Investment Management.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|NOTE 15. | SUBSEQUENT EVENTS
|-------- | -----------------

New Portfolio Activity

In May 2014,
NDLI completed the purchase of certain of Nobles assets out of bankruptcy. The resulting entity assumed the name Noble Distribution & Logistics Inc. and will be listed as one portfolio company on our Consolidated Schedules of
Investments beginning with the three months ending June 30, 2014.



Distributions

On April 8, 2014, our Board of
Directors declared the following monthly cash distributions to common and preferred stockholders:



|                       |  |                |      |                              |      |   |                                      |   |           | 
|---------------------- |  | -------------- | ---- | ---------------------------- | ---- | - | ------------------------------------ | - | --------- | 
|Record Date            |  | Payment Date   |      | Distribution perCommon Share |      |   | Distribution per TermPreferred Share |  
|April 21, 2014         |  | April 30, 2014 |      | $                            | 0.06 |   |                                      | $ | 0.1484375 | 
|May 20, 2014           |  | May 30, 2014   |      |                              | 0.06 |   |                                      |   | 0.1484375 | 
|June 19, 2014          |  | June 30, 2014  |      |                              | 0.06 |   |                                      |   | 0.1484375 | 
|                       |  |                |      |                              |      |   |                                      |   |           | 
|Total for the Quarter: |  | $              | 0.18 |                              |      | $ | 0.4453125                            |  
|                       |  |                |      |                              |      |   |                                      |   |           | 



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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE

Not applicable.

ITEM 9A. CONTROLS AND PROCEDURES



|a) | Disclosure Controls and Procedures
|-- | ----------------------------------

As of March 31, 2014 (the end of the period covered by this
report), we, including our chief executive officer and chief financial officer and treasurer, evaluated the effectiveness and design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the
chief executive officer and chief financial officer and treasurer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the chief executive officer and chief financial officer and treasurer,
of material information about us required to be included in periodic SEC filings. However, in evaluation of the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can
provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.



|b) | Managements Annual Report on Internal Control over Financial Reporting
|-- | -----------------------------------------------------------------------

Refer to
Managements Report on Internal Control over Financial Reporting located in Item 8 of this Form 10-K.



|c) | Attestation Report of the Independent Registered Public Accounting Firm
|-- | -----------------------------------------------------------------------

Refer to the
Report of Independent Registered Public Accounting Firm located in Item 8 of this Form 10-K.



|d) | Change in Internal Control over Financial Reporting
|-- | ---------------------------------------------------

There were no changes in internal controls for the
period ended March 31, 2014 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

ITEM 9B. OTHER INFORMATION.

Not applicable.



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PART III

We will file a definitive Proxy Statement for our 2014 Annual Meeting of Stockholders (the 2014 Proxy Statement) with the SEC, pursuant to
Regulation 14A, not later than 120 days after the end of our fiscal year. Accordingly, certain information required by Part III has been omitted under General Instruction G(3) to Form 10-K. Only those sections of the
2014 Proxy Statement that specifically address the items set forth herein are incorporated by reference.

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS
AND CORPORATE GOVERNANCE

The information required by Item 10 is hereby incorporated by reference from our 2014 Proxy Statement under the captions
Election of Directors and Section 16(a) Beneficial Ownership Reporting Compliance.

ITEM 11. EXECUTIVE COMPENSATION

The information required by Item 11 is hereby incorporated by reference from our 2014 Proxy Statement under the captions Compensation Discussion and
AnalysisExecutive Compensation and Director Compensation.

ITEM 12. SECURITY OWNERSHIP OF
CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

The information required by Item 12 is hereby incorporated by reference
from our 2014 Proxy Statement under the caption Security Ownership of Certain Beneficial Owners and Management.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

The information required by Item 13 is hereby incorporated by reference from our 2014 Proxy Statement under the captions Certain Transactions
and Information Regarding the Board of Directors and Corporate Governance.

ITEM 14. PRINCIPAL ACCOUNTANT
FEES AND SERVICES

The information required by Item 14 is hereby incorporated by reference from our 2014 Proxy Statement under the caption
Independent Registered Public Accounting Firm Fees.



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PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES



|a. | DOCUMENTS FILED AS PART OF THIS REPORT
|-- | --------------------------------------



|1. | The following financial statements are filed herewith:
|-- | ------------------------------------------------------



Report of Independent Registered Public Accounting Firm


62Consolidated Statements of Assets and Liabilities as of March 31, 2014 and March 31, 2013


63Consolidated Statements of Operations for the years ended March 31, 2014, March 31, 2013 and March 
31, 2012


64Consolidated Statements of Changes in Net Assets for the years ended March 31, 2014, March 31, 2013 and March 31,
 2012


65Consolidated Statements of Cash Flows for the years ended March 31, 2014, March 31, 2013 and March 
31, 2012


66Consolidated Schedules of Investments as of March 31, 2014 and March 31, 2013


67Notes to Consolidated Financial Statements


73




|2. | The following financial statement schedule is filed herewith:
|-- | -------------------------------------------------------------



Schedule 12-14 Investments in and Advances to Affiliates


100No other financial statement schedules are filed herewith because (1) such schedules are not required or (2) the information has been presented in the aforementioned financial statements.




|3. | Exhibits
|-- | --------



The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:




|     |  |                                                                                                                                                                                                                                                                                                                                                                                                                                              
|---- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|3.1  |  | Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit A.2 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-123699), filed May 13,
2005.                                                                                                                                                                                                                            
|     | 
|3.2  |  | Certificate of Designation of 7.125% Series A Cumulative Term Preferred Stock, incorporated by reference to Exhibit 2.A.2 to Post-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-160720), filed
February 29, 2012.                                                                                                                                                                                        
|     | 
|3.3  |  | Amended and Restated Bylaws, incorporated by reference to Exhibit B.2 to the Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.                                                                                                                                                                                                                                             
|     | 
|3.4  |  | First Amendment to Amended and Restated Bylaws of the Registrant, incorporated by reference to Exhibit 99.1 to the Current Report on Form 8-K (File No. 814-00704) filed July 10, 2007.                                                                                                                                                                                                                                                      
|     | 
|4.1  |  | Specimen Stock Certificate, incorporated by reference to Exhibit 99.D to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.                                                                                                                                                                                                                                                 
|     | 
|4.2  |  | Specimen 7.125% Series A Cumulative Term Preferred Stock Certificate, incorporated by reference to Exhibit 2.D.4 to Post-Effective Amendment No. 5 to the Registration Statement on Form N-2 (File No. 333-160720), filed February 29,
2012.                                                                                                                                                                                                 
|     | 
|4.3  |  | Dividend Reinvestment Plan, incorporated by reference to Exhibit 99.E to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.                                                                                                                                                                                                                                                 
|     | 
|10.1 |  | Investment Advisory and Management Agreement between the Registrant and Gladstone Management Corporation, dated June 22, 2005, incorporated by reference to Exhibit 10.1 to the Annual Report on Form 10-K filed
June 14, 2006.                                                                                                                                                                                                              
|     | 
|10.2 |  | Administration Agreement between the Registrant and Gladstone Administration, LLC, dated June 22, 2005, incorporated by reference to Exhibit 10.2 to the Annual Report on Form 10-K filed June 14,
2006.                                                                                                                                                                                                                                     
|     | 
|10.3 |  | Stock Transfer Agency Agreement between the Registrant and The Bank of New York, incorporated by reference to Exhibit K.1 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File
No. 333-123699), filed May 13, 2005.                                                                                                                                                                                              
|     | 
|10.4 |  | Custody Agreement between the Registrant and The Bank of New York, incorporated by reference to Exhibit 99.J to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed
June 21, 2005.                                                                                                                                                                                                          
|     | 
|10.5 |  | Custodial Agreement by and among Gladstone Business Investment, LLC, the Registrant, Gladstone Management Corporation, The Bank of New York Trust Company, N.A. and Deutsche Bank AG, New York Branch, dated October 10, 2006,
incorporated by reference to Exhibit 2.j.2 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-181879), filed June 7, 2013.                                             
|     | 
|10.6 |  | Amendment No. 1 to Custodial Agreement by and among Gladstone Business Investment, LLC, the Registrant, Gladstone Management Corporation, The Bank of New York Trust Company, N.A. and Deutsche Bank AG, New York Branch, dated April
14, 2009, incorporated by reference to Exhibit 2.j.3 to Post-Effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-181879), filed June 7, 2013.                            
|     | 
|10.7 |  | Fourth Amended and Restated Credit Agreement dated as of October 26, 2011 by and among Gladstone Business Investment, LLC as Borrower, Gladstone Management Corporation as Servicer, the Lenders named therein, the Managing Agents
named therein, and Branch Banking and Trust Company as Administrative Agent, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 814-00704), filed on October 27,
2011.



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|      |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|----- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|      | 
|10.8  |  | Amendment No. 1 to Gladstone Business Investment, LLC Credit Agreement, dated October 5, 2012, by and among Gladstone Business Investment, LLC as Borrower, Gladstone Management Corporation as Servicer, the Committed Lenders named
therein, the Managing Agents named therein, and Branch Banking and Trust Company as Administrative Agent, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 814-00704), filed October 9, 2012.
|      | 
|10.9  |  | Fifth Amended and Restated Credit Agreement, dated as of April 30, 2013, by and among Gladstone Business Investment, LLC, as Borrower, Gladstone Management Corporation, as Servicer, the Financial Institutions as party thereto, as
Lenders and Managing Agents, and Key Equipment Finance, Inc., as Administrative Agent and Lead Arranger, incorporated by reference to Exhibit 10.1 to the Current Report on Form 8-K (File No. 814-00704), filed May 2, 2013.     
|      | 
|10.10 |  | Joinder Agreement, dated as of June 12, 2013, by and among the Gladstone Business Investment, LLC, Gladstone Management Corporation, Key Equipment Finance Inc. and Everbank Commercial Finance, Inc., incorporated by reference to
Exhibit 10.1 of the Current Report on Form 8-K (File No. 814-00704), filed June 17, 2013.                                                                                                                                           
|      | 
|10.11 |  | Joinder Agreement, dated as of June 12, 2013, by and among the Gladstone Business Investment, LLC, Gladstone Management Corporation, Key Equipment Finance Inc. and Alostar Bank of Commerce, incorporated by reference to Exhibit 10.2
of the Current Report on Form 8-K (File No. 814-00704), filed June 17, 2013.                                                                                                                                                    
|      | 
|11    |  | Computation of Per Share Earnings (included in the notes to the audited financial statements contained in this report).                                                                                                                                                                                                                                                                                                                                                 
|      | 
|12*   |  | Statements re: Computation of Ratios                                                                                                                                                                                                                                                                                                                                                                                                                                    
|      | 
|14    |  | Code of Ethics and Business Conduct, dated January 28, 2013, incorporated by reference to Exhibit 2.r to the Post-effective Amendment No. 2 to the Registration Statement on Form N-2 (File No. 333-181979), filed June 7,
2013.                                                                                                                                                                                                                                        
|      | 
|21*   |  | Subsidiaries of the Registrant.                                                                                                                                                                                                                                                                                                                                                                                                                                         
|      | 
|31.1* |  | Certification of Chief Executive Officer filed pursuant to section 302 of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                               
|      | 
|31.2* |  | Certification of Chief Financial Officer filed pursuant to section 302 of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                               
|      | 
|32.1 |  | Certification of Chief Executive Officer furnished pursuant to section 906 of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                           
|      | 
|32.2 |  | Certification of Chief Financial Officer furnished pursuant to section 906 of The Sarbanes-Oxley Act of 2002.                                                                                                                                                                                                                                                                                                                                                           
|      | 
|99.1* |  | Financial Statements of Danco Acquisition Corporation as of and for the years ended December 31, 2013 and 2012 (unaudited)                                                                                                                                                                                                                                                                                                                                              
|      | 
|99.2* |  | Financial Statements of Danco Acquisition Corporation as of and for the years ended December 31, 2012 and 2011                                                                                                                                                                                                                                                                                                                                                          
|      | 
|99.3* |  | Financial Statements of Galaxy Tool Holding Corporation and Subsidiaries as of and for the years ended December 31, 2013 and 2012                                                                                                                                                                                                                                                                                                                                       
|      | 
|99.4* |  | Financial Statements of Galaxy Tool Holding Corporation and Subsidiaries as of and for the years ended December 31, 2012 and 2011                                                                                                                                                                                                                                                                                                                                       
|      | 
|99.5* |  | Financial Statements of SOG Specialty Knives and Tools, LLC as of and for the years ended December 31, 2013 and 2012                                                                                                                                                                                                                                                                                                                                                    
|      | 
|99.6* |  | Financial Statements of SOG Specialty Knives and Tools, LLC as of December 31, 2011 and for the period August 6, 2011 through December 31, 2011                                                                                                                                                                                                                                                                                                                         



|* | Filed herewith
|- | --------------

| | Furnished herewith
|- | ------------------



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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this
report to be signed on its behalf by the undersigned, thereunto duly authorized.



|                   |  |  |  |                                  |  |                                      
|------------------ |  |  |  | -------------------------------- |  | -------------------------------------
|                   |  |  |  | GLADSTONE INVESTMENT CORPORATION
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By:                              |  | /s/ DAVID WATSON                     
|                   |  |  |  |                                  |  | David Watson                         
|                   |  |  |  |                                  |  | Chief Financial Officer and Treasurer

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the
following persons on behalf of the registrant and in the capacities and on the dates indicated.



|                   |  |  |  |     |  |                                                                                             
|------------------ |  |  |  | --- |  | --------------------------------------------------------------------------------------------
|Date: May 13, 2014 |  |  |  | By: |  | /s/ DAVID GLADSTONE                                                                         
|                   |  |  |  |     |  | David Gladstone                                                                             
|                   |  |  |  |     |  | Chief Executive Officer and Chairman of the Board of Directors (principal executive officer)
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ TERRY LEE BRUBAKER                                                                      
|                   |  |  |  |     |  | Terry Lee Brubaker                                                                          
|                   |  |  |  |     |  | Vice Chairman and Chief Operating Officer                                                   
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ DAVID A. R. DULLUM                                                                      
|                   |  |  |  |     |  | David A. R. Dullum                                                                          
|                   |  |  |  |     |  | President and Director                                                                      
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ DAVID WATSON                                                                            
|                   |  |  |  |     |  | David Watson                                                                                
|                   |  |  |  |     |  | Chief Financial Officer and Treasurer (principal financial and accounting officer)          
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ ANTHONY W. PARKER                                                                       
|                   |  |  |  |     |  | Anthony W. Parker                                                                           
|                   |  |  |  |     |  | Director                                                                                    
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ MICHELA A. ENGLISH                                                                      
|                   |  |  |  |     |  | Michela A. English                                                                          
|                   |  |  |  |     |  | Director                                                                                    
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ PAUL ADELGREN                                                                           
|                   |  |  |  |     |  | Paul Adelgren                                                                               
|                   |  |  |  |     |  | Director                                                                                    
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ JOHN D. REILLY                                                                          
|                   |  |  |  |     |  | John D. Reilly                                                                              
|                   |  |  |  |     |  | Director                                                                                    
|                   |  |  | 
|Date: May 13, 2014 |  |  |  | By: |  | /s/ JOHN H. OUTLAND                                                                         
|                   |  |  |  |     |  | John H. Outland                                                                             
|                   |  |  |  |     |  | Director                                                                                    



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SCHEDULE 12-14

GLADSTONE INVESTMENT CORPORATION

INVESTMENTS IN AND ADVANCES TO AFFILIATES

(AMOUNTS IN THOUSANDS)



|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|----------------------------------- |  | ------------------------------------------ | ----- | --------------------------------------------------- | ----- | - | ------------------------- | - | ------ | ----------------- | ----- | - | ------------------- | - | ------- | ------------------------- | ------- | - | ------ | - | ------ | 
|Name of Issuer(A)                   |  | Title of Issue orNature of Indebtedness(B) |       | Amount of Dividendsor InterestCredited to Income(C) |       |   | Value as ofMarch 31, 2013 |   |        | GrossAdditions(D) |       |   | Gross Reductions(E) |   |         | Value as ofMarch 31, 2014 |        
|                                    |  |                                            |       |                                                     |      
|CONTROL INVESTMENTS                 |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |  
|Galaxy Tool Holding Corp.           |  | Senior Subordinated Term Debt              |       | $                                                   | 2,124 |   |                           | $ | 15,520 |                   |       | $ |                    |   |         | $                         |        |   |        | $ | 15,520 | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   | 5,356  |                   |       |   | 3,280               |   |         |                           | (5,644  | ) |        |   | 2,992  | 
|                                    |  | Common Stock                               |       |                                                     |      |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 2,124 |   |                           |   | 20,876 |                   |       |   | 3,280               |   |         |                           | (3,644  | ) |        |   | 18,512 | 
|                                    |  |                                            |       |                                                     |       |  
|NDLI Acquisition Inc.               |  | Preferred Stock                            |       |                                                     |      |   |                           |   |       |                   |       |   | 2,600               |   |         |                           | (8      | ) |        |   | 2,592  | 
|                                    |  | Common Stock                               |       |                                                     |      |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     |      |   |                           |   |       |                   |       |   | 2,600               |   |         |                           | (8      | ) |        |   | 2,592  | 
|                                    |  |                                            |       |                                                     |       |  
|Venyu Solutions, Inc.               |  | Senior Subordinated Term Debt              |       |                                                     | 330   |   |                           |   | 7,000  |                   |       |   |                    |   |         |                           | (7,000  | ) |        |   |       | 
|                                    |  | Senior Subordinated Term Debt              |       |                                                     | 705   |   |                           |   | 12,000 |                   |       |   |                    |   |         |                           | (12,000 | ) |        |   |       | 
|                                    |  | Preferred Stock                            |       |                                                     | 1,465 |   |                           |   | 24,970 |                   |       |   |                    |   |         |                           | (24,970 | ) |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 2,500 |   |                           |   | 43,970 |                   |       |   |                    |   |         |                           | (43,970 | ) |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     |      
|TOTAL CONTROL INVESTMENTS           |  | $                                          | 4,624 |                                                     |       | $ | 64,846                    |   |        | $                 | 5,880 |   |                     | $ | (49,622 | )                         |         | $ | 21,104 |  
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     |      
|AFFILIATE INVESTMENTS               |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |  
|Behrens Manufacturing, LLC          |  | Senior Term Debt                           |       |                                                     | 382   |   |                           |   |       |                   |       |   | 9,975               |   |         |                           |        |   |        |   | 9,975  | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   |       |                   |       |   | 2,923               |   |         |                           | (169    | ) |        |   | 2,754  | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 382   |   |                           |   |       |                   |       |   | 12,898              |   |         |                           | (168    | ) |        |   | 12,729 | 
|                                    |  |                                            |       |                                                     |       |  
|Channel Technologies Group, LLC     |  | Revolving Credit Facility                  |       |                                                     | 5     |   |                           |   | 1,248  |                   |       |   |                    |   |         |                           | (1,248  | ) |        |   |       | 
|                                    |  | Senior Term Debt                           |       |                                                     | 257   |   |                           |   | 5,589  |                   |       |   |                    |   |         |                           | (5,589  | ) |        |   |       | 
|                                    |  | Senior Term Debt                           |       |                                                     | 706   |   |                           |   | 10,737 |                   |       |   |                    |   |         |                           | (10,737 | ) |        |   |       | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   | 275    |                   |       |   | 2,847               |   |         |                           |        |   |        |   | 3,122  | 
|                                    |  | Common Stock                               |       |                                                     |      |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 968   |   |                           |   | 17,849 |                   |       |   | 2,847               |   |         |                           | (17,574 | ) |        |   | 3,122  | 
|                                    |  |                                            |       |                                                     |       |  
|Danco Acquisition Corp.             |  | Revolving Credit Facility                  |       |                                                     | 123   |   |                           |   | 717    |                   |       |   | 603                 |   |         |                           | (630    | ) |        |   | 690    | 
|                                    |  | Senior Term Debt                           |       |                                                     | 105   |   |                           |   | 644    |                   |       |   | 26                  |   |         |                           | (155    | ) |        |   | 515    | 
|                                    |  | Senior Term Debt                           |       |                                                     | 357   |   |                           |   | 2,199  |                   |       |   | 88                  |   |         |                           | (528    | ) |        |   | 1,759  | 
|                                    |  | Senior Term Debt                           |       |                                                     | 58    |   |                           |   | 287    |                   |       |   | 12                  |   |         |                           | (63     | ) |        |   | 236    | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  | Common Stock Warrants                      |       |                                                     |      |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 643   |   |                           |   | 3,847  |                   |       |   | 729                 |   |         |                           | (1,376  | ) |        |   | 3,200  | 
|                                    |  |                                            |       |                                                     |       |  
|Edge Adhesives Holdings, Inc.       |  | Revolving Credit Facility                  |       |                                                     | 9     |   |                           |   |       |                   |       |   | 795                 |   |         |                           |        |   |        |   | 795    | 
|                                    |  | Senior Term Debt                           |       |                                                     | 103   |   |                           |   |       |                   |       |   | 9,300               |   |         |                           |        |   |        |   | 9,300  | 
|                                    |  | Senior Subordinated Term Debt              |       |                                                     | 29    |   |                           |   |       |                   |       |   | 2,400               |   |         |                           |        |   |        |   | 2,400  | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   |       |                   |       |   | 3,474               |   |         |                           |        |   |        |   | 3,474  | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 141   |   |                           |   |       |                   |       |   | 15,969              |   |         |                           |        |   |        |   | 15,969 | 
|                                    |  |                                            |       |                                                     |       |  
|Head Country Food Products, Inc.    |  | Revolving Credit Facility                  |       |                                                     | 1     |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  | Senior Term Debt                           |       |                                                     | 145   |   |                           |   |       |                   |       |   | 9,050               |   |         |                           |        |   |        |   | 9,050  | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   |       |                   |       |   | 4,000               |   |         |                           |        |   |        |   | 4,000  | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 146   |   |                           |   |       |                   |       |   | 13,050              |   |         |                           |        |   |        |   | 13,050 | 
|                                    |  |                                            |       |                                                     |       |  
|Meridian Rack & Pinion, Inc.        |  | Senior Term Debt                           |       |                                                     | 344   |   |                           |   |       |                   |       |   | 9,672               |   |         |                           |        |   |        |   | 9,672  | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   |       |                   |       |   | 3,468               |   |         |                           |        |   |        |   | 3,468  | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 344   |   |                           |   |       |                   |       |   | 13,140              |   |         |                           |        |   |        |   | 13,140 | 
|                                    |  |                                            |       |                                                     |       |  
|Packerland Whey Products, Inc.      |  | Preferred Stock                            |       |                                                     |      |   |                           |   | 367    |                   |       |   |                    |   |         |                           | (367    | ) |        |   |       | 
|                                    |  | Common Stock                               |       |                                                     |      |   |                           |   |       |                   |       |   |                    |   |         |                           |        |   |        |   |       | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     |      |   |                           |   | 367    |                   |       |   |                    |   |         |                           | (367    | ) |        |   |       | 
|                                    |  |                                            |       |                                                     |       |  
|SOG Specialty Knives and Tools, LLC |  | Senior Term Debt                           |       |                                                     | 833   |   |                           |   | 6,200  |                   |       |   |                    |   |         |                           |        |   |        |   | 6,200  | 
|                                    |  | Senior Term Debt                           |       |                                                     | 1,824 |   |                           |   | 12,199 |                   |       |   |                    |   |         |                           |        |   |        |   | 12,199 | 
|                                    |  | Preferred Stock                            |       |                                                     |      |   |                           |   | 11,423 |                   |       |   | 3,140               |   |         |                           | (6,323  | ) |        |   | 8,240  | 
|                                    |  |                                            |       |                                                     |       |   |                           |   |        |                   |       |   |                     |   |         |                           |         |   |        |   |        | 
|                                    |  |                                            |       |                                                     | 2,657 |   |                           |   | 29,822 |                   |       |   | 3,140               |   |         |                           | (6,323  | ) |        |   | 26,639 | 



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##### Table of Contents

GLADSTONE INVESTMENT CORPORATION

INVESTMENTS IN AND ADVANCES TO AFFILIATES (Continued)

(AMOUNTS IN THOUSANDS)



|                            |  |                                            |       |                                                     |   |   |                           |   |   |                   |        |   |                     |   |         |                           |        |   |        |   |   | 
|--------------------------- |  | ------------------------------------------ | ----- | --------------------------------------------------- | - | - | ------------------------- | - | - | ----------------- | ------ | - | ------------------- | - | ------- | ------------------------- | ------ | - | ------ | - | - | 
|Name of Issuer(A)           |  | Title of Issue orNature of Indebtedness(B) |       | Amount of Dividendsor InterestCredited to Income(C) |   |   | Value as ofMarch 31, 2013 |   |   | GrossAdditions(D) |        |   | Gross Reductions(E) |   |         | Value as ofMarch 31, 2014 |       
|                            |  |                                            |       |                                                     |   |  
|Tread Corp.                 |  | Revolving Credit Facility(F)               |       | $                                                   |  |   |                           | $ |  |                   |        | $ | 1,830               |   |         | $                         | (1,830 | ) |        | $ |  | 
|                            |  | Senior Subordinated Term Debt (F)          |       |                                                     |  |   |                           |   |  |                   |        |   |                    |   |         |                           |       |   |        |   |  | 
|                            |  | Senior Subordinated Term Debt (F)          |       |                                                     |  |   |                           |   |  |                   |        |   |                    |   |         |                           |       |   |        |   |  | 
|                            |  | Preferred Stock                            |       |                                                     |  |   |                           |   |  |                   |        |   |                    |   |         |                           |       |   |        |   |  | 
|                            |  | Common Stock                               |       |                                                     |  |   |                           |   |  |                   |        |   |                    |   |         |                           |       |   |        |   |  | 
|                            |  | Common Stock Warrants                      |       |                                                     |  |   |                           |   |  |                   |        |   |                    |   |         |                           |       |   |        |   |  | 
|                            |  |                                            |       |                                                     |   |   |                           |   |   |                   |        |   |                     |   |         |                           |        |   |        |   |   | 
|                            |  |                                            |       |                                                     |  |   |                           |   |  |                   |        |   | 1,830               |   |         |                           | (1,830 | ) |        |   |  | 
|                            |  |                                            |       |                                                     |   |   |                           |   |   |                   |        |   |                     |   |         |                           |        |   |        |   |   | 
|                            |  |                                            |       |                                                     |  
|TOTAL AFFILIATE INVESTMENTS |  | $                                          | 5,281 |                                                     |   | $ | 51,885                    |   |   | $                 | 63,603 |   |                     | $ | (27,639 | )                         |        | $ | 87,849 |  
|                            |  |                                            |       |                                                     |   |   |                           |   |   |                   |        |   |                     |   |         |                           |        |   |        |   |   | 



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

|(B) | Common stock, warrants, options and, in some cases, preferred stock are generally non-income-producing and restricted. The principal amount of debt and the number of shares of common stock and preferred stock are
shown in the Consolidated Schedules of Investments as of March 31, 2014.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(C) | Represents the total amount of interest or dividends credited to income for the portion of the year an investment was a control investment or affiliate investment, as appropriate.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(D) | Gross additions include increases in investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and fees and the exchange of one or more existing
securities for one or more new securities. Gross additions also include net increases in unrealized appreciation or decreases in unrealized depreciation.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(E) | Gross reductions include decreases in investments resulting from principal collections related to investment repayments or sales, the amortization of premiums and acquisition costs and the exchange of one or more
existing securities for one or more new securities. Gross reductions also include net increases in unrealized depreciation or decreases in unrealized appreciation.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(F) | Debt security is on non-accrual status and, therefore, is considered non-income producing
|--- | -----------------------------------------------------------------------------------------

|** | Information related to the amount of equity in the net profit and loss for the period for the investments listed has not been included in this schedule. This information is not considered to be meaningful due to
the complex capital structures of the portfolio companies, with different classes of equity securities outstanding with different preferences in liquidation. These investments are not consolidated, nor are they accounted for under the equity method
of accounting.
|-- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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