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Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-Q

(Mark One)


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

For the quarterly period ended December 31, 2021


o			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						22102
MCLEAN, VIRGINIA						(Zip Code)
(Address of principal executive offices)

(703) 287-5800

(Registrant’s telephone number, including area code)

Not Applicable

(Former name, former address and former fiscal year,

if changed since last report)

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

Title of Each Class

Trading Symbol(s)

Name of Each Exchange on Which Registered

Common Stock, $0.001 par value per share

GAIN

The Nasdaq Stock Market LLC

5.00% Notes due 2026

GAINN

The Nasdaq Stock Market LLC

4.875% Notes due 2028

GAINZ

The Nasdaq Stock Market LLC

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

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes o No o

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


Large accelerated filer	o	Accelerated filer	o
Non-accelerated filer	x	Smaller reporting company	o
Emerging growth company	o

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. o

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

The number of shares of the issuer’s Common Stock, $0.001 par value per share, outstanding as of February 7, 2022 was 33,205,023.

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GLADSTONE INVESTMENT CORPORATION

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION:

Item 1.	Financial Statements (Unaudited)

	Consolidated Statements of Assets and Liabilities as of December 31, 2021 and March 31, 2021	2
	Consolidated Statements of Operations for the three and nine months ended December 31, 2021 and 2020	3
	Consolidated Statements of Changes in Net Assets for the three and nine months ended December 31, 2021 and 2020	4
	Consolidated Statements of Cash Flows for the nine months ended December 31, 2021 and 2020	5
	Consolidated Schedules of Investments as of December 31, 2021 and March 31, 2021	6
	Notes to Consolidated Financial Statements	14

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations

	Overview	42
	Results of Operations	46
	Liquidity and Capital Resources	55

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	63

Item 4.	Controls and Procedures	63

PART II.	OTHER INFORMATION:

Item 1.	Legal Proceedings	64

Item 1A.	Risk Factors	64

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	64

Item 3.	Defaults Upon Senior Securities	64

Item 4.	Mine Safety Disclosures	64

Item 5.	Other Information	64

Item 6.	Exhibits	64

SIGNATURES		65

Table of Contents

PART I - FINANCIAL INFORMATION

ITEM 1. FINANCIAL STATEMENTS

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	December 31, 2021		March 31, 2021
ASSETS
Investments at fair value
Non-Control/Non-Affiliate investments (Cost of $385,819 and $297,400, respectively)	$	424,918	$	298,222
Affiliate investments (Cost of $289,737 and $341,651, respectively)	275,820		307,977
Control investments (Cost of $620 and $24,512, respectively)	—		27,630
Cash and cash equivalents	27,950		2,062
Restricted cash and cash equivalents	694		336
Interest receivable	2,755		3,369
Due from administrative agent	1,807		1,164
Deferred financing costs, net	1,030		1,359
Other assets, net	1,121		1,612
TOTAL ASSETS	$	736,095	$	643,731

LIABILITIES
Borrowings:
Line of credit at fair value (Cost of $0 and $22,400, respectively)	$	—	$	22,400
Notes payable, net	255,939		123,883
Secured borrowing	5,096		5,096
Total borrowings	261,035		151,379
Mandatorily redeemable preferred stock, $0.001 par value per share, $25.00 liquidation preference per share; 0 and 5,990,000 shares authorized; 0 and 3,774,853 shares issued and outstanding, respectively, net	—		92,209
Accounts payable and accrued expenses	1,346		563
Interest payable	2,263		591
Fees due to Adviser(A)	29,605		15,664
Fee due to Administrator(A)	537		577
Other liabilities	720		384
TOTAL LIABILITIES	$	295,506	$	261,367
Commitments and contingencies(B)
NET ASSETS	$	440,589	$	382,364

ANALYSIS OF NET ASSETS
Common stock, $0.001 par value per share, 100,000,000 shares authorized, 33,205,023 shares issued and outstanding	$	33	$	33
Capital in excess of par value	397,950		400,796

Cumulative net unrealized appreciation (depreciation) of investments	25,182		(29,734)
(Overdistributed) underdistributed net investment income	(9,022)		2,592
Accumulated net realized gain in excess of distributions	26,446		8,677
Total distributable earnings	42,606		(18,465)
TOTAL NET ASSETS	$	440,589	$	382,364

NET ASSET VALUE PER SHARE	$	13.27	$	11.52

(A)Refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

(B)Refer to Note 10 — Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information.

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

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

(UNAUDITED)


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
INVESTMENT INCOME
Interest income
Non-Control/Non-Affiliate investments	$	8,240	$	6,804	$	22,524	$	19,782
Affiliate investments	5,100		5,123		20,609		14,087
Control investments	3		220		500		639
Cash and cash equivalents	1		1		1		5
Total interest income	13,344		12,148		43,634		34,513
Dividend income
Non-Control/Non-Affiliate investments	—		908		3		908
Affiliate investments	—		4,127		1,589		4,127
Total dividend income	—		5,035		1,592		5,035
Success fee income
Non-Control/Non-Affiliate investments	—		189		1,650		371
Affiliate investments	3,398		—		6,430		—
Total success fee income	3,398		189		8,080		371
Total investment income	16,742		17,372		53,306		39,919

EXPENSES
Base management fee(A)	3,630		3,116		10,527		8,961
Loan servicing fee(A)	1,768		1,786		5,430		5,242
Incentive fee(A)	2,587		3,756		22,186		3,454
Administration fee(A)	437		382		1,407		1,218
Interest expense on borrowings	3,918		1,092		9,300		3,064
Dividends on mandatorily redeemable preferred stock	—		2,291		2,306		6,551
Amortization of deferred financing costs and discounts	447		451		1,355		1,291
Professional fees	444		322		1,093		1,147
Other general and administrative expenses	562		496		2,735		2,031
Expenses before credits from Adviser	13,793		13,692		56,339		32,959
Credits to base management fee – loan servicing fee(A)	(1,768)		(1,786)		(5,430)		(5,242)
Credits to fees from Adviser - other(A)	(3,682)		(789)		(5,863)		(2,594)
Total expenses, net of credits to fees	8,343		11,117		45,046		25,123
NET INVESTMENT INCOME	8,399		6,255		8,260		14,796

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain (loss):
Non-Control/Non-Affiliate investments	113		5,816		256		5,876
Affiliate investments	21,936		3,289		24,186		4,603
Other	—		—		(1,998)		—
Total net realized gain	22,049		9,105		22,444		10,479
Net unrealized appreciation (depreciation):
Non-Control/Non-Affiliate investments	6,275		(5,358)		38,278		(18,372)
Affiliate investments	$	(26,377)	4,894		19,757		12,864
Control investments	—		375		(3,119)		2,173
Total net unrealized (depreciation) appreciation	(20,102)		(89)		54,916		(3,335)
Net realized and unrealized gain	1,947		9,016		77,360		7,144

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	10,346	$	15,271	$	85,620	$	21,940

BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.25	$	0.19	$	0.25	$	0.45
Net increase in net assets resulting from operations	$	0.31	$	0.46	$	2.58	$	0.66

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
Basic and diluted	33,205,023		33,205,023		33,205,023		33,167,511

(A)Refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

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

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(IN THOUSANDS)

(UNAUDITED)


	2021		2020
NET ASSETS, MARCH 31	$	382,364	$	369,031
OPERATIONS
Net investment (loss) income	(2,304)		4,173
Net realized gain on investments	1,929		753
Net unrealized appreciation (depreciation) of investments	47,514		(4,887)
Net increase in net assets from operations	47,139		39
DISTRIBUTIONS(A)
Distributions to common stockholders from net investment income ($0.20 and $0.28 per share, respectively)	(6,593)		(9,272)
Distributions to common stockholders from net realized gains ($0.07 and $0.02 per share, respectively)	(2,372)		(666)
Net decrease in net assets from distributions	(8,965)		(9,938)
CAPITAL ACTIVITY
Issuance of common stock	—		1,772
Discounts, commissions, and offering costs for issuance of common stock	—		(35)
Net increase in net assets from capital activity	—		1,737
NET INCREASE (DECREASE) IN NET ASSETS	38,174		(8,162)
NET ASSETS, JUNE 30	$	420,538	$	360,869

OPERATIONS
Net investment income	$	2,165	$	4,368
Net realized gain on investments	464		621
Net realized loss on other	(1,998)		—
Net unrealized appreciation of investments	27,504		1,641
Net increase in net assets from operations	28,135		6,630
DISTRIBUTIONS(A)
Distributions to common stockholders from net investment income ($0.16 and $0.20 per share, respectively)	(5,490)		(6,553)
Distributions to common stockholders from net realized gains ($0.08 and $0.01 per share, respectively)	(2,482)		(420)
Net decrease in net assets from distributions	(7,972)		(6,973)
NET INCREASE (DECREASE) IN NET ASSETS	20,163		(343)
NET ASSETS, SEPTEMBER 30	$	440,701	$	360,526

OPERATIONS
Net investment income	$	8,399	$	6,255
Net realized gain on investments	22,049		9,105
Net unrealized depreciation of investments	(20,102)		(89)
Net increase in net assets from operations	10,346		15,271
DISTRIBUTIONS(A)
Distributions to common stockholders from net investment income ($0.23 and $0.20 per share, respectively)	(7,456)		(6,619)
Distributions to common stockholders from net realized gains ($0.09 and $0.01 per share, respectively)	(3,002)		(355)
Net decrease in net assets from distributions	(10,458)		(6,974)
NET (DECREASE) INCREASE IN NET ASSETS	(112)		8,297
NET ASSETS, DECEMBER 31	$	440,589	$	368,823

(A)Refer to Note 9 — Distributions to Common Stockholders in the accompanying Notes to Consolidated Financial Statements for additional information.

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

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED STATEMENTS OF CASH FLOWS

(IN THOUSANDS)

(UNAUDITED)


	Nine Months Ended December 31,
	2021		2020
CASH FLOWS FROM OPERATING ACTIVITIES
Net increase in net assets resulting from operations	$	85,620	$	21,940
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchase of investments	(84,550)		(89,571)
Principal repayments of investments	46,898		20,734
Net proceeds from the sale of investments	50,018		30,515
Net realized gain on investments	(24,442)		(10,479)
Net realized loss on other	1,998		—
Net unrealized (appreciation) depreciation of investments	(54,916)		3,335
Amortization of premiums, discounts, and acquisition costs, net	(14)		(14)
Amortization of deferred financing costs and discounts	1,355		1,291
Bad debt expense, net of recoveries	698		61
Changes in assets and liabilities:
Decrease in interest receivable	156		1,610
Increase in due from administrative agent	(643)		(3,608)
Decrease in other assets, net	378		1
Increase (decrease) in accounts payable and accrued expenses	782		(93)
Increase in interest payable	1,672		110
Increase in fees due to Adviser(A)	13,887		4,663
Decrease in fee due to Administrator(A)	(39)		(120)
Increase (decrease) in other liabilities	435		(12,934)
Net cash provided by (used in) operating activities	39,293		(32,559)

CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from issuance of common stock	—		1,772
Discounts, commissions, and offering costs for issuance of common stock	—		(31)
Proceeds from line of credit	111,700		111,700
Repayments on line of credit	(134,100)		(76,900)
Proceeds from issuance of notes payable	134,550		—
Proceeds from issuance of mandatorily redeemable preferred stock	—		19,276
Redemption of mandatorily redeemable preferred stock	(94,371)		—
Deferred financing and offering costs	(3,431)		(773)
Distributions paid to common stockholders	(27,395)		(23,885)
Net cash (used in) provided by financing activities	(13,047)		31,159

NET INCREASE (DECREASE) IN CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS	26,246		(1,400)

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, BEGINNING OF PERIOD	2,398		4,060

CASH, CASH EQUIVALENTS, RESTRICTED CASH, AND RESTRICTED CASH EQUIVALENTS, END OF PERIOD	$	28,644	$	2,660

CASH PAID FOR INTEREST	$	6,437	$	2,370

(A)Refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements for additional information.

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

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

DECEMBER 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS(N) – 96.7%
Secured First Lien Debt – 53.0%
Diversified/Conglomerate Manufacturing – 1.0%
Phoenix Door Systems, Inc. – Line of Credit, $600 available (L+7.0%, 9.0% Cash (0.3% Unused Fee), Due 3/2024)(K)	$	1,550	$	1,550	$	1,504
Phoenix Door Systems, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 9/2024)(K)	3,200		3,200		3,104
			4,750		4,608
Diversified/Conglomerate Services –29.2%
Bassett Creek Services, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 4/2023)(L)	48,000		48,000		48,000
Counsel Press, Inc. – Term Debt (L+11.8%, 12.8% Cash, Due 3/2023)(L)	21,100		21,100		21,100
Counsel Press, Inc. – Term Debt (L+13.0%, 14.0% Cash, Due 3/2023)(L)	6,400		6,400		6,400
Horizon Facilities Services, Inc. – Term Debt (L+9.5%, 12.0% Cash, Due 6/2024)(L)	27,700		27,700		27,700
Mason West, LLC – Term Debt (L+10.0%, 12.5% Cash, Due 7/2025)(L)	25,250		25,250		25,250
			128,450		128,450
Healthcare, Education, and Childcare – 4.5%
Educators Resource, Inc. – Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)(L)	20,000		20,000		20,000

Home and Office Furnishings, Housewares, and Durable Consumer Products – 5.6%
Brunswick Bowling Products, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)	17,700		17,700		17,700
Brunswick Bowling Products, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)	6,850		6,850		6,850
			24,550		24,550
Hotels, Motels, Inns, and Gaming Total –6.3%
Nocturne Villa Rentals, Inc. – Line of Credit, $2,000 available (L+8.0%, 10.0% Cash, Due 6/2023)(L)	—		—		—
Nocturne Villa Rentals, Inc. – Term Debt (L+10.5%, 12.5% Cash, Due 6/2026)(L)	27,700		27,700		27,700
			27,700		27,700
Leisure, Amusement, Motion Pictures, and Entertainment – 6.4%
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)	13,081		13,081		13,081
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)	8,500		8,500		8,500
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)	6,400		6,400		6,400
			27,981		27,981
Total Secured First Lien Debt			$	233,431	$	233,289

Secured Second Lien Debt – 15.2%
Aerospace and Defense – 5.8%
Galaxy Technologies Holdings, Inc. – Term Debt (L+4.1%, 7.1% Cash, Due 10/2026)(L)	$	6,500	$	6,500	$	6,500
Galaxy Technologies Holdings, Inc. – Term Debt (L+7.0%, 10.0% Cash, Due 10/2026)(L)	18,796		18,796		18,796
			25,296		25,296
Automobile – 0.9%
Country Club Enterprises, LLC – Term Debt (L+8.0%, 10.0% Cash, Due 2/2022)(K)	4,000		4,000		3,980
Country Club Enterprises, LLC – Guaranty ($1,000)(T)	—		—		—
			4,000		3,980
Cargo Transport – 3.0%
Diligent Delivery Systems – Term Debt (L+9.0%, 11.0% Cash, Due 11/2022)(K)	13,000		12,983		13,064

Home and Office Furnishings, Housewares, and Durable Consumer Products – 3.0%
Ginsey Home Solutions, Inc. – Term Debt (L+10.0%, 13.5% Cash, Due 1/2025)(H)(L)	13,300		13,300		13,300

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 2.5%
SBS Industries Holdings, Inc. – Term Debt (L+7.0%, 9.0% Cash, Due 11/2024)(G)(K)	11,736		11,736		10,885
Total Secured Second Lien Debt			$	67,315	$	66,525

Preferred Equity – 28.1%
Diversified/Conglomerate Services – 12.4%
Bassett Creek Services, Inc. – Preferred Stock(C)(L)	4,900		$	4,900	$	7,033
Counsel Press, Inc. – Preferred Stock(C)(L)	6,995		6,995		24,714
Horizon Facilities Services, Inc. – Preferred Stock(C)(L)	10,080		10,080		15,209
Mason West, LLC – Preferred Stock(C)(L)	11,206		11,206		7,556
			33,181		54,512
Healthcare, Education, and Childcare – 4.6%
Educators Resource, Inc. – Preferred Stock(C)(L)	8,560		8,560		20,070

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GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)			Cost		Fair Value

Home and Office Furnishings, Housewares, and Durable Consumer Products – 4.4%
Brunswick Bowling Products, Inc. – Preferred Stock(C)(L)	6,653			6,653		14,856
Ginsey Home Solutions, Inc. – Preferred Stock(C)(L)	19,280			9,583		4,538
				16,236		19,394
Hotels, Motels, Inns, and Gaming Total -1.8%
Nocturne Villa Rentals, Inc.- Preferred Stock (C)(L)	6,600			6,600		8,104

Leisure, Amusement, Motion Pictures, and Entertainment – 4.9 %
Schylling, Inc. – Preferred Stock(C)(L)	4,000			4,000		21,390

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 0.0%
SBS Industries Holdings, Inc. – Preferred Stock(C)(L)	27,705			2,771		—
Total Preferred Equity				$	71,348	$	123,470

Common Equity/Equivalents – 0.4%
Aerospace and Defense -0.1%
Galaxy Technologies Holdings, Inc. – Common Stock(C)(L)	16,957			$	11,513	$	296

Cargo Transport – 0.3%
Diligent Delivery Systems – Common Stock Warrants(C)(L)	8		%	500		1,258

Diversified/Conglomerate Manufacturing – 0.0%
Phoenix Door Systems, Inc. – Common Stock(C)(L)	3,195			1,452		—

Home and Office Furnishings, Housewares, and Durable Consumer Products – 0.0%
Ginsey Home Solutions, Inc. – Common Stock(C)(L)	63,747			8		—

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 0.0%
SBS Industries Holdings, Inc. – Common Stock(C)(L)	221,500			222		—

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
Funko Acquisition Holdings, LLC(M) – Common Units(C)(S)	6,290			30		80
Total Common Equity/Equivalents				$	13,725	$	1,634
Total Non-Control/Non-Affiliate Investments				$	385,819	$	424,918

AFFILIATE INVESTMENTS(O) – 62.6%
Secured First Lien Debt – 45.4%
Chemicals, Plastics, and Rubber – 6.0%
PSI Molded Plastics, Inc. – Term Debt (L+5.5%, 7.0% Cash, Due 1/2024)(L)	$	26,618		$	26,618	$	26,618

Diversified/Conglomerate Manufacturing –2.1%
Edge Adhesives Holdings, Inc.(M) – Term Debt (L+10.5%, 12.5% Cash, Due 8/2024)(K)	9,210			9,210		9,117

Diversified/Conglomerate Services – 22.4%
ImageWorks Display and Marketing Group, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 11/2022)(L)	22,000			22,000		22,000
J.R. Hobbs Co. - Atlanta, LLC - Term Debt (L+6.0%, 8.0% Cash, Due 10/2024) (G)(K)	36,000			36,000		33,120
J.R. Hobbs Co. - Atlanta, LLC – Term Debt (L+10.3%, 11.8% Cash, Due 10/2024) (G)(K)	16,500			16,500		15,180
The Maids International, LLC – Term Debt (L+10.5%, 12.0% Cash, Due 3/2025)(L)	28,560			28,560		28,560
				103,060		98,860
Home and Office Furnishings, Housewares, and Durable Consumer Products – 6.1%
Old World Christmas, Inc. – Secured First Lien Term Loan (L+9.5%, 11.0% Cash, Due 12/2025)(L)	27,000			27,000		27,000

Mining, Steel, Iron and Non-Precious Metals Total – 4.1%
Utah Pacific Bridge & Steel, Ltd., $2,000 available (L+8.5%, 10.0% Cash, Due 7/2022)(L)	—			—		—
Utah Pacific Bridge & Steel, Ltd. (L+10.0%, 11.5% Cash, Due 7/2026)(L)	18,250			18,250		18,250
				18,250		18,250
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.9%
The Mountain Corporation – Line of Credit, $0 available (L+5.0%, 9.0% Cash, Due 5/2022)(G)(L)	3,400			3,400		3,400

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)			Cost		Fair Value
The Mountain Corporation – Line of Credit, $0 available (L+5.0%, 9.0% Cash, Due 5/2022)(G)(L)	500			500		500
				3,900		3,900
Telecommunications – 3.8%
B+T Group Acquisition, Inc.(M) – Line of Credit, $0 available (L+11.0%, 13.0% Cash, Due 12/2024)(L)	2,800			2,800		2,800
B+T Group Acquisition, Inc.(M) – Term Debt (L+11.0%, 13.0% Cash, Due 12/2024)(L)	14,000			14,000		14,000
				16,800		16,800
Total Secured First Lien Debt				$	204,838	$	200,545

Secured Second Lien Debt – 0.4%
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.4%
The Mountain Corporation – Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)	$	11,700		$	11,700	$	1,568
The Mountain Corporation – Delayed Draw Term Debt, $0 available (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)	1,500			1,500		201
				13,200		1,769
Total Secured Second Lien Debt				$	13,200	$	1,769

Preferred Equity – 16.6%
Chemicals, Plastics, and Rubber – 0.0%
PSI Molded Plastics, Inc. – Preferred Stock(C)(L)	158,598			$	19,730	$	—

Diversified/Conglomerate Manufacturing – 0.0%
Edge Adhesives Holdings, Inc.(M) – Preferred Stock(C)(L)	8,199			8,199		—

Diversified/Conglomerate Services – 4.5%
ImageWorks Display and Marketing Group, Inc. – Preferred Stock(C)(L)	67,490			6,749		16,139
J.R. Hobbs Co. – Atlanta, LLC – Preferred Stock(C)(L)	10,920			10,920		—
The Maids International, LLC – Preferred Stock(C)(L)	6,640			6,640		3,398
				24,309		19,537
Home and Office Furnishings, Housewares, and Durable Consumer Products – 7.7%
Old World Christmas, Inc. – Preferred Stock(C)(L)	6,180			—		33,807

Mining, Steel, Iron and Non-Precious Metals – 1.4%
Utah Pacific Bridge & Steel, Ltd. - Preferred Stock(C)(L)	6,000			6,000		6,000

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
The Mountain Corporation – Preferred Stock(C)(L)	6,899			6,899		—
				6,899		—
Telecommunications – 3.0%
B+T Group Acquisition, Inc.(M) – Preferred Stock(C)(L)	14,304			4,722		13,290
Total Preferred Equity				$	69,859	$	72,634

Common Equity/Equivalents – 0.2%
Diversified/Conglomerate Services – 0.0%
Nth Degree Investment Group, LLC – Common Units(C)(L)	14,360,000			$	1,219	100

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
The Mountain Corporation – Common Stock(C)(L)	751			1		—

Telecommunications – 0.2%
B+T Group Acquisition, Inc.(M) – Common Stock Warrant(C)(L)	3.5		%	—		772
Total Common Equity/Equivalents				$	1,220	$	872
Total Affiliate Investments				$	289,117	$	275,820

CONTROL INVESTMENTS(P) –0.0%
Common Equity/Equivalents – 0.0%
Leisure, Amusement, Motion Pictures, and Entertainment – 0.0%
Gladstone SOG Investments, Inc. - Common Stock(C)(I)(L)	100			$	620	—
Total Common Equity/Equivalents				$	620	$	—
Total Control Investments				$	620	$	—
TOTAL INVESTMENTS – 159.3%				$	675,556	$	700,738

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

DECEMBER 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)

(UNAUDITED)

(A)Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $524.7 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5 — Borrowings in the accompanying Notes to Consolidated Financial Statements. Additionally, under Section 55 of the Investment Company Act of 1940, as amended (the “1940 Act”), we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of December 31, 2021, our investment in Funko Acquisition Holdings, LLC (“Funko”) was considered a non-qualifying asset under Section 55 of the 1940 Act and represented less than 0.1% of total investments, at fair value.

(B)Unless indicated otherwise, all cash interest rates are indexed to 30-day London Interbank Offered Rate (“LIBOR” or “L”), which was 0.1% as of December 31, 2021. If applicable, paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date.

(C)Security is non-income producing.

(D)Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of December 31, 2021.

(E)Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the Financial Accounting Standards Board (“FASB”) Accounting Standard Codification (“ASC”) Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) fair value hierarchy. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

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

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

(H)$5.1 million of the debt security was participated to a third-party but is accounted for as collateral for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilities as of December 31, 2021.

(I)In connection with the sale of SOG Specialty Knives & Tools, LLC, we retained a common stock investment in the intermediary entity, Gladstone SOG Investments, Inc.

(J)Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

(K)Fair value was based on internal yield analysis or on estimates of value submitted by ICE Data Pricing and Reference Data, LLC. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(L)Fair value was based on the total enterprise value of the portfolio company, which is generally allocated to the portfolio company’s securities in order of their relative priority in the capital structure. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(M)One of our affiliated funds, Gladstone Capital Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

(N)Non-Control/Non-Affiliate investments, as defined by the 1940 Act, are those that are neither Control nor Affiliate investments and in which we own less than 5.0% of the issued and outstanding voting securities.

(O)Affiliate investments, as defined by the 1940 Act, are those that are not Control investments and in which we own, with the power to vote, between and inclusive of 5.0% and 25.0% of the issued and outstanding voting securities.

(P)Control investments, as defined by the 1940 Act, are those where we have the power to exercise a controlling influence over the management or policies of the portfolio company, which may include owning, with the power to vote, more than 25.0% of the issued and outstanding voting securities.

(Q)Reserved.

(R)Reserved.

(S)Our investment in Funko was valued using Level 2 inputs within the ASC 820 fair value hierarchy. Our common units in Funko are convertible into class A common stock in Funko, Inc. upon meeting certain requirements. Fair value was based on the closing market price of shares of Funko, Inc. as of the reporting date, less a discount for lack of marketability. Funko, Inc. is traded on the Nasdaq Global Select Market under the trading symbol “FNKO.” Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

(T)Refer to Note 10 — Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information regarding this guaranty.

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

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)		Cost		Fair Value
NON-CONTROL/NON-AFFILIATE INVESTMENTS(N) – 77.9%
Secured First Lien Debt – 48.9%
Diversified/Conglomerate Manufacturing – 1.1%
Phoenix Door Systems, Inc. – Line of Credit, $0 available (L+7.0%, 9.0% Cash (0.3% Unused Fee), Due 3/2022)(L)	$	1,150	$	1,150	$	1,150
Phoenix Door Systems, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 9/2024)(L)	3,200		3,200		3,200
			4,350		4,350
Diversified/Conglomerate Services – 30.6%
Bassett Creek Services, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 4/2023)(K)	37,500		37,500		36,656
Counsel Press, Inc. – Term Debt (L+11.8%, 12.8% Cash, Due 3/2023)(L)	21,100		21,100		21,100
Counsel Press, Inc. – Term Debt (L+13.0%, 14.0% Cash, Due 3/2023)(L)	6,400		6,400		6,400
Horizon Facilities Services, Inc. – Term Debt (L+9.5%, 12.0% Cash, Due 6/2024)(G)(L)	27,700		27,700		27,700
Mason West, LLC – Line of Credit, $3,000 available (L+8.0%, 10.0% Cash, Due 7/2021)(L)	—		—		—
Mason West, LLC – Term Debt (L+10.0%, 12.5% Cash, Due 7/2025)(L)	25,250		25,250		25,250
			117,950		117,106
Healthcare, Education, and Childcare – 5.2%
Educators Resource, Inc. – Term Debt (L+10.5%, 13.0% Cash, Due 11/2023)(L)	20,000		20,000		20,000
Home and Office Furnishings, Housewares, and Durable Consumer Products – 6.4%
Brunswick Bowling Products, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)	17,700		17,700		17,700
Brunswick Bowling Products, Inc. – Term Debt (L+10.0%, 12.0% Cash, Due 1/2023)(L)	6,850		6,850		6,850
			24,550		24,550
Leisure, Amusement, Motion Pictures, and Entertainment – 5.6%
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)	13,081		13,081		13,081
Schylling, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 8/2024)(L)	8,500		8,500		8,500
			21,581		21,581
Total Secured First Lien Debt			$	188,431	$	187,587

Secured Second Lien Debt – 11.0%
Automobile – 1.0%
Country Club Enterprises, LLC – Term Debt (L+8.0%, 10.0% Cash, Due 2/2022)(K)	$	4,000	$	4,000	$	3,890
Country Club Enterprises, LLC – Guaranty ($1,000)(T)	—		—		—
			4,000		3,890
Cargo Transport – 3.4%
Diligent Delivery Systems – Term Debt (L+9.0%, 11.0% Cash, Due 11/2022)(Q)	13,000		12,970		13,000

Home and Office Furnishings, Housewares, and Durable Consumer Products – 3.5%
Ginsey Home Solutions, Inc. – Term Debt (L+10.0%, 13.5% Cash, Due 1/2025)(H)(L)	13,300		13,300		13,300

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 3.1%
SBS Industries Holdings, Inc. – Term Debt (L+7.0%, 9.0% Cash, Due 11/2024)(L)	11,736		11,736		11,736
Total Secured Second Lien Debt			$	42,006	$	41,926

Preferred Equity – 17.3%
Diversified/Conglomerate Services – 9.2%
Bassett Creek Services, Inc. – Preferred Stock(C)(L)	4,900		$	4,900	$	—
Counsel Press, Inc. – Preferred Stock(C)(L)	6,995		6,995		21,348
Horizon Facilities Services, Inc. – Preferred Stock(C)(L)	10,080		10,080		3,663
Mason West, LLC – Preferred Stock(C)(L)	11,206		11,206		9,774
			33,181		34,785
Healthcare, Education, and Childcare – 2.9%
Educators Resource, Inc. – Preferred Stock(C)(L)	8,560		8,560		11,194

Home and Office Furnishings, Housewares, and Durable Consumer Products – 2.5%
Brunswick Bowling Products, Inc. – Preferred Stock(C)(L)	6,653		6,653		1,015
Ginsey Home Solutions, Inc. – Preferred Stock(C)(L)	19,280		9,583		8,550
			16,236		9,565
Leisure, Amusement, Motion Pictures, and Entertainment – 2.1%
Schylling, Inc. – Preferred Stock(C)(L)	4,000		4,000		7,936

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 0.6%
SBS Industries Holdings, Inc. – Preferred Stock(C)(L)	27,705		2,771		2,463

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)			Cost		Fair Value
Total Preferred Equity				$	64,748	$	65,943

Common Equity/Equivalents – 0.7%
Cargo Transport – 0.6%
Diligent Delivery Systems – Common Stock Warrants(C)(Q)	8		%	$	500	$	2,211

Diversified/Conglomerate Manufacturing – 0.1%
Phoenix Door Systems, Inc. – Common Stock(C)(L)	3,195			1,452		460

Home and Office Furnishings, Housewares, and Durable Consumer Products – 0.0%
Ginsey Home Solutions, Inc. – Common Stock(C)(L)	63,747			8		—

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 0.0%
SBS Industries Holdings, Inc. – Common Stock(C)(L)	221,500			222		—

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
Funko Acquisition Holdings, LLC(M) – Common Units(C)(S)	7,178			33		95
Total Common Equity/Equivalents				$	2,215	$	2,766
Total Non-Control/Non-Affiliate Investments				$	297,400	$	298,222

AFFILIATE INVESTMENTS(O) – 80.9%
Secured First Lien Debt – 47.6%
Beverage, Food, and Tobacco – 2.4%
Head Country, Inc. – Term Debt (L+10.5%, 12.5% Cash, Due 2/2023)(L)	$	9,050		$	9,050	$	9,050

Chemicals, Plastics, and Rubber – 6.0%
PSI Molded Plastics, Inc. – Term Debt (L+5.5%, 7.0% Cash, Due 1/2024)(L)	26,618			26,618		22,985

Diversified/Conglomerate Manufacturing – 5.4%
D.P.M.S., Inc. – Line of Credit, $0 available (L+6.5%, 9.0% Cash (0.5% Unused Fee), Due 10/2023)(L)	1,500			1,500		1,500
D.P.M.S., Inc. – Term Debt (10.0% Cash, Due 10/2023)(I)(L)	10,796			10,796		5,751
Edge Adhesives Holdings, Inc.(M) – Line of Credit, $0 available (L+8.0%, 10.0% Cash, Due 9/2021)(K)	1,020			1,020		1,005
Edge Adhesives Holdings, Inc.(M) – Term Debt (L+10.5%, 12.5% Cash, Due 2/2022)(K)	9,300			9,300		9,161
Edge Adhesives Holdings, Inc.(M) – Term Debt (L+11.8%, 13.8% Cash, Due 2/2022)(K)	3,000			3,000		2,955
				25,616		20,372
Diversified/Conglomerate Services – 13.3%
ImageWorks Display and Marketing Group, Inc. – Term Debt (L+11.0%, 13.0% Cash, Due 11/2022)(L)	22,000			22,000		22,000
The Maids International, LLC – Term Debt (L+10.5%, 12.0% Cash, Due 3/2025)(L)	28,560			28,560		28,560
				50,560		50,560
Home and Office Furnishings, Housewares, and Durable Consumer Products – 7.1%
Old World Christmas, Inc. – Secured First Lien Term Loan (L+9.5%, 11.0% Cash, Due 12/2025)(L)	27,000			27,000		27,000

Leisure, Amusement, Motion Pictures, and Entertainment – 2.3%
SOG Specialty Knives & Tools, LLC – Term Debt (Due 12/2023)(L)(R)	538			538		538
SOG Specialty Knives & Tools, LLC – Term Debt (L+4.0%, 6.0% Cash, Due 12/2023)(L)	8,399			8,399		8,399
				8,937		8,937
Personal and Non-Durable Consumer Products (Manufacturing Only) – 7.0%
The Mountain Corporation – Line of Credit, $0 available (L+5.0%, 9.0% Cash, Due 4/2021)(G)(L)	3,400			3,400		3,400
Pioneer Square Brands, Inc. – Term Debt (L+12.0%, 13.0% Cash, Due 8/2022)(Q)	23,100			23,100		23,215
				26,500		26,615
Telecommunications – 4.1%
B+T Group Acquisition, Inc.(M) – Line of Credit, $0 available (L+11.0%, 13.0% Cash, Due 12/2021)(G)(K)	2,800			2,800		2,597
B+T Group Acquisition, Inc.(M) – Term Debt (L+11.0%, 13.0% Cash, Due 12/2021)(G)(K)	14,000			14,000		12,985
				16,800		15,582
Total Secured First Lien Debt				$	191,081	$	181,101

Secured Second Lien Debt – 12.6%

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)			Cost		Fair Value
Diversified/Conglomerate Services – 12.0%
J.R. Hobbs Co. – Atlanta, LLC – Line of Credit, $0 available (L+6.0%, 8.0% Cash, Due 10/2024)(K)	$	10,000		$	10,000	$	9,975
J.R. Hobbs Co. – Atlanta, LLC – Term Debt (L+10.3%, 11.8% Cash, Due 10/2024)(K)	36,000			36,000		35,910
				46,000		45,885
Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.6%
The Mountain Corporation – Term Debt (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)	11,700			11,700		1,849
The Mountain Corporation – Delayed Draw Term Debt, $0 available (L+4.0%, 7.0% Cash, Due 4/2024)(G)(L)	1,500			1,500		237
				13,200		2,086
Total Secured Second Lien Debt				$	59,200	$	47,971
Preferred Equity – 20.7%
Beverage, Food, and Tobacco – 1.7%
Head Country, Inc. – Preferred Stock(C)(L)	4,000			$	4,000	$	6,469

Chemicals, Plastics, and Rubber – 0.0%
PSI Molded Plastics, Inc. – Preferred Stock(C)(L)	158,598			19,730		—

Diversified/Conglomerate Manufacturing – 0.0%
Channel Technologies Group, LLC – Preferred Stock(C)(L)	2,279			1,841		—
Edge Adhesives Holdings, Inc.(M) – Preferred Stock(C)(L)	8,199			8,199		—
				10,040		—
Diversified/Conglomerate Services – 3.5%
ImageWorks Display and Marketing Group, Inc. – Preferred Stock(C)(L)	67,490			6,749		9,819
J.R. Hobbs Co. – Atlanta, LLC – Preferred Stock(C)(L)	10,920			10,920		—
The Maids International, LLC – Preferred Stock(C)(L)	6,640			6,640		3,560
				24,309		13,379
Home and Office Furnishings, Housewares, and Durable Consumer Products – 5.3%
Old World Christmas, Inc. – Preferred Stock(C)(L)	6,180			—		20,248

Leisure, Amusement, Motion Pictures, and Entertainment – 1.8%
SOG Specialty Knives & Tools, LLC – Preferred Stock(C)(L)	14,949			14,949		6,754

Personal and Non-Durable Consumer Products (Manufacturing Only) – 8.4%
The Mountain Corporation – Preferred Stock(C)(L)	6,899			6,899		—
Pioneer Square Brands, Inc. – Preferred Stock(C)(Q)	5,502			5,500		32,055
				12,399		32,055
Telecommunications – 0.0%
B+T Group Acquisition, Inc.(M) – Preferred Stock(C)(L)	14,304			4,722		—
Total Preferred Equity				$	90,149	$	78,905

Common Equity/Equivalents – 0.0%
Diversified/Conglomerate Manufacturing – 0.0%
Channel Technologies Group, LLC – Common Stock(C)(L)	2,319,184			$	—	$	—
D.P.M.S., Inc. – Common Stock(C)(L)	627			1		—
				1		—
Diversified/Conglomerate Services – 0.0%
Nth Degree Investment Group, LLC – Common Units(C)(L)	14,360,000			1,219		—

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0%
The Mountain Corporation – Common Stock(C)(L)	751			1		—

Telecommunications – 0.0%
B+T Group Acquisition, Inc.(M) – Common Stock Warrant(C)(L)	3.5		%	—		—

Total Common Equity/Equivalents				$	1,221	$	—
Total Affiliate Investments				$	341,651	$	307,977

CONTROL INVESTMENTS(P) – 7.2%:
Secured Second Lien Debt – 3.4%
Aerospace and Defense – 3.4%
Galaxy Technologies, Inc. – Line of Credit, $0 available (L+4.5%, 6.5% Cash (0.5% Unused Fee), Due 8/2023)(L)	$	5,000		$	5,000	$	5,000
Galaxy Technologies, Inc. – Term Debt (L+6.0%, 10.0% Cash, Due 8/2023)(L)	8,000			8,000		8,000
				$	13,000	$	13,000

Table of Contents

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS

MARCH 31, 2021

(DOLLAR AMOUNTS IN THOUSANDS)


Company and Investment(A)(B)(D)(E)	Principal/Shares/ Units(F)(J)	Cost		Fair Value
Preferred Equity – 3.8%
Aerospace and Defense – 3.8%
Galaxy Technologies, Inc. – Preferred Stock(C)(L)	5,517,444	$	11,464	$	14,630

Common Equity – 0.0%
Aerospace and Defense – 0.0%
Galaxy Technologies, Inc. – Common Stock(C)(L)	88,843	$	48	$	—
Total Control Investments		$	24,512	$	27,630
TOTAL INVESTMENTS – 166.0%		$	663,563	$	633,829

(A)Certain of the securities listed are issued by affiliate(s) of the indicated portfolio company. The majority of the securities listed, totaling $524.0 million at fair value, are pledged as collateral to our revolving line of credit, as described further in Note 5 — Borrowings in the accompanying Notes to Consolidated Financial Statements. Additionally, under Section 55 of the 1940 Act, we may not acquire any non-qualifying assets unless, at the time such acquisition is made, qualifying assets represent at least 70% of our total assets. As of March 31, 2021, our investment in Funko was considered a non-qualifying asset under Section 55 of the 1940 Act and represented less than 0.1% of total investments, at fair value.

(B)Unless indicated otherwise, all cash interest rates are indexed to 30-day LIBOR, which was 0.1% as of March 31, 2021. If applicable, paid-in-kind interest rates are noted separately from the cash interest rate. Certain securities are subject to an interest rate floor. The cash interest rate is the greater of the floor or 30-day LIBOR plus a spread. Due dates represent the contractual maturity date.

(C)Security is non-income producing.

(D)Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of March 31, 2021.

(E)Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the ASC 820 fair value hierarchy. Refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements for additional information.

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

(H)$5.1 million of the debt security was participated to a third-party, but is accounted for as collateral for a secured borrowing under accounting principles generally accepted in the U.S. and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2021.

(I)Debt security has a fixed interest rate.

(J)Represents the principal balance for debt investments and the number of shares/units held for equity investments. Warrants are represented as a percentage of ownership, as applicable.

(M)One of our affiliated funds, Gladstone Capital Corporation, co-invested with us in this portfolio company pursuant to an exemptive order granted by the U.S. Securities and Exchange Commission.

(Q)Fair value was based on the expected exit or payoff amount, where such event has occurred or is expected to occur imminently.

(R)Debt security does not have a stated current interest rate.

(T)Refer to Note 10 — Commitments and Contingencies in the accompanying Notes to Consolidated Financial Statements for additional information regarding this guaranty.

(U)Reserved.

(V)Cumulative gross unrealized depreciation for federal income tax purposes is $109.0 million; cumulative gross unrealized appreciation for federal income tax purposes is $78.5 million. Cumulative net unrealized depreciation is $30.5 million, based on a tax cost of $664.3 million.

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

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GLADSTONE INVESTMENT CORPORATION

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

DECEMBER 31, 2021

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

(UNAUDITED)

NOTE 1. ORGANIZATION

Gladstone Investment Corporation (“Gladstone Investment”) was incorporated under the General Corporation Law of the State of Delaware on February 18, 2005, and completed an initial public offering on June 22, 2005. The terms “the Company,” “we,” “our” and “us” all refer to Gladstone Investment and its consolidated subsidiaries. We are an externally advised, closed-end, non-diversified management investment company that has elected to be treated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”), and are applying the guidance of Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 946, “Financial Services-Investment Companies” (“ASC 946”). In addition, we have elected to be treated for U.S. federal income tax purposes as a regulated investment company (“RIC”) under the Internal Revenue Code of 1986, as amended (the “Code”). We were established for the purpose of investing in debt and equity securities of established private businesses in the United States (“U.S.”). Debt investments primarily take the form of two types of loans: secured first lien loans and secured second lien loans. Equity investments primarily take the form of preferred or common equity (or warrants or options to acquire the foregoing), often in connection with buyouts and other recapitalizations. Our investment objectives are to: (i) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness and make distributions to stockholders that grow over time, and (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our equity investments for capital gains. We intend that our investment portfolio over time will consist of approximately 75.0% in debt investments and 25.0% in equity investments, at cost. As of December 31, 2021, our investment portfolio was comprised of 76.8% in debt securities and 23.2% in equity securities, at cost.

Gladstone Business Investment, LLC (“Business Investment”), a wholly-owned subsidiary of ours, was established on August 11, 2006 for the sole purpose of holding certain investments pledged as collateral under our line of credit. The financial statements of Business Investment are consolidated with those of Gladstone Investment. Refer to Note 12 — Unconsolidated Significant Subsidiaries for additional information regarding our unconsolidated significant subsidiaries.

We are externally managed by Gladstone Management Corporation (the “Adviser”), an affiliate of ours and a U.S. Securities and Exchange Commission (“SEC”) registered investment adviser, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). Administrative services are provided by Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser, pursuant to an administration agreement (the “Administration Agreement”). Refer to Note 4 — Related Party Transactions for more information regarding these arrangements.

NOTE 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Unaudited Interim Financial Statements and Basis of Presentation

We prepare our interim financial statements in accordance with accounting principles generally accepted in the U.S. (“GAAP”) for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of SEC Regulation S-X. Accordingly, we have not included in this quarterly report all of the information and notes required by GAAP for annual financial statements. The accompanying Consolidated Financial Statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany balances and transactions have been eliminated. In accordance with Article 6 of Regulation S-X, we do not consolidate portfolio company investments. Under the investment company rules and regulations pursuant to the American Institute of Certified Public Accountants (“AICPA”) Audit and Accounting Guide for Investment Companies, codified in ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. In our opinion, all adjustments, consisting solely of normal recurring accruals, necessary for the fair statement of financial statements for the interim periods have been included. The results of operations for the three and nine months ended December 31, 2021 are not necessarily indicative of results that ultimately may be achieved for the fiscal year

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ending March 31, 2022 or any future interim period. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in our annual report on Form 10-K for the fiscal year ended March 31, 2021, as filed with the SEC on May 11, 2021.

Use of Estimates

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

Reclassifications

Certain prior period amounts have been reclassified to conform to the current period presentation in the Consolidated Financial Statements and the accompanying Notes to Consolidated Financial Statements. Reclassifications did not impact net increase (decrease) in net assets resulting from operations, total assets, total liabilities or total net assets, or Consolidated Statements of Changes in Net Assets and Consolidated Statements of Cash Flows classifications.

Investment Valuation Policy

Accounting Recognition

We record our investments at fair value in accordance with the FASB ASC Topic 820, “Fair Value Measurements and Disclosures” (“ASC 820”) and the 1940 Act. Investment transactions are recorded on the trade date. Realized gains or losses are generally measured by the difference between the net proceeds from the repayment or sale and the cost basis of the investment, without regard to unrealized appreciation or depreciation previously recognized, and include investments charged off during the period, net of recoveries. Unrealized appreciation or depreciation primarily reflects the change in investment fair values, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

Board Responsibility

In accordance with the 1940 Act, our board of directors (“Board of Directors”) has the ultimate responsibility for reviewing and determining, in good faith, the fair value of our investments for which market quotations are not readily available based on our investment valuation policy (which has been approved by our Board of Directors) (the “Policy”). Such review occurs in three phases. First, prior to its quarterly meetings, the Board of Directors receives written valuation recommendations and supporting materials provided by professionals of the Adviser and Administrator with oversight and direction from the chief valuation officer (the “Valuation Team”). Second, the Valuation Committee of our Board of Directors (comprised entirely of independent directors) meets to review the valuation recommendations and supporting materials, discusses the information provided by the Valuation Team, determines whether the Valuation Team has followed the Policy, determines whether the Valuation Team’s recommended fair value is reasonable in light of the Policy, and reviews other facts and circumstances. Third, after the Valuation Committee concludes its meeting, it and the chief valuation officer present the Valuation Committee’s findings to the entire Board of Directors so that the full Board of Directors may review and determine in good faith the fair value of such investments in accordance with the Policy.

There is no single standard for determining fair value (especially for privately-held businesses), as fair value depends upon the specific facts and circumstances of each individual investment. In determining the fair value of our investments, the Valuation Team, led by the chief valuation officer, uses the Policy, and each quarter the Valuation Committee and Board of Directors review the Policy to determine if changes thereto are advisable and whether the Valuation Team has applied the Policy consistently.

Use of Third-Party Valuation Firms

The Valuation Team engages third-party valuation firms to provide independent assessments of fair value of certain of our investments.

ICE Data Pricing and Reference Data, LLC (“ICE”), a valuation specialist, generally provides estimates of fair value on our debt investments. The Valuation Team generally assigns ICE’s estimates of fair value to our debt investments where we do not have the ability to effectuate a sale of the applicable portfolio company. The Valuation Team corroborates ICE’s

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estimates of fair value using one or more of the valuation techniques discussed below. The Valuation Team’s estimate of value on a specific debt investment may significantly differ from ICE’s. When this occurs, our Valuation Committee and Board of Directors review whether the Valuation Team has followed the Policy and whether the Valuation Team’s recommended fair value is reasonable in light of the Policy and other facts and circumstances before determining fair value.

We may engage other independent valuation firms to provide earnings multiple ranges, as well as other information, and evaluate such information for incorporation into the total enterprise value (“TEV”) of certain of our investments. Generally, at least once per year, we engage an independent valuation firm to value or review the valuation of each of our significant equity investments, which includes providing the information noted above. The Valuation Team evaluates such information for incorporation into our TEV, including review of all inputs provided by the independent valuation firm. The Valuation Team then makes a recommendation to our Valuation Committee and Board of Directors as to the fair value. Our Board of Directors reviews the recommended fair value and whether it is reasonable in light of the Policy and other relevant facts and circumstances before determining fair value.

Valuation Techniques

In accordance with ASC 820, the Valuation Team uses the following techniques when valuing our investment portfolio:

•Total Enterprise Value — In determining the fair value using a TEV, the Valuation Team first calculates the TEV of the portfolio company by incorporating some or all of the following factors: the portfolio company’s ability to make payments and other specific portfolio company attributes; the earnings of the portfolio company (the trailing or projected twelve month revenue or earnings before interest, taxes, depreciation and amortization (“EBITDA”)); EBITDA multiples obtained from our indexing methodology whereby the original transaction EBITDA multiple at the time of our closing is indexed to a general subset of comparable disclosed transactions and EBITDA multiples from recent sales to third parties of similar securities in similar industries; a comparison to publicly traded securities in similar industries; and other pertinent factors. The Valuation Team generally reviews industry statistics and may use outside experts when gathering this information. Once the TEV is determined for a portfolio company, the Valuation Team generally allocates the TEV to the portfolio company’s securities based on the facts and circumstances of the securities, which typically results in the allocation of fair value to securities based on the order of their relative priority in the capital structure. Generally, the Valuation Team uses TEV to value our equity investments and, in the circumstances where we have the ability to effectuate a sale of a portfolio company, our debt investments.

TEV is primarily calculated using EBITDA and EBITDA multiples; however, TEV may also be calculated using revenue and revenue multiples or a discounted cash flow (“DCF”) analysis whereby future expected cash flows of the portfolio company are discounted to determine a net present value using estimated risk-adjusted discount rates, which incorporate adjustments for nonperformance and liquidity risks. Generally, the Valuation Team uses a DCF analysis to calculate TEV to corroborate estimates of value for our equity investments where we do not have the ability to effectuate a sale of a portfolio company or for debt of credit-impaired portfolio companies.

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

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

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value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the restriction.

•Investments in Funds — For equity investments in other funds for which we cannot effectuate a sale of the fund, the Valuation Team generally determines the fair value of our invested capital at the net asset value (“NAV”) provided by the fund. Any invested capital that is not yet reflected in the NAV provided by the fund is valued at par value. The Valuation Team may also determine fair value of our investments in other investment funds based on the capital accounts of the underlying entity.

In addition to the valuation techniques listed above, the Valuation Team may also consider other factors when determining the fair value of our investments, including: the nature and realizable value of the collateral, including external parties’ guaranties, any relevant offers or letters of intent to acquire the portfolio company, timing of expected loan repayments, and the markets in which the portfolio company operates.

Fair value measurements of our investments may involve subjective judgments and estimates and, due to the uncertainty inherent in valuing these securities, the determinations of fair value may fluctuate from period to period and may differ materially from the values that could be obtained if a ready market for these securities existed. Our NAV could be materially affected if the determinations regarding the fair value of our investments are materially different from the values that we ultimately realize upon our disposal of such securities. Additionally, changes in the market environment and other events that may occur over the life of the investment may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If we were required to liquidate a portfolio investment in a forced or liquidation sale, we could realize significantly less than the value at which it is recorded.

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

Revenue Recognition

Interest Income Recognition

Interest income, adjusted for amortization of premiums, amendment fees and acquisition costs and the accretion of discounts, is recorded on the accrual basis to the extent that such amounts are expected to be collected. Generally, when a loan becomes 90 days or more past due, or if our qualitative assessment indicates that the debtor is unable to service its debt or other obligations, we will place the loan on non-accrual status and cease recognizing interest income on that loan until the borrower has demonstrated the ability and intent to pay contractual amounts due. However, we remain contractually entitled to this interest. Interest payments received on non-accrual loans may be recognized as income or applied to the cost basis, depending upon management’s judgment. Generally, non-accrual loans are restored to accrual status when past-due principal and interest are paid and, in management’s judgment, are likely to remain current, or, due to a restructuring, the interest income is deemed to be collectible. As of December 31, 2021, our loans to J.R. Hobbs Co. – Atlanta, LLC (“J.R. Hobbs”), The Mountain Corporation (“The Mountain”), and SBS Industries Holdings, Inc. were on non-accrual status, with an aggregate debt cost basis of $81.3 million, or 15.7% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $64.9 million, or 12.9% of the fair value of all debt investments in our portfolio. As of March 31, 2021, our loans to B+T Group Acquisition, Inc., Horizon Facilities Services, Inc., and The Mountain were on non-accrual status, with an aggregate debt cost basis of $61.1 million, or 12.4% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $48.8 million, or 10.3% of the fair value of all debt investments in our portfolio.

Paid-in-kind (“PIK”) interest, computed at the contractual rate specified in the loan agreement, is added to the principal balance of the loan and recorded as interest income. As of December 31, 2021 and March 31, 2021, we did not have any loans with a PIK interest component.

Success Fee Income Recognition

We record success fees as income when earned, which often occurs upon receipt of cash. Success fees are generally contractually due upon a change of control in a portfolio company, typically resulting from an exit or sale, and are non-recurring.

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Dividend Income Recognition

We accrue dividend income on preferred and common equity securities to the extent that such amounts are expected to be collected and if we have the option to collect such amounts in cash or other consideration.

Related Party Fees

We are party to the Advisory Agreement with the Adviser, which is owned and controlled by our chairman and chief executive officer. In accordance with the Advisory Agreement, we pay the Adviser fees as compensation for its services, consisting of a base management fee and an incentive fee. Additionally, we pay the Adviser a loan servicing fee as compensation for its services as servicer under the terms of the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended from time to time.

We are also party to the Administration Agreement with the Administrator, which is owned and controlled by our chairman and chief executive officer, whereby we pay separately for administrative services.

Refer to Note 4 — Related Party Transactions for additional information regarding these related party fees and agreements.

Recent Accounting Pronouncements

In August 2021, the FASB issued Accounting Standards Update 2021-06, “Presentation of Financial Statements (Topic 205): Financial Services – Depository and Lending (Topic 924), and Financial Services – Investment Companies (Topic 946)” (“ASU 2021-06”), which modifies the disclosure requirements for acquired and disposed businesses. ASU 2021-06 was effective upon issuance. Our adoption of ASU 2021-06 did not have a material impact on our financial position, results of operations or cash flows.

NOTE 3. INVESTMENTS

Fair Value

In accordance with ASC 820, we determine the fair value of our investments to be the price that would be received for an investment in a current sale, which assumes an orderly transaction between willing market participants on the measurement date. This fair value definition focuses on exit price in the principal, or most advantageous, market and prioritizes, within a measurement of fair value, the use of market-based inputs over entity-specific inputs. ASC 820 also establishes the following three-level hierarchy for fair value measurements based upon the transparency of inputs to the valuation of a financial instrument as of the measurement date.

•Level 1 — inputs to the valuation methodology are quoted prices (unadjusted) for identical financial instruments in active markets;

•Level 2 — inputs to the valuation methodology include quoted prices for similar financial instruments in active or inactive markets, and inputs that are observable for the financial instrument, either directly or indirectly, for substantially the full term of the financial instrument. Level 2 inputs are those in 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 financial instrument and can include the Valuation Team’s assumptions based upon the best available information.

When a determination is made to classify our investments within Level 3 of the valuation hierarchy, such determination is based upon the significance of the unobservable factors to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable, or Level 3, inputs, observable inputs (or components that are actively quoted and can be validated to external sources). The level in the fair value hierarchy within which the fair value measurement falls is determined based on the lowest level input that is significant to the fair value measurement.

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As of December 31, 2021 and March 31, 2021, all of our investments were valued using Level 3 inputs within the ASC 820 fair value hierarchy, except for our investment in Funko Acquisition Holdings, LLC (“Funko”), which was valued using Level 2 inputs.

We transfer investments in and out of Level 1, 2 and 3 of the valuation hierarchy as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. There were no transfers in or out of Level 1, 2 and 3 during the nine months ended December 31, 2021 and 2020, respectively.

As of December 31, 2021 and March 31, 2021, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:


			Fair Value Measurements

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of December 31, 2021:
Secured first lien debt	$	433,834	$	—	$	—		$	433,834
Secured second lien debt	68,294		—		—			68,294
Preferred equity	196,104		—		—			196,104
Common equity/equivalents	2,506		—		80		(A)	2,426
Total Investments as of December 31, 2021	$	700,738	$	—	$	80		$	700,658


			Fair Value Measurements

	Fair Value		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)			Significant Unobservable Inputs (Level 3)
As of March 31, 2021:
Secured first lien debt	$	368,688	$	—	$	—		$	368,688
Secured second lien debt	102,897		—		—			102,897
Preferred equity	159,478		—		—			159,478
Common equity/equivalents	2,766		—		95		(A)	2,671
Total Investments as of March 31, 2021	$	633,829	$	—	$	95		$	633,734

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

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The following table presents our investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy, and carried at fair value as of December 31, 2021 and March 31, 2021, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:


	Total Recurring Fair Value Measurements Reported in Consolidated Statements of Assets and Liabilities Valued Using Level 3 Inputs
	December 31, 2021		March 31, 2021
Non-Control/Non-Affiliate Investments
Secured first lien debt	$	233,289	$	187,587
Secured second lien debt	66,525		41,926
Preferred equity	123,470		65,943
Common equity/equivalents(A)	1,554		2,671
Total Non-Control/Non-Affiliate Investments	424,838		298,127

Affiliate Investments
Secured first lien debt	200,545		181,101
Secured second lien debt	1,769		47,971
Preferred equity	72,634		78,905
Common equity/equivalents	872		—
Total Affiliate Investments	275,820		307,977

Control Investments
Secured first lien debt	—		—
Secured second lien debt	—		13,000
Preferred equity	—		14,630
Common equity/equivalents	—		—
Total Control Investments	—		27,630

Total investments at fair value using Level 3 inputs	$	700,658	$	633,734

(A)Excludes our investment in Funko with a fair value of $80 and $95 as of December 31, 2021 and March 31, 2021, respectively, which was valued using Level 2 inputs.

In accordance with ASC 820, the following table provides quantitative information about our investments valued using Level 3 fair value measurements as of December 31, 2021 and March 31, 2021. The table below is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to our fair value measurements. The weighted-average calculations in the table below are based on the principal balances for all debt-related calculations and on the cost basis for all equity-related calculations for the particular input.

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Quantitative Information about Level 3 Fair Value Measurements

Fair Value as of

Valuation
Technique/
Methodology

Unobservable
Input

Range / Weighted-Average as of

December 31,
2021

March 31,
2021

December 31,
2021

March 31,
2021

Secured first
lien debt

371,809

303,330

(A)

TEV

EBITDA multiple

3.4x – 8.4x /

7.0x

4.6x – 8.0x /

7.0x

EBITDA

$3,990 –$13,488 /

$7,583

$1,403 – $9,500 /

$5,746

Revenue multiple

0.7x – 0.7x /

0.7x

0.6x – 0.7x /

0.6x

Revenue

$14,716 – $14,716 /

$14,716

$14,474 – $30,537 /

$26,110

62,025

65,358

Yield Analysis

Discount Rate

10.6% – 15.4% / 13.9%

13.3% – 17.9% /

14.7%

Secured second
lien debt

40,364

53,122

(B)

TEV

EBITDA multiple

5.8x – 7.0x /

6.2x

5.9x – 6.6x /

6.2x

EBITDA

$3,953 – $5,637 /

$5,056

$4,551 – $5,100 /

$4,772

Revenue multiple

0.7x – 0.7x /

0.7x

0.7x – 0.7x /

0.7x

Revenue

$14,716 – $14,716 /

$14,716

$14,474 – $14,474 /

$14,474

27,930

49,775

Yield Analysis

Discount Rate

10.1% – 12.1% /

11.0%

8.1% – 13.5% /

11.2%

Preferred
equity

196,104

159,478

(C)

TEV

EBITDA multiple

3.4x – 8.4x /

6.9x

5.6x – 8.0x /

6.6x

EBITDA

$1,632 – $13,488 /

$6,543

$2,587– $9,720 /

$5,938

Revenue multiple

0.7x – 0.7x /

0.7x

0.6x – 0.7x /

0.6x

Revenue

$14,716 – $14,716 /

$14,716

$14,474 – $30,537 /

$25,465

Common equity/

equivalents(E)

2,426

2,671

(D)

TEV

EBITDA multiple

4.9x – 8.6x /

6.0x

4.6x – 7.1x /

5.7x

EBITDA

$559 – $13,488 /

$5,491

$1,403 – $7,135 /

$4,132

Revenue multiple

0.7x – 0.7x /

0.7x

0.7x – 0.7x /

0.7x

Revenue

$14,716 – $14,716 /

$14,716

$14,474 – $14,474 /

$14,474

Total

700,658

633,734

(A)Fair value as of March 31, 2021 includes one proprietary debt investment with a fair value of $23.2 million, which was valued at the expected payoff amount as the unobservable input.

(B)Fair value as of March 31, 2021 includes one proprietary debt investment with a fair value of $13.0 million, which was valued at the expected payoff amount as the unobservable input.

(C)Fair value as of March 31, 2021 includes one proprietary equity investment with a fair value of $32.1 million, which was valued at the expected exit amount as the unobservable input.

(D)Fair value as of March 31, 2021 includes one proprietary equity investment with a fair value of $2.2 million, which was valued at the expected exit amount as the unobservable input.

(E)Fair value as of both December 31, 2021 and March 31, 2021 excludes our investment in Funko with a fair value of $80 and $95, respectively, which was valued using Level 2 inputs.

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Fair value measurements can be sensitive to changes in one or more of the valuation inputs. Changes in discount rates, EBITDA or EBITDA multiples (or revenue or revenue multiples), each in isolation, may change the fair value of certain of our investments. Generally, an increase/(decrease) in discount rates or a (decrease)/increase in EBITDA or EBITDA multiples (or revenue or revenue multiples) may result in a (decrease)/increase in the fair value of certain of our investments.

Changes in Level 3 Fair Value Measurements of Investments

The following tables provide our portfolio’s changes in fair value, broken out by security type, during the three and nine months ended December 31, 2021 and 2020 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)


	Secured First Lien Debt		Secured Second Lien Debt		Preferred Equity		Common Equity/ Equivalents		Total
Three Months ended December 31, 2021:
Fair value as of September 30, 2021	$	431,413	$	68,489	$	228,931	$	7,592	$	736,425
Total gain (loss):
Net realized gain (loss)(A)	—		—		21,939		—		21,939
Net unrealized appreciation (depreciation)(B)	(1,741)		(200)		12,427		(5,166)		5,320
Reversal of previously recorded (appreciation) depreciation upon realization(B)	—		—		(25,425)		—		(25,425)
New investments, repayments and settlements(C):
Issuances / originations	37,000		5		—				37,005
Settlements / repayments	(32,838)		—		—		—		(32,838)
Sales	—		—		(41,768)		—		(41,768)
Transfers(D)	—		—		—		—		—
Fair value as of December 31, 2021	$	433,834	$	68,294	$	196,104	$	2,426	$	700,658


	Secured First Lien Debt		Secured Second Lien Debt		Preferred Equity		Common Equity/ Equivalents		Total
Nine Months ended December 31, 2021:
Fair value as of March 31, 2021	$	368,688	$	102,897	$	159,478	$	2,671	$	633,734
Total gain (loss):
Net realized gain (loss)(A)	—		—		23,725		—		23,725
Net unrealized appreciation (depreciation)(B)	1,491		3,925		91,782		(16,279)		80,919
Reversal of previously recorded (appreciation) depreciation upon realization(B)	60		—		(26,053)		—		(25,993)
New investments, repayments and settlements(C):
Issuances / originations	65,450		6,515		12,600		—		84,565
Settlements / repayments	(46,898)		—		—		—		(46,898)
Sales	—		—		(49,394)		—		(49,394)
Transfers(D)	45,043		(45,043)		(16,034)		16,034		—
Fair value as of December 31, 2021	$	433,834	$	68,294	$	196,104	$	2,426	$	700,658

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	Secured First Lien Debt		Secured Second Lien Debt		Preferred Equity		Common Equity/ Equivalents		Total
Three Months ended December 31, 2020:
Fair value as of September 30, 2020	$	356,496	$	100,076	$	140,076	$	12,266	$	608,914
Total gain (loss):
Net realized gain (loss)(A)	(8,470)		—		3,292		14,030		8,852
Net unrealized appreciation (depreciation)(B)	(700)		84		9,680		2,678		11,742
Reversal of previously recorded (appreciation) depreciation upon realization(B)	—		—		(84)		(11,785)		(11,869)
New investments, repayments and settlements(C):
Issuances / originations	27,280		3,205		1,709		—		32,194
Settlements / repayments	(12,734)		—		—		—		(12,734)
Sales	—		—		(12,114)		(14,182)		(26,296)
Transfers(D)	—		—		—		—		—
Fair value as of December 31, 2020	$	361,872	$	103,365	$	142,559	$	3,007	$	610,803


	Secured First Lien Debt		Secured Second Lien Debt		Preferred Equity		Common Equity/ Equivalents		Total
Nine Months ended December 31, 2020:
Fair value as of March 31, 2020	$	308,248	$	123,340	$	119,849	$	14,454	$	565,891
Total gain (loss):
Net realized gain (loss)(A)	(8,470)		—		3,292		14,144		8,966
Net unrealized appreciation (depreciation)(B)	(1,915)		474		9,432		490		8,481
Reversal of previously recorded (appreciation) depreciation upon realization(B)	—		—		(84)		(11,785)		(11,869)
New investments, repayments and settlements(C):
Issuances / originations	60,779		3,515		25,290		—		89,584
Settlements / repayments	(20,734)		—		—		—		(20,734)
Sales	—		—		(15,220)		(14,296)		(29,516)
Transfers(D)	23,964		(23,964)		—		—		—
Fair value as of December 31, 2020	$	361,872	$	103,365	$	142,559	$	3,007	$	610,803

(A)Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the respective periods ended December 31, 2021 and 2020.

(B)Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated Statements of Operations for the respective periods ended December 31, 2021 and 2020.

(C)Includes increases in the cost basis of investments resulting from new portfolio investments, the amortization of discounts 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)2021: Transfers represent (1) secured second lien debt of J.R. Hobbs with a total cost basis and fair value of $52.5 million and $52.4 million, respectively, which was converted into secured first lien debt during the three months ended June 30, 2021, (2) secured first lien debt of D.P.M.S., Inc. ("Danco") with a total cost basis and fair value of $12.3 million and $7.3 million, respectively, which was converted into secured second lien debt of Galaxy Technologies Holdings, Inc. (“Galaxy Technologies Holdings”) during the three months ended September 30, 2021, (3) preferred equity of Galaxy Technologies, Inc. ("Galaxy") with a total cost basis and fair value of $11.5 million and $16.0 million, respectively, which was converted into common equity of Galaxy Technologies Holdings during the three months ended September 30, 2021 and (4) preferred equity of SOG Specialty Knives & Tools, LLC with a total cost and fair value of $0.6 million and $0.0 million, respectively, which was converted into common equity of Gladstone SOG Investments, Inc. during the three months ended December 31, 2021.

2020: Transfers represent (1) secured second lien debt of Brunswick Bowling Products, Inc. with a total cost basis and fair value of $6.9 million, which was converted into secured first lien debt during the three months ended June 30, 2020 and (2) secured second lien debt of PSI Molded Plastics, Inc., with a total cost basis and fair value of $26.6 million and $17.1 million, respectively, which

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was converted into secured first lien debt during the three months ended September 30, 2020. There was no transfer activity during the three months ended December 31, 2020.

Investment Activity

During the nine months ended December 31, 2021, the following significant transactions occurred:

•In May 2021, we dissolved our investment in Channel Technologies Group, LLC and recorded a realized loss of $1.8 million.

•In June 2021, we invested $10.0 million in Nocturne Villa Rentals, Inc. (“Nocturne”) through a combination of secured first lien debt and preferred equity. Nocturne, headquartered in Telluride, Colorado, is a luxury vacation rental manager.

•In June 2021, we invested an additional $6.5 million in J.R. Hobbs in the form of secured second lien debt. In connection with the investment, our secured second lien debt was converted to secured first lien debt.

•In June 2021, we sold our investment in Head Country, Inc. (“Head Country”), which resulted in success fee income of $2.0 million and a realized gain of $3.6 million. In connection with the sale, we received net cash proceeds of $16.7 million, including the repayment of our debt investment of $9.1 million at par.

•In July 2021, we invested an additional $5.9 million in the form of secured first lien debt in Nocturne.

•In July 2021, we invested $24.3 million in Utah Pacific Bridge & Steel, Ltd. (“Utah Pacific”) through a combination of secured first lien debt and preferred equity. Utah Pacific, headquartered in Lindon, Utah, is a manufacturer of large steel components used in bridge replacement, rehabilitation, and construction.

•In September 2021, one of our portfolio companies, Danco, merged with another of our portfolio companies, Galaxy, into a newly formed portfolio company, Galaxy Technologies Holdings. Our debt investments in Danco, which totaled $12.3 million at principal and cost, and Galaxy, which totaled $13.0 million at principal and cost, were converted into two second lien term loans with an aggregate cost and principal of $25.3 million to Galaxy Technologies Holdings. Our common equity investment in Danco, with a cost basis of $0.0 million, and our preferred and common equity investments in Galaxy, with an aggregate cost basis of $11.5 million, were converted into a common equity investment in Galaxy Technologies Holdings with a combined cost basis of $11.5 million.

•In October 2021, we invested an additional $10.5 million in Bassett Creek Services, Inc. ("Bassett Creek"), in the form of secured first lien debt.

•In December 2021, we invested an additional $19.0 million in the form of secured first lien debt in Nocturne.

•In December 2021, we invested an additional $6.4 million in the form of secured first lien debt in Schylling, Inc. ("Schylling").

•In December 2021, we sold our investment in Pioneer Square Brands, Inc., which resulted in success fee income of $0.5 million and a realized gain of $21.9 million. In connection with the sale, we received net cash proceeds of $50.6 million, including the repayment of our debt investment of $23.1 million at par.

•In December 2021, we sold our investment in SOG Specialty Knives & Tools, LLC, which resulted in success fee income of $2.9 million. In connection with the sale, we received net cash proceeds of $23.3 million, including the repayment of our debt investment of $8.9 million at par, and retained a common stock investment in the intermediary entity, Gladstone SOG Investments, Inc., which maintains a cost basis of $0.6 million.

Investment Concentrations

As of December 31, 2021, our investment portfolio consisted of investments in 26 portfolio companies located in 19 states across 14 different industries with an aggregate fair value of $700.7 million. Our investments in Old World Christmas, Inc., Bassett Creek, Counsel Press, Inc., Schylling, and J.R. Hobbs represented our five largest portfolio investments at fair value and collectively comprised $265.7 million, or 38.0%, of our total investment portfolio at fair value as of December 31, 2021.

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The following table summarizes our investments by security type as of December 31, 2021 and March 31, 2021:


	December 31, 2021								March 31, 2021
	Cost				Fair Value				Cost				Fair Value
Secured first lien debt	$	438,269	64.9	%	$	433,834	61.9	%	$	379,512	57.2	%	$	368,688	58.2	%
Secured second lien debt	80,515		11.9	%	68,294		9.7	%	114,206		17.2	%	102,897		16.2	%
Total debt	518,784		76.8	%	502,128		71.6	%	493,718		74.4	%	471,585		74.4	%

Preferred equity	141,207		20.9	%	196,104		28.0	%	166,361		25.1	%	159,478		25.2	%
Common equity/equivalents	15,565		2.3	%	2,506		0.4	%	3,484		0.5	%	2,766		0.4	%
Total equity/equivalents	156,772		23.2	%	198,610		28.4	%	169,845		25.6	%	162,244		25.6	%
Total investments	$	675,556	100.0	%	$	700,738	100.0	%	$	663,563	100.0	%	$	633,829	100.0	%

Investments at fair value consisted of the following industry classifications as of December 31, 2021 and March 31, 2021:


	December 31, 2021				March 31, 2021
	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments
Diversified/Conglomerate Services	$	301,459	43.0	%	$	261,714	41.3	%
Home and Office Furnishings, Housewares, and Durable Consumer Products	118,051		16.8	%	94,663		15.0	%
Leisure, Amusement, Motion Pictures, and Entertainment	49,371		7.0	%	45,209		7.1	%
Healthcare, Education, and Childcare	40,070		5.7	%	31,194		4.9	%
Hotels, Motels, Inns, and Gaming	35,804		5.1	%	—		—	%
Telecommunications	30,862		4.4	%	15,582		2.5	%
Chemicals, Plastics, and Rubber	26,618		3.8	%	22,985		3.6	%
Aerospace and Defense	25,592		3.7	%	27,630		4.4	%
Mining, Steel, Iron and Non-Precious Metals	24,250		3.5	%	—		—	%
Cargo Transport	14,322		2.0	%	15,211		2.4	%
Diversified/Conglomerate Manufacturing	13,725		2.0	%	25,181		4.0	%
Machinery (Non-Agriculture, Non-Construction, and Non-Electronic)	10,885		1.6	%	14,199		2.2	%
Personal and Non-Durable Consumer Products (Manufacturing Only)	5,749		0.8	%	60,852		9.6	%
Beverage, Food, and Tobacco	—		—	%	15,519		2.4	%
Other < 2.0%	3,980		0.6	%	3,890		0.6	%
Total investments	$	700,738	100.0	%	$	633,829	100.0	%

Investments at fair value were included in the following geographic regions of the U.S. as of December 31, 2021 and March 31, 2021:


	December 31, 2021				March 31, 2021
Location	Fair Value		Percentage of Total Investments		Fair Value		Percentage of Total Investments
Northeast	$	198,598	28.3	%	$	163,938	25.9	%
South	191,795		27.4		182,529		28.8
Midwest	156,597		22.3		126,781		20.0
West	153,748		22.0		160,581		25.3
Total investments	$	700,738	100.0	%	$	633,829	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 repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2021:


		Amount
For the remaining three months ending March 31:	2022	$	4,000
For the fiscal years ending March 31:	2023	90,950
	2024	96,168
	2025	204,187
	2026	52,250
	Thereafter	71,246
	Total contractual repayments	$	518,801
	Adjustments to cost basis of debt investments	(17)
	Investments in equity securities	156,772
	Total cost basis of investments held as of December 31, 2021:	$	675,556

Receivables from Portfolio Companies

Receivables from portfolio companies represent non-recurring costs that we incurred on behalf of portfolio companies. Such receivables, net of any allowance for uncollectible receivables, are included in Other assets, net on our accompanying Consolidated Statements of Assets and Liabilities. We generally maintain an allowance for uncollectible receivables from portfolio companies when the receivable balance becomes 90 days or more past due or if it is determined, based upon management’s judgment, that the portfolio company is unable to pay its obligations. We write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible. As of December 31, 2021 and March 31, 2021, we had gross receivables from portfolio companies of $1.8 million and $1.5 million, respectively. As of December 31, 2021 and March 31, 2021, the allowance for uncollectible receivables was $1.2 million and $0.9 million, respectively.

NOTE 4. RELATED PARTY TRANSACTIONS

Transactions with the Adviser

We pay the Adviser certain fees as compensation for its services under the Advisory Agreement, consisting of a base management fee and an incentive fee and a loan servicing fee for the Adviser’s role as servicer pursuant to the Credit Facility, all as described below. On July 13, 2021, our Board of Directors, including a majority of the directors who are not parties to the Advisory Agreement or interested persons of either party, approved the annual renewal of the Advisory Agreement through August 31, 2022.

Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as directors and executive officers of the Adviser, which is 100% indirectly owned and controlled by Mr. Gladstone. David Dullum (our president) is also the executive vice president of private equity (buyouts) of the Adviser. Michael LiCalsi, our general counsel and secretary (who also serves as the Administrator’s president, general counsel and secretary), is also the executive vice president of administration of our Adviser.

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


	Three Months Ended December 31,						Nine Months Ended December 31,
	2021			2020			2021			2020
Average total assets subject to base management fee(A)	$	726,000		$	623,200		$	701,800		$	597,400
Multiplied by prorated annual base management fee of 2.0%	0.5		%	0.5		%	1.5		%	1.5		%
Base management fee(B)	3,630			3,116			10,527			8,961
Credits to fees from Adviser - other(B)	(3,682)			(789)			(5,863)			(2,594)
Net base management fee	$	(52)		$	2,327		$	4,664		$	6,367

Loan servicing fee(B)	1,768			1,786			5,430			5,242
Credits to base management fee - loan servicing fee(B)	(1,768)			(1,786)			(5,430)			(5,242)
Net loan servicing fee	$	—		$	—		$	—		$	—

Incentive fee – income-based	$	2,197		$	2,002		$	5,892		$	2,002
Incentive fee – capital gains-based(C)	390			1,754			16,294			1,452
Total incentive fee(B)	$	2,587		$	3,756		$	22,186		$	3,454
Credits to fees from Adviser - other(B)	—			—			—			—
Net total incentive fee	$	2,587		$	3,756		$	22,186		$	3,454

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

(B)Reflected as a line item on our accompanying Consolidated Statements of Operations.

(C)The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Base Management Fee

The base management fee is payable quarterly to the Adviser pursuant to our Advisory Agreement and is assessed at an annual rate of 2.0%, computed on the basis of the value of our average gross assets at the end of the two most recently completed quarters (inclusive of the current quarter), which are total assets, including investments made with proceeds of borrowings, less any uninvested cash or cash equivalents resulting from borrowings, valued at the end of the applicable quarters within the respective period and adjusted appropriately for any share issuances or repurchases during the period.

Additionally, pursuant to the requirements of the 1940 Act, the Adviser makes available significant managerial assistance to our portfolio companies. The Adviser may also provide other services to our portfolio companies under certain agreements and may receive fees for services other than managerial assistance. Such services may include: (i) assistance obtaining, sourcing or structuring credit facilities, long term loans or additional equity from unaffiliated third parties; (ii) negotiating important contractual financial relationships; (iii) consulting services regarding restructuring of the portfolio company and financial modeling as it relates to raising additional debt and equity capital from unaffiliated third parties; and (iv) taking a primary role in interviewing, vetting and negotiating employment contracts with candidates in connection with adding and retaining key portfolio company management team members. The Adviser non-contractually, unconditionally, and irrevocably credits 100% of any fees received for such services against the base management fee that we would otherwise be required to pay to the Adviser; however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $0.1 million and $0.2 million for the three and nine months ended December 31, 2021, respectively, and $48 thousand and $0.1 million for the three and nine months ended December 31, 2020, respectively, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser, primarily related to the valuation of portfolio companies.

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Loan Servicing Fee

The Adviser also services the loans held by our wholly-owned subsidiary, Business Investment (the borrower under the Credit Facility), in return for which the Adviser receives a 2.0% annual fee based on the monthly aggregate outstanding balance of loans pledged under the Credit Facility. Since Business Investment is a consolidated subsidiary of ours, coupled with the fact that the total base management fee paid to the Adviser pursuant to the Advisory Agreement cannot exceed 2.0% of total assets (less any uninvested cash or cash equivalents resulting from borrowings) during any given calendar year, we treat payment of the loan servicing fee pursuant to the Credit Facility as a pre-payment of the base management fee under the Advisory Agreement. Accordingly, these loan servicing fees are 100% non-contractually, unconditionally, and irrevocably credited back to us by the Adviser.

Incentive Fee

The incentive fee payable to the Adviser under our Advisory Agreement consists of two parts: an income-based incentive fee and a capital gains-based incentive fee.

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

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

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

•20.0% of the amount of our pre-incentive fee net investment income, if any, that exceeds 2.1875% of our net assets, adjusted appropriately for any share issuances or repurchases during the period, in any calendar quarter.

The second part of the incentive fee is a capital gains-based incentive fee that is determined and payable in arrears as of the end of each fiscal year (or upon termination of the Advisory Agreement, as of the termination date), and equals 20.0% of our realized capital gains, less any realized capital losses and unrealized depreciation, calculated as of the end of the preceding calendar year. The capital gains-based incentive fee payable to the Adviser is calculated based on (i) cumulative aggregate realized capital gains since our inception, less (ii) cumulative aggregate realized capital losses since our inception, less (iii) the entire portfolio’s aggregate unrealized capital depreciation, if any, as of the date of the calculation. If this number is positive at the applicable calculation date, then the capital gains-based incentive fee for such year equals 20.0% of such amount, less the aggregate amount of any capital gains-based incentive fees paid in respect of our portfolio in all prior years. For calculation purposes, cumulative aggregate realized capital gains, if any, equals the sum of the excess between the net sales price of each investment, when sold, and the original cost of such investment since our inception. Cumulative aggregate realized capital losses equals the sum of the deficit between the net sales price of each investment, when sold, and the original cost of such investment since our inception. The entire portfolio’s aggregate unrealized capital depreciation, if any, equals the sum of the deficit between the fair value of each investment security as of the applicable calculation date and the original cost of such investment security. As of and for the period ended December 31, 2021, capital gains-based incentive fees of $5.3 million were contractually due to the Adviser. As of and for the year ended March 31, 2021, no capital gains-based incentive fees were contractually due and paid to the Adviser.

In accordance with GAAP, accrual of the capital gains-based incentive fee is determined as if our investments had been liquidated at their fair values as of the end of the reporting period. Therefore, GAAP requires that the capital gains-based incentive fee accrual consider the aggregate unrealized capital appreciation in the calculation, as a capital gains-based incentive fee would be payable if such unrealized capital appreciation were realized. There can be no assurance that any such unrealized capital appreciation will be realized in the future. Accordingly, a GAAP accrual is calculated at the end of the reporting period based on (i) cumulative aggregate realized capital gains since our inception, plus (ii) the entire portfolio’s aggregate unrealized capital appreciation, if any, less (iii) cumulative aggregate realized capital losses since our inception, less (iv) the entire portfolio’s aggregate unrealized capital depreciation, if any. If such amount is positive at the

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end of a reporting period, a capital gains-based incentive fee equal to 20.0% of such amount, less the aggregate amount of capital gains-based incentive fees accrued in all prior years, is recorded, regardless of whether such amount is contractually due under the terms of the Advisory Agreement. If such amount is negative, then there is no accrual for such period and prior period accruals are reversed, as appropriate. During the three and nine months ended December 31, 2021, we recorded capital gains-based incentive fees of $0.4 million and $16.3 million, respectively. During the three and nine months ended December 31, 2020, we recorded capital gains-based incentive fees of $1.8 million and $1.5 million, respectively.

Transactions with the Administrator

We reimburse the Administrator pursuant to the Administration Agreement for our allocable portion of the Administrator’s expenses incurred while performing services to us, which are primarily rent and salaries and benefits expenses of the Administrator’s employees, including our chief financial officer and treasurer, chief valuation officer, chief compliance officer, and general counsel and secretary, and their respective staffs. Two of our executive officers, David Gladstone (our chairman and chief executive officer) and Terry Lee Brubaker (our vice chairman and chief operating officer) serve as members of the board of managers and executive officers of the Administrator, which is 100% indirectly owned and controlled by Mr. Gladstone. Another of our officers, Mr. LiCalsi (our general counsel & secretary), serves as the Administrator’s president as well as the executive vice president of administration for the Adviser.

Our allocable portion of the Administrator’s expenses is generally derived by multiplying the Administrator’s total expenses by the approximate percentage of time during the current quarter the Administrator’s employees performed services for us in relation to their time spent performing services for all companies serviced by the Administrator. On July 13, 2021, our Board of Directors, including a majority of the directors who are not parties to the Administration Agreement or interested persons of either party, approved the annual renewal of the Administration Agreement through August 31, 2022.

Transactions with Gladstone Securities, LLC

Gladstone Securities, LLC (“Gladstone Securities”) is a privately held broker dealer registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation. Gladstone Securities is an affiliate of ours, as its parent company is 100% owned and controlled by David Gladstone, our chairman and chief executive officer. Mr. Gladstone also serves on the board of managers of Gladstone Securities.

Other Transactions

From time to time, Gladstone Securities provides services, such as investment banking and due diligence services, to certain of our portfolio companies, for which it receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. During the three and nine months ended December 31, 2021, the fees received by Gladstone Securities from our portfolio companies totaled $2.8 million and $3.2 million, respectively. During the three and nine months ended December 31, 2020, the fees received by Gladstone Securities from our portfolio companies totaled $0.3 million and $0.6 million, respectively.

Related Party Fees Due

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


	As of December 31,		As of March 31,
	2021		2021
Base management and loan servicing fee due to Adviser, net of credits	$	(1,375)	$	1,435
Incentive fee due to Adviser(A)	30,909		14,163
Other due to Adviser	71		66
Total fees due to Adviser	29,605		15,664
Fee due to Administrator	537		577
Total related party fees due	$	30,142	$	16,241

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(A)Includes a capital gains-based incentive fee of $28.7 million and $12.4 million as of December 31, 2021 and March 31, 2021, respectively, recorded in accordance with GAAP requirements, and which was not contractually due under the terms of the Advisory Agreement. Refer to Note 4 — Related Party Transactions — Transactions with the Adviser — Incentive Fee for additional information, including capital gains-based incentive fee payments made.

Net expenses receivable from Gladstone Capital Corporation, one of our affiliated funds, for reimbursement purposes, which includes certain co-investment expenses, totaled $37 thousand and $0, as of December 31, 2021 and March 31, 2021, respectively. These amounts are generally settled in the quarter subsequent to being incurred and have been included in Other assets, net on the accompanying Consolidated Statements of Assets and Liabilities as of December 31, 2021 and March 31, 2021, respectively.

NOTE 5. BORROWINGS

Revolving Line of Credit

On March 8, 2021, we, through our wholly-owned subsidiary, Business Investment, entered into Amendment No. 6 to the Fifth Amended and Restated Credit Agreement, originally entered into on April 30, 2013 and as previously amended (the "Credit Facility"), with KeyBank National Association (“KeyBank”) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to February 29, 2024, and if not renewed or extended by such date, all principal and interest will be due and payable on February 28, 2026 (two years after the revolving period end date). As of December 31, 2021, the Credit Facility provided two one-year extension options that may be exercised on or before the first and second anniversary of March 8, 2021, subject to approval by all lenders.

On August 10, 2020, we, through Business Investment, entered into Amendment No. 5 to the Credit Facility. Among other things, Amendment No. 5 amended the Credit Facility to (i) add London Interbank Offered Rate (“LIBOR”) replacement language; (ii) implement a 0.5% LIBOR floor; (iii) reduce the facility size from $200.0 million to $180.0 million, which may be expanded to $300.0 million through additional commitments; and (iv) provide certain other changes to existing terms and covenants.

Advances under the Credit Facility generally bear interest at 30-day LIBOR, subject to a floor of 0.5%, plus 2.85% per annum until February 29, 2024, with the margin then increasing to 3.10% for the period from February 29, 2024 to February 28, 2025, and increasing further to 3.35% thereafter. The Credit Facility has an unused commitment fee on the daily unused commitment amount of 0.50% per annum if the average unused commitment amount for the period is less than or equal to 50% of the total commitment amount, 0.75% per annum if the average unused commitment amount for the period is greater than 50% but less than or equal to 65% of the total commitment amount, and 1.00% per annum if the average unused commitment amount for the period is greater than 65% of the total commitment amount.

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


	As of December 31, 2021		As of March 31, 2021
Commitment amount	$	180,000	$	180,000
Borrowings outstanding at cost	$	—	$	22,400
Availability(A)	$	180,000	$	157,600


	For the Three Months Ended December 31,						For the Nine Months Ended December 31,
	2021			2020			2021			2020
Weighted-average borrowings outstanding	$	21,184		$	104,829		$	23,959		$	88,652
Effective interest rate(B)	11.1		%	3.8		%	10.1		%	4.2		%
Commitment (unused) fees incurred	$	406		$	95		$	1,191		$	585

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(A)Availability is subject to various constraints, characteristics and applicable advance rates based on collateral quality under the Credit Facility, which equated to an adjusted availability of $179.4 million and $157.6 million as of December 31, 2021 and March 31, 2021, respectively.

(B)Excludes the impact of deferred financing costs and includes unused commitment fees.

Among other things, the Credit Facility contains a performance guaranty that requires us to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $286.3 million as of December 31, 2021 (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act); and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of December 31, 2021, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $695.5 million, asset coverage on our senior securities representing indebtedness of 259.5%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of December 31, 2021, we were in compliance with all covenants under the Credit Facility.

Fair Value

We elected to apply the fair value option of ASC Topic 825, “Financial Instruments,” to the Credit Facility, which was consistent with our application of ASC 820 to our investments. Generally, the fair value of the Credit Facility is determined using a yield analysis, which includes a DCF calculation and also takes into account the assumptions the Valuation Team believes market participants would use, including the estimated remaining life, counterparty credit risk, current market yield and interest rate spreads of similar securities as of the measurement date. As of December 31, 2021 and March 31, 2021, the discount rate used to determine the fair value of the Credit Facility was 30-day LIBOR, with a 0.5% floor, plus 2.85% per annum, plus an unused commitment fee of 1.0%. Generally, an increase or decrease in the discount rate used in the DCF calculation may result in a corresponding decrease or increase, respectively, in the fair value of the Credit Facility. As of each of December 31, 2021 and March 31, 2021, the Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in Net unrealized depreciation (appreciation) of other on our accompanying Consolidated Statements of Operations.

The following tables provide relevant information and disclosures about the Credit Facility as of December 31, 2021 and March 31, 2021, and for the three and nine months ended December 31, 2021 and 2020, as required by ASC 820:


	Level 3 – Borrowings
	Recurring Fair Value Measurements Reported in Consolidated Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3)
	December 31, 2021		March 31, 2021
Credit Facility	$	—	$	22,400


Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3) Reported in Consolidated Statements of Assets and Liabilities
	Credit Facility
Three Months Ended December 31, 2021:
Fair value at September 30, 2021	$	8,900
Borrowings	49,000
Repayments	(57,900)
Fair value at December 31, 2021	$	—

Nine Months Ended December 31, 2021:
Fair value at March 31, 2021	$	22,400
Borrowings	111,700
Repayments	(134,100)
Fair value at December 31, 2021	$	—

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Fair Value Measurements of Borrowings Using Significant Unobservable Inputs (Level 3) Reported in Consolidated Statements of Assets and Liabilities
	Credit Facility
Three Months Ended December 31, 2020:
Fair value at September 30, 2020	$	116,600
Borrowings	30,200
Repayments	(62,800)
Fair value at December 31, 2020	$	84,000

Nine Months Ended December 31, 2020:
Fair value at March 31, 2020	$	49,200
Borrowings	111,700
Repayments	(76,900)
Fair value at December 31, 2020	$	84,000

The fair value of the collateral under the Credit Facility was $524.7 million and $524.0 million as of December 31, 2021 and March 31, 2021, respectively.

Notes Payable

5.00% Notes due 2026

In March 2021, we completed a public offering of 5.00% Notes due 2026 with an aggregate principal amount of $127.9 million (the “2026 Notes”), which resulted in net proceeds of approximately $123.8 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2026 Notes are traded under the ticker symbol “GAINN” on the Nasdaq Global Select Market (“Nasdaq”). The 2026 Notes will mature on May 1, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after May 1, 2023. The 2026 Notes bear interest at a rate of 5.00% per year, which is payable quarterly in arrears.

The indenture relating to the 2026 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2026 Notes, as applicable, and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.

The 2026 Notes are recorded at the aggregate principal amount, less underwriting discounts, commissions, and offering costs, on our accompanying Consolidated Statements of Assets and Liabilities. Total underwriting discounts, commissions, and offering costs related to this offering were $4.1 million, which have been recorded as discounts to the aggregate principal amount on our accompanying Consolidated Statements of Assets and Liabilities and are being amortized over the period ending May 1, 2026, the maturity date.

4.875% Notes due 2028

In August 2021, we completed a public offering of 4.875% Notes due 2028 with an aggregate principal amount of $134.6 million (the “2028 Notes”), which resulted in net proceeds of approximately $131.3 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2028 Notes are traded under the ticker symbol “GAINZ” on the Nasdaq. The 2028 Notes will mature on November 1, 2028 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 1, 2023. The 2028 Notes bear interest at a rate of 4.875% per year, which is payable quarterly in arrears.

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The indenture relating to the 2028 Notes contains certain covenants, including (i) an inability to incur additional debt or issue additional debt or preferred securities unless the Company’s asset coverage meets the threshold specified in the 1940 Act after such borrowing, (ii) an inability to declare any dividend or distribution (except a dividend payable in our stock) on a class of our capital stock or to purchase shares of our capital stock unless the Company’s asset coverage meets the threshold specified in the 1940 Act at the time of (and giving effect to) such declaration or purchase, and (iii) if, at any time, we are not subject to the reporting requirements of the Exchange Act, we will provide the holders of the 2028 Notes, as applicable, and the trustee with audited annual consolidated financial statements and unaudited interim consolidated financial statements.

The 2028 Notes are recorded at the aggregate principal amount, less underwriting discounts, commissions, and offering costs, on our accompanying Consolidated Statements of Assets and Liabilities. Total underwriting discounts, commissions, and offering costs related to this offering were $3.3 million, which have been recorded as discounts to the aggregate principal amount on our accompanying Consolidated Statements of Assets and Liabilities and are being amortized over the period ending November 1, 2028, the maturity date.

The following tables summarize our 2026 and 2028 Notes as of December 31, 2021 and March 31, 2021:


As of December 31, 2021:
Description	Ticker Symbol	Date Issued	Maturity Date(A)	Interest Rate	Notes Outstanding	Principal Amount per Note		Aggregate Principal Amount
2026 Notes	GAINN	March 2, 2021	May 1, 2026	5.00%	5,117,500	$	25.00	$	127,938
2028 Notes	GAINZ	August 18, 2021	November 1, 2028	4.875%	5,382,000	$	25.00	134,550
Notes payable, gross(B)					10,499,500			262,488
Less: Discounts								(6,549)
Notes payable, net(C)								$	255,939

As of March 31, 2021:

Description

Ticker
Symbol

Date Issued

Maturity Date(A)

Interest
Rate

Notes
Outstanding

Principal
Amount per
Note

Aggregate
Principal Amount

2026 Notes

GAINN

March 2, 2021

May 1, 2026

5.00%

5,117,500

25.00

127,938

Notes payable, gross(B)

127,938

Less: Discounts

(4,055)

Notes payable, net(C)

123,883

(A)The 2026 Notes can be redeemed at our option at any time on or after May 1, 2023. The 2028 Notes can be redeemed at our option at any time on or after November 1, 2023.

(B)As of December 31, 2021 and March 31, 2021, asset coverage on our senior securities representing indebtedness, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 259.5% and 398.0%, respectively.

(C)Reflected as a line item on our accompanying Consolidated Statements of Assets and Liabilities.

The fair value, based on the last reported closing prices, of the 2026 Notes and 2028 Notes as of December 31, 2021 was $132.7 million and $141.4 million, respectively. The fair value, based on the last reported closing prices, of the 2026 Notes as of March 31, 2021 was $132.3 million. We consider the closing prices of the 2026 Notes and 2028 Notes to be Level 1 inputs within the ASC 820 hierarchy.

Secured Borrowing

In August 2012, we entered into a participation agreement with a third-party related to $5.0 million of our secured second lien term debt investment in Ginsey Home Solutions, Inc. (“Ginsey”). In May 2014, we amended the agreement with the third-party to include an additional $0.1 million. ASC Topic 860, “Transfers and Servicing” requires us to treat the participation as a financing-type transaction. Specifically, the third-party has a senior claim to our remaining investment in the event of default by Ginsey which, in part, resulted in the loan participation bearing a rate of interest lower than the contractual rate established at origination. Therefore, our accompanying Consolidated Statements of Assets and Liabilities reflect the entire secured second lien term debt investment in Ginsey and a corresponding $5.1 million secured borrowing liability. The secured borrowing has a stated fixed interest rate of 7.0% and a maturity date of January 3, 2025.

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NOTE 6. MANDATORILY REDEEMABLE PREFERRED STOCK

In August 2021, we used a portion of the proceeds from the issuance of our 2028 Notes to voluntarily redeem all outstanding shares of our 6.375% Series E Cumulative Term Preferred Stock (or “Series E Term Preferred Stock” or “Series E”), which had a liquidation preference of $25.00 per share. In connection with the voluntary redemption of our Series E Term Preferred Stock, we incurred a loss on extinguishment of debt of $2.0 million, which was recorded in Realized loss on other in our accompanying Consolidated Statements of Operations and which was primarily comprised of unamortized deferred issuance costs at the time of redemption.

The following table summarizes our Series E Term Preferred Stock outstanding as of March 31, 2021:


Class of Term Preferred Stock	Ticker Symbol	Date Issued	Mandatory Redemption Date	Interest Rate	Shares Outstanding	Liquidation Preference per Share		Aggregate Liquidation Preference
Series E	GAINL	August 22, 2018	August 31, 2025	6.375%	3,774,853	$	25.00	$	94,371
Term preferred stock, gross(A)					3,774,853	$	25.00	$	94,371
Less: Discounts								(2,162)
Term preferred stock, net(B)								$	92,209

(A)As of March 31, 2021, asset coverage on our senior securities that are stock, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 248.6%.

(B)Reflected as a line item on our accompanying Consolidated Statements of Assets and Liabilities.

The following tables summarize dividends declared by our Board of Directors and paid by us on our Series E Term Preferred Stock and our 6.25% Series D Cumulative Term Preferred Stock (“Series D Term Preferred Stock”) during the nine months ended December 31, 2021 and 2020:

For the Nine Months Ended December 31, 2021:

Declaration Date

Record
Date

Payment

Date

Dividend per

Share of

Series E Term

Preferred Stock(A)

April 13, 2021

April 23, 2021

April 30, 2021

0.13281250

April 13, 2021

May 19, 2021

May 28, 2021

0.13281250

April 13, 2021

June 18, 2021

June 30, 2021

0.13281250

July 13, 2021

July 23, 2021

July 30, 2021

0.13281250

July 13, 2021

August 23, 2021

August 31, 2021

0.07968750

(B)

Total

0.61093750

For the Nine Months Ended December 31, 2020:


Declaration Date	Record Date	Payment Date	Dividend per Share of Series D Term Preferred Stock(C)		Dividend per Share of Series E Term Preferred Stock(A)
April 14, 2020	April 24, 2020	April 30, 2020	$	0.13020833	$	0.13281250
April 14, 2020	May 19, 2020	May 29, 2020	0.13020833		0.13281250
April 14, 2020	June 19, 2020	June 30, 2020	0.13020833		0.13281250
July 14, 2020	July 24, 2020	July 31, 2020	0.13020833		0.13281250
July 14, 2020	August 24, 2020	August 31, 2020	0.13020833		0.13281250
July 14, 2020	September 23, 2020	September 30, 2020	0.13020833		0.13281250
October 13, 2020	October 23, 2020	October 30, 2020	0.13020833		0.13281250
October 13, 2020	November 20, 2020	November 30, 2020	0.13020833		0.13281250
October 13, 2020	December 23, 2020	December 31, 2020	0.13020833		0.13281250
		Total	$	1.17187497	$	1.19531250

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(A)We voluntarily redeemed all outstanding shares of our Series E Term Preferred Stock on August 19, 2021.

(B)Represents payment of accrued and unpaid dividends up to, but excluding, the redemption date of August 19, 2021.

(C)We voluntarily redeemed all outstanding shares of our Series D Term Preferred Stock on March 3, 2021.

The federal income tax characteristics of dividends paid to our preferred stockholders generally constitute ordinary income or capital gains to the extent of our current and accumulated earnings and profits and are reported after the end of the calendar year based on tax information for the full fiscal year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of dividends for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. The tax characterization of dividends paid to our preferred stockholders during the calendar year ended December 31, 2021 was 71.3% from ordinary income and 28.7% from capital gains. The tax characterization of dividends paid to our preferred stockholders during the calendar year ended December 31, 2020 was 42.1% from ordinary income and 57.9% from capital gains.

In accordance with ASC Topic 480, “Distinguishing Liabilities from Equity,” mandatorily redeemable financial instruments should be classified as liabilities on the balance sheet. Our mandatorily redeemable preferred stock was recorded at the liquidation preference, less discounts, on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2021. The related dividend payments to preferred stockholders are treated as dividend expense on our accompanying Consolidated Statements of Operations on the ex-dividend date.

The fair value of our Series E Term Preferred Stock, based on the last reported closing sale price as of March 31, 2021, which we consider to be a Level 1 input within the fair value hierarchy, was $96.1 million.

NOTE 7. REGISTRATION STATEMENT AND COMMON EQUITY OFFERINGS

Registration Statement

On September 3, 2021, we filed a registration statement on Form N-2 (File No. 333-259302), which the SEC declared effective on October 15, 2021. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities. As of December 31, 2021, we had the ability to issue up to $300.0 million of the securities registered under the registration statement.

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

The following table sets forth the computation of basic and diluted Net increase in net assets resulting from operations per weighted-average common share for the three and nine months ended December 31, 2021 and 2020:


	Three Months Ended December 31,				Nine Months Ended December 31,
	2021		2020		2021		2020
Net increase in net assets resulting from operations	$	10,346	$	15,271	$	85,620	$	21,940
Basic and diluted weighted-average common shares	33,205,023		33,205,023		33,205,023		33,167,511
Basic and diluted net increase in net assets resulting from operations per weighted-average common share	$	0.31	$	0.46	$	2.58	$	0.66

NOTE 9. DISTRIBUTIONS TO COMMON STOCKHOLDERS

To qualify to be taxed as a RIC under Subchapter M of the Code, we must generally distribute to our stockholders, for each taxable year, at least 90% of our taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (“Investment Company Taxable Income”). The amount to be paid out as distributions to our stockholders is determined by our Board of Directors and is based upon management’s estimate of Investment Company Taxable Income and net long-term capital gains, as well as amounts to be distributed in accordance with Section 855(a) of the Code. Based on that estimate, our Board of Directors declares monthly distributions, and supplemental distributions, as appropriate, to stockholders each quarter and deemed distributions of long-term capital gains annually as of the end of the fiscal year, as applicable.

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The U.S. federal income tax characteristics of cash distributions paid to our common stockholders generally are reported to stockholders on IRS Form 1099 after the end of each calendar year. Estimates of tax characterization made on a quarterly basis may not be representative of the actual tax characterization of cash distributions for the full year. Estimates made on a quarterly basis are updated as of each interim reporting date. The tax characterization of cash distributions paid to common stockholders during the current calendar year ended December 31, 2021 was 71.3% from ordinary income and 28.7% from capital gains.

We paid the following cash distributions to our common stockholders for the nine months ended December 31, 2021 and 2020:

For the Nine Months Ended December 31, 2021:

Declaration Date

Record Date

Payment Date

Distribution per
Common Share

April 13, 2021

April 23, 2021

April 30, 2021

0.070

April 13, 2021

May 19, 2021

May 28, 2021

0.070

April 13, 2021

June 8, 2021

June 17, 2021

0.060

(A)

April 13, 2021

June 18, 2021

June 30, 2021

0.070

July 13, 2021

July 23, 2021

July 30, 2021

0.070

July 13, 2021

August 23, 2021

August 31, 2021

0.070

July 13, 2021

September 3, 2021

September 15, 2021

0.030

(A)

July 13, 2021

September 22, 2021

September 30, 2021

0.070

October 12, 2021

October 22, 2021

October 29, 2021

0.075

October 12, 2021

November 19, 2021

November 30, 2021

0.075

October 12, 2021

December 7, 2021

December 15, 2021

0.090

(A)

October 12, 2021

December 23, 2021

December 31, 2021

0.075

Nine Months Ended December 31, 2021

0.825

For the Nine Months Ended December 31, 2020:

Declaration Date

Record Date

Payment Date

Distribution per
Common Share

April 14, 2020

April 24, 2020

April 30, 2020

0.070

April 14, 2020

May 19, 2020

May 29, 2020

0.070

April 14, 2020

June 8, 2020

June 17, 2020

0.090

(A)

April 14, 2020

June 19, 2020

June 30, 2020

0.070

July 14, 2020

July 24, 2020

July 31, 2020

0.070

July 14, 2020

August 24, 2020

August 31, 2020

0.070

July 14, 2020

September 23, 2020

September 30, 2020

0.070

October 13, 2020

October 23, 2020

October 30, 2020

0.070

October 13, 2020

November 20, 2020

November 30, 2020

0.070

October 13, 2020

December 23, 2020

December 31, 2020

0.070

Nine Months Ended December 31, 2020

0.720

(A)Represents a supplemental distribution to common stockholders.

Aggregate cash distributions to our common stockholders declared and paid were $27.4 million and $23.9 million for the nine months ended December 31, 2021 and 2020, respectively.

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For the three months ended December 31, 2021, we recorded $0.1 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and increased Overdistributed net investment income on our accompanying Consolidated Statements of Assets and Liabilities. For the nine months ended December 31, 2021, we recorded $2.8 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Overdistributed net investment income and increased Accumulated net realized gain in excess of distributions on our accompanying Consolidated Statements of Assets and Liabilities.

For the three and nine months ended December 31, 2020, we recorded $0.4 million and $1.0 million, respectively, of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed net investment income for both periods on our accompanying Consolidated Statements of Assets and Liabilities.

We may distribute our net long-term capital gains, if any, in cash or elect to retain some or all of such gains, pay taxes at the U.S. federal corporate-level income tax rate on the amount retained, and designate the retained amount as a “deemed distribution.” If we elect to retain net long-term capital gains and deem them distributed, each U.S. common stockholder will be treated as if they received a distribution of their pro-rata share of the retained net long-term capital gain and the U.S. federal income tax paid. As a result, each U.S. common stockholder will (i) be required to report their pro rata share of the retained gain on their tax return as long-term capital gain, (ii) receive a refundable tax credit for their pro-rata share of federal income tax paid by us on the retained gain, and (iii) increase the tax basis of their shares of common stock by an amount equal to the deemed distribution less the tax credit. To use the deemed distribution approach, we must provide written notice to our common stockholders prior to the expiration of 60 days after the close of the relevant taxable year. For the year ended March 31, 2021, we did not elect to retain long-term capital gains and to treat them as deemed distributions to common stockholders.

NOTE 10. COMMITMENTS AND CONTINGENCIES

Legal Proceedings

We are party to certain legal proceedings incidental to the normal course of our business. We are required to establish reserves for litigation matters where those matters present loss contingencies that are both probable and estimable. When loss contingencies are not both probable and estimable, we do not establish reserves. Based on current knowledge, we do not believe that loss contingencies, if any, arising from pending investigations, litigation or regulatory matters will have a material adverse effect on our financial condition, results of operation or cash flows. Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of December 31, 2021 and March 31, 2021, we had no established reserves for such loss contingencies.

Escrow Holdbacks

From time to time, we enter into arrangements relating to exits of certain investments whereby specific amounts of the proceeds are held in escrow to be used to satisfy potential obligations, as stipulated in the sales agreements. We record escrow amounts in Restricted cash and cash equivalents, if received in cash but subject to potential obligations or other contractual restrictions, or as escrow receivables in Other assets, net, if not yet received in cash, on our accompanying Consolidated Statements of Assets and Liabilities. We establish reserves and holdbacks against escrow amounts if we determine that it is probable and estimable that a portion of the escrow amounts will not ultimately be released or received at the end of the escrow period. Reserves and holdbacks against escrow amounts were $0.2 million and $0.7 million as of December 31, 2021 and March 31, 2021, respectively.

Financial Commitments and Obligations

We may have line of credit and delayed draw term loan commitments to certain of our portfolio companies that have not been fully drawn. Since these lines of credit and delayed draw term loan commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term loan commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused line of credit and delayed draw term loan commitments as of December 31, 2021 and March 31, 2021 to be insignificant.

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We have also extended a guaranty on behalf of one of our portfolio companies. As of December 31, 2021, we have not been required to make any payments on this guaranty, or any guaranties that existed in previous periods, and we consider the credit risk to be remote and the fair value of the guaranty as of December 31, 2021 and March 31, 2021 to be insignificant.

As of December 31, 2021, the following guaranty was outstanding:

•A $1.0 million continuing guaranty of a wholesale financing facility agreement (the “Floor Plan Facility”) between DLL Finance LLC (f/k/a Agricredit Acceptance, LLC) and Country Club Enterprises, LLC (“CCE”). The Floor Plan Facility provides CCE with financing to bridge the time and cash flow gap between the order and delivery of golf carts to customers.

The following table summarizes the principal balances of unused line of credit and delayed draw term loan commitments and guaranties as of December 31, 2021 and March 31, 2021, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:


	December 31, 2021		March 31, 2021
Unused line of credit and delayed draw term loan commitments	$	4,600	$	3,000
Guaranties	1,000		1,000
Total	$	5,600	$	4,000

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NOTE 11. FINANCIAL HIGHLIGHTS


	Three Months Ended December 31,						Nine Months Ended December 31,
	2021			2020			2021			2020
Per Common Share Data:
Net asset value at beginning of period(A)	$	13.27		$	10.86		$	11.52		$	11.17
Income from investment operations(B)
Net investment income (loss)	0.25			0.19			0.25			0.45
Net realized gain (loss) on investments and other	0.67			0.27			0.68			0.31
Net unrealized appreciation (depreciation) of investments	(0.61)			—			1.65			(0.10)
Total from investment operations	0.31			0.46			2.58			0.66
Effect of equity capital activity(B)
Cash distributions to common stockholders from net investment income(C)	(0.23)			(0.20)			(0.59)			(0.68)
Cash distributions to common stockholders from realized gains(C)	(0.09)			(0.01)			(0.24)			(0.04)
Total from equity capital activity	(0.32)			(0.21)			(0.83)			(0.72)
Other, net(B)(D)	0.01			—			—			—
Net asset value at end of period(A)	$	13.27		$	11.11		$	13.27		$	11.11

Per common share market value at beginning of period	$	13.87		$	9.10		$	12.23		$	7.85
Per common share market value at end of period	$	17.08		$	10.09		$	17.08		$	10.09
Total investment return(E)	25.52		%	13.38		%	47.50		%	38.22		%
Common stock outstanding at end of period(A)	33,205,023			33,205,023			33,205,023			33,205,023

Statement of Assets and Liabilities Data:
Net assets at end of period	$	440,589		$	368,823		$	440,589		$	368,823
Average net assets(F)	$	439,754		$	362,659		$	420,286		$	362,862

Senior Securities Data:
Total borrowings, at cost	$	267,584		$	89,096		$	267,584		$	89,096
Mandatorily redeemable preferred stock (G)	$	—		$	151,871		$	—		$	151,871

Ratios/Supplemental Data:
Ratio of net expenses to average net assets – annualized(H)	7.59		%	12.26		%	14.29		%	9.23		%
Ratio of net investment income (loss) to average net assets – annualized(I)	7.64		%	6.90		%	2.62		%	5.44		%

(A)Based on actual shares of common stock outstanding at the beginning or end of the corresponding period, as appropriate.

(B)Based on weighted-average basic common share data for the corresponding period.

(C)The tax character of distributions is determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP. For further information on the estimated character of our distributions to common stockholders, including changes in estimates, as applicable, refer to Note 9 — Distributions to Common Stockholders.

(D)Represents the impact of the different share amounts (weighted-average basic common shares outstanding for the corresponding period and actual common shares outstanding at the end of the period) in the Per Common Share Data calculations and rounding impacts.

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

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

(G)Represents the aggregate liquidation preference of our mandatorily redeemable preferred stock.

(H)Ratio of net expenses to average net assets is computed using total expenses, net of any non-contractual, unconditional, and irrevocable credits of fees from the Adviser. Had we not received any non-contractual, unconditional, and irrevocable credits of fees from the Adviser, the ratio of expenses to average net assets - annualized would have been 12.55% and 15.10% for the three months ended December 31, 2021 and 2020, respectively, and 17.87% and 12.11% for the nine months ended December 31, 2021 and 2020, respectively.

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(I)Had we not received any non-contractual, unconditional, and irrevocable credits of fees from the Adviser, the ratio of net investment income (loss) to average net assets - annualized would have been 2.68% and 4.06% for the three months ended December 31, 2021 and 2020, respectively, and (0.96)% and 2.56% for the nine months ended December 31, 2021 and 2020, respectively.

NOTE 12. UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES

In accordance with the SEC’s Regulation S-X, we do not consolidate portfolio company investments. Further, in accordance with ASC 946, we are precluded from consolidating any entity other than another investment company, except that ASC 946 provides for the consolidation of a controlled operating company that provides substantially all of its services to the investment company or its consolidated subsidiaries. We did not have any unconsolidated subsidiaries that met any of the significance conditions under Rule 1-02(w) of the SEC’s Regulation S-X as of or during the nine month periods ended December 31, 2021 and 2020.

NOTE 13. SUBSEQUENT EVENTS

Investment Activity

•In January 2022, we invested $5.0 million in an existing portfolio company, SBS Industries Holdings, Inc. ("SBS"), through a combination of secured second lien debt and preferred equity. As part of the additional investment, SBS was renamed SFEG Holdings, Inc.

•In February 2022, we extended a guaranty on behalf of one of our portfolio companies, J.R. Hobbs, whereby we have guaranteed 50% of their obligations with another lender, with a maximum amount of $9.3 million. As of the date of this report, we have not been required to make payments on this guaranty and we consider the likelihood of future required payment to be remote and the fair value of the guaranty to be insignificant.

Distributions and Dividends

In January 2022, our Board of Directors declared the following monthly and supplemental distributions to common stockholders:

Record Date

Payment Date

Distribution per Common Share

January 21, 2022

January 31, 2022

0.075

February 4, 2022

February 14, 2022

0.120

(A)

February 18, 2022

February 28, 2022

0.075

March 23, 2022

March 31, 2022

0.075

Total for the Quarter:

0.345

(A)Represents a supplemental distribution to common stockholders.

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ITEM 2. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

All statements contained herein, other than historical facts, may constitute “forward-looking statements.” These statements may relate to, among other things, our future operating results, our business prospects and the prospects of our portfolio companies, actual and potential conflicts of interest with Gladstone Management Corporation (the “Adviser”) and its affiliates, the use of borrowed money to finance our investments, the adequacy of our financing sources and working capital, and our ability to co-invest, among other factors. In some cases, you can identify forward-looking statements by terminology such as “estimate,” “may,” “might,” “believe,” “will,” “provided,” “anticipate,” “future,” “could,” “growth,” “plan,” “project,” “intend,” “expect,” “should,” “would,” “if,” “seek,” “possible,” “potential,” “likely” or the negative or variations of such terms or comparable terminology. These forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements. Such factors include: (1) changes in the economy and the capital markets; (2) risks associated with negotiation and consummation of pending and future transactions; (3) the loss of one or more of our executive officers, in particular David Gladstone, David Dullum, or Terry Lee Brubaker; (4) changes in our investment objectives and strategy; (5) availability, terms (including the possibility of interest rate volatility) and deployment of capital; (6) changes in our industry, interest rates, exchange rates, regulation, or the general economy; (7) our business prospects and the prospects of our portfolio companies; (8) the degree and nature of our competition; (9) changes in governmental regulation, tax rates and similar matters; (10) our ability to exit investments in a timely manner; (11) our ability to maintain our qualification as a regulated investment company (“RIC”) and as a business development company (“BDC”); (12) the impact of COVID-19 generally and on the economy, the capital markets and our portfolio companies, including the measures taken by governmental authorities to address it; and (13) those factors described in Item 1A. “Risk Factors” herein and the “Risk Factors” sections of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, filed with the U.S. Securities and Exchange Commission (“SEC”) on May 11, 2021 (the “Annual Report”). We caution readers not to place undue reliance on any such forward-looking statements. Actual results could differ materially from those anticipated in our forward-looking statements and future results could differ materially from historical performance. We have based forward-looking statements on information available to us on the date of this Quarterly Report on Form 10-Q (the “Quarterly Report”). Except as required by the federal securities laws, we undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise, after the date of this Quarterly Report. Although we undertake no obligation to revise or update any forward-looking statements, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we have filed or in the future may file with the SEC, including subsequent annual reports on Form 10-K, quarterly reports on Form 10-Q and current reports on Form 8-K. The forward-looking statements contained in this Quarterly Report are excluded from the safe harbor protection provided by the Private Securities Litigation Reform Act of 1995 and Section 27A of the Securities Act of 1933, as amended.

In this Quarterly Report, the “Company,” “we,” “us,” and “our” refer to Gladstone Investment Corporation and its wholly-owned subsidiaries unless the context otherwise indicates. Dollar amounts, except per share amounts, are in thousands, unless otherwise indicated.

The following analysis of our financial condition and results of operations should be read in conjunction with our accompanying Consolidated Financial Statements and the notes thereto contained elsewhere in this Quarterly Report and in our Annual Report. Historical financial condition and results of operations and percentage relationships among any amounts in the financial statements are not necessarily indicative of financial condition, results of operations or percentage relationships for any future periods.

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OVERVIEW

General

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

We are externally managed by the Adviser, an affiliate of ours and an SEC-registered investment adviser, pursuant to an investment advisory and management agreement (the “Advisory Agreement”). We have also entered into an administration agreement (the “Administration Agreement”) with Gladstone Administration, LLC (the “Administrator”), an affiliate of ours and the Adviser. Each of the Adviser and the Administrator are privately-held companies that are indirectly owned and controlled by David Gladstone, our chairman and chief executive officer. David Dullum, our president, also serves as the executive vice president of private equity (buyouts) of the Adviser. Michael LiCalsi, our general counsel and secretary, also serves as the Administrator’s president, general counsel, and secretary, as well as the executive vice president of administration of the Adviser).

Additionally, Gladstone Securities, LLC (“Gladstone Securities”), a privately-held broker-dealer (indirectly owned and controlled by Mr. Gladstone, our chairman and chief executive officer) registered with the Financial Industry Regulatory Authority and insured by the Securities Investor Protection Corporation, has provided other services, such as investment banking and due diligence services, to certain of our portfolio companies, for which Gladstone Securities receives a fee. Any such fees paid by portfolio companies to Gladstone Securities do not impact the fees we pay to the Adviser or the non-contractual, unconditional, and irrevocable credits against the base management fee. For additional information refer to Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements.

We were established for the purpose of investing in debt and equity securities of established private businesses operating in the United States (“U.S.”). Our investment objectives are to: (i) achieve and grow current income by investing in debt securities of established businesses that we believe will provide stable earnings and cash flow to pay expenses, make principal and interest payments on our outstanding indebtedness, and make distributions to our stockholders that grow over time; and (ii) provide our stockholders with long-term capital appreciation in the value of our assets by investing in equity securities of established businesses, generally in combination with the aforementioned debt securities, that we believe can grow over time to permit us to sell our equity investments for capital gains. To achieve our objectives, our investment strategy is to invest in several categories of debt and equity securities, with individual investments generally totaling up to $40 million, although investment size may vary depending upon our total assets or available capital at the time of investment. We expect that our investment portfolio over time will consist of approximately 75% in debt securities and 25% in equity securities, at cost. As of December 31, 2021, our investment portfolio was comprised of 76.8% in debt securities and 23.2% in equity securities, at cost.

We focus on investing in lower middle market private businesses (which we generally define as companies with annual earnings before interest, taxes, depreciation and amortization (“EBITDA”) of $3 million to $20 million) (“Lower Middle Market”) in the U.S. that meet certain criteria, including: the sustainability of the business’ free cash flow and its ability to grow it over time, adequate assets for loan collateral, experienced management teams with a significant ownership interest in the portfolio company, reasonable capitalization of the portfolio company, including an ample equity contribution or cushion based on prevailing enterprise valuation multiples, and the potential to realize appreciation and gain liquidity in our equity position, if any. We anticipate that liquidity in our equity position will be achieved through a merger or acquisition of the portfolio company, a public offering of the portfolio company’s stock, or, to a lesser extent, by exercising our right to require the portfolio company to repurchase our warrants, though there can be no assurance that we will always have these rights. We invest in portfolio companies that need funds for growth capital, to finance acquisitions, including management buyouts, recapitalize or, to a lesser extent, refinance their existing debt facilities. We seek to avoid investing in high-risk, early-stage enterprises.

We invest by ourselves or jointly with other funds and/or management of the portfolio company, depending on the opportunity. In July 2012, the SEC granted us an exemptive order (the “Co-Investment Order”) that expanded our ability to co-invest, under certain circumstances, with certain of our affiliates, including Gladstone Capital Corporation (“Gladstone

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Capital”) and any future BDC or closed-end management investment company that is advised (or sub-advised if it controls the fund) by the Adviser, or any combination of the foregoing, subject to the conditions in the Co-Investment Order. Since 2012, we have opportunistically made several co-investments with Gladstone Capital pursuant to the Co-Investment Order. We believe the Co-Investment Order has enhanced and will continue to enhance our ability to further our investment objectives and strategies. If we are participating in an investment with one or more co-investors, whether or not an affiliate of ours, our investment is likely to be smaller than if we were investing alone.

Our shares of common stock, our 5.00% Notes due 2026 (“2026 Notes”), and our 4.875% Notes due 2028 (“2028 Notes”) are traded on the Nasdaq Global Select Market (“Nasdaq”) under the trading symbols “GAIN,” “GAINN,” and “GAINZ,” respectively.

Business

Portfolio Activity

While the business environment remains competitive, we continue to see new investment opportunities consistent with our investment strategy of providing a combination of debt and equity in support of management and independent sponsor-led buyouts of Lower Middle Market companies in the U.S. During the nine months ended December 31, 2021, we invested in two new portfolio companies, exited three portfolio companies, merged two existing portfolio companies into a new portfolio company, and dissolved one portfolio company. From our initial public offering in June 2005 through December 31, 2021, we invested in 55 companies, excluding investments in syndicated loans, for a total of approximately $1.5 billion, before giving effect to principal repayments and divestitures.

The majority of the debt securities in our portfolio have a success fee component, which enhances the yield on our debt investments. Unlike paid-in-kind (“PIK”) income, we generally do not recognize success fees as income until payment has been received. Due to the contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of December 31, 2021, we had unrecognized, contractual success fees of $49.3 million, or $1.48 per common share. Consistent with accounting principles generally accepted in the U.S. (“GAAP”), we have not recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.

From inception through December 31, 2021, we completed sales of 27 portfolio companies that we acquired under our buyout strategy (which excludes investments in syndicated loans). In the aggregate, these sales have generated $262.8 million in net realized gains and $36.4 million in other income upon exit, for a total increase to our net assets of $299.2 million. We believe, in aggregate, these transactions were equity-oriented investment successes and exemplify our investment strategy of striving to achieve returns through current income on the debt portion of our investments and capital gains from the equity portion. The 27 liquidity events have offset any realized losses since inception, which were primarily incurred during the 2008-2009 recession in connection with the sale of performing syndicated loans at a realized loss to pay off a former lender. The successful exits, in part, enabled us to increase the monthly distribution by 87.5% from March 2011 through December 31, 2021, and allowed us to declare and pay 14 supplemental distributions to common stockholders through December 31, 2021.

Capital Raising Efforts

We have been able to meet our capital needs through extensions of and increases to the Fifth Amended and Restated Credit Agreement dated April 30, 2013, as amended from time to time (the “Credit Facility”), and by accessing the capital markets in the form of public offerings of common and preferred stock and unsecured notes. We have successfully extended the Credit Facility’s revolving period multiple times, most recently to February 2024, and currently have a total commitment amount of $180.0 million (with a potential total commitment of $300.0 million through additional commitments from new or existing lenders). During the nine months ended December 31, 2021, we issued our 2028 Notes for gross proceeds of $134.6 million. During the year ended March 31, 2021, we issued our 2026 Notes for gross proceeds of $127.9 million and sold 155,560 shares of our common stock under our then existing at-the-market program (the “Common Stock ATM Program”) for gross proceeds of approximately $1.8 million, and 784,853 shares of our Series E Term Preferred Stock under our then existing preferred stock at-the-market program (the “Series E ATM Program”) for gross proceeds of approximately $19.3 million. Refer to “Liquidity and Capital Resources — Revolving Line of Credit” for further discussion of the Credit Facility and to “Liquidity and Capital Resources — Equity — Common Stock” and “Liquidity and Capital Resources — Equity — Term Preferred Stock” for further discussion of our common stock and mandatorily redeemable preferred stock, including our at-the-market programs.

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Although we have been able to access the capital markets historically, market conditions, including the impact of COVID-19, may continue to affect the trading price of our common stock and thus our ability to finance new investments through the issuance of common equity. On December 31, 2021, the closing market price of our common stock was $17.08 per share, representing a 28.7% premium to our net asset value (“NAV”) of $13.27 per share as of December 31, 2021. When our common stock trades below NAV, our ability to issue additional equity is constrained by provisions of the 1940 Act, which generally prohibits the issuance and sale of our common stock at an issuance price below the then-current NAV per share without stockholder approval, other than through sales to our then-existing stockholders pursuant to a rights offering.

Regulatory Compliance

Our ability to seek external debt financing, to the extent that it is available under current market conditions, is further subject to the asset coverage limitations of the 1940 Act, which require us to have asset coverage (as defined in Sections 18 and 61 of the 1940 Act), of at least 150% on each of our senior securities representing indebtedness and our senior securities that are stock (such as our previously outstanding series of term preferred stock).

On April 10, 2018, our Board of Directors, including a “required majority” (as such term is defined in Section 57(o) of the 1940 Act) thereof, approved the modified asset coverage requirements set forth in Section 61(a)(2) of the 1940 Act. As a result, our asset coverage requirements for senior securities changed from 200% to 150%, effective as of April 10, 2019, one year after the date of the Board of Directors’ approval.

As of December 31, 2021, our asset coverage ratio on our senior securities representing indebtedness was 259.5%.

Investment Highlights

Investment Activity

During the nine months ended December 31, 2021, the following significant transactions occurred:

•In May 2021, we dissolved our investment in Channel Technologies Group, LLC (“CTG”) and recorded a realized loss of $1.8 million.

•In June 2021, we invested an additional $6.5 million in J.R. Hobbs Co. – Atlanta, LLC (“J.R. Hobbs”) in the form of secured second lien debt. In connection with the investment, our secured second lien debt was converted to secured first lien debt.

•In July 2021, we invested an additional $5.9 million in the form of secured first lien debt in Nocturne.

•In September 2021, one of our portfolio companies, D.P.M.S., Inc. (“Danco”), merged with another of our portfolio companies, Galaxy Technologies, Inc. (“Galaxy”), into a newly formed portfolio company, Galaxy Technologies Holdings, Inc. (“Galaxy Technologies Holdings”). Our debt investments in Danco, which totaled $12.3 million at principal and cost, and Galaxy, which totaled $13.0 million at principal and cost, were converted into two second lien term loans with an aggregate cost and principal of $25.3 million to Galaxy Technologies Holdings. Our common equity investment in Danco, with a cost basis of $0.0 million, and our preferred and common equity investments in Galaxy, with an aggregate cost basis of $11.5 million, were converted into a common equity investment in Galaxy Technologies Holdings with a combined cost basis of $11.5 million.

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•In October 2021, we invested an additional $10.5 million in Bassett Creek Services, Inc., in the form of secured first lien debt.

•In December 2021, we invested an additional $19.0 million in the form of secured first lien debt in Nocturne.

•In December 2021, we invested an additional $6.4 million in the form of secured first lien debt in Schylling, Inc.

•In December 2021, we sold our investment in Pioneer Square Brands, Inc. (“Pioneer”), which resulted in success fee income of $0.5 million and a realized gain of $21.9 million. In connection with the sale, we received net cash proceeds of $50.6 million, including the repayment of our debt investment of $23.1 million at par.

•In December 2021, we sold our investment in SOG Specialty Knives & Tools, LLC (“SOG”), which resulted in success fee income of $2.9 million. In connection with the sale, we received net cash proceeds of $23.3 million, including the repayment of our debt investment of $8.9 million at par, and retained a common stock investment in the intermediary entity, Gladstone SOG Investments, Inc., which maintains a cost basis of $0.6 million.

The following significant investment activity occurred subsequent to December 31, 2021. Also refer to Note 13 – Subsequent Events in the accompanying Notes to Consolidated Financial Statements.

Recent Developments

Distributions and Dividends

In January 2022, our Board of Directors declared the following monthly and supplemental cash distributions to common stockholders:

Record Date

Payment Date

Distribution per
Common Share

January 21, 2022

January 31, 2022

0.075

February 4, 2022

February 14, 2022

0.120

(A)

February 18, 2022

February 28, 2022

0.075

March 23, 2022

March 31, 2022

0.075

Total for the Quarter:

0.345

(A)Represents a supplemental distribution to common stockholders.

LIBOR Transition

In general, our investments in debt securities have a term of five years, accrue interest at variable rates (based on the one-month London Interbank Offered Rate (“LIBOR”)) and, to a lesser extent, at fixed rates. Most U.S. dollar LIBOR are currently anticipated to be phased out in June 2023. LIBOR may transition to a new standard rate, the Secured Overnight Financing Rate (“SOFR”), which will incorporate certain overnight repo market data collected from multiple data sets. To attain an equivalent one-month rate, we currently intend to adjust the SOFR to minimize the difference between the interest that a borrower would be paying using LIBOR versus what it will be paying using SOFR. We are currently monitoring the transition and cannot assure you whether SOFR will become a standard rate for variable rate debt. We have amended all outstanding loan agreements with our portfolio companies to include fallback language providing a mechanism for the parties to negotiate a new reference interest rate in the event that LIBOR ceases to exist. Assuming that SOFR replaces LIBOR and is appropriately adjusted to equate to one-month LIBOR, we expect that there should be minimal impact on our operations.

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COVID-19 Impact

We continue to closely monitor and work with our portfolio companies to navigate the significant challenges created by the continuing COVID-19 pandemic and remain focused on ensuring the safety of the Adviser’s and Administrator’s personnel and of the employees of our portfolio companies, while also managing our ongoing business activities. While we are closely monitoring all of our portfolio companies, our portfolio continues to be diverse from a geographic and industry perspective. Through proactive measures and continued diligence, the management teams of our portfolio companies continue to demonstrate their ability to respond effectively and efficiently to the challenges posed by COVID-19, including its variants, related orders imposed by state and local governments, including paused or reversed reopening orders, and operating challenges, including but not limited to, labor shortages, supply chain delays and increased material costs. We believe we have sufficient levels of liquidity to support our existing portfolio companies, as necessary, and continue our buyout strategy by deploying capital in new investment opportunities.

RESULTS OF OPERATIONS

Comparison of the Three Months Ended December 31, 2021 to the Three Months Ended December 31, 2020


	For the Three Months Ended December 31,
	2021		2020		$ Change		% Change
INVESTMENT INCOME
Interest income	$	13,344	$	12,148	$	1,196	9.8	%
Dividend and success fee income	3,398		5,224		(1,826)		(35.0)	%
Total investment income	16,742		17,372		(630)		(3.6)	%

EXPENSES
Base management fee	3,630		3,116		514		16.5	%
Loan servicing fee	1,768		1,786		(18)		(1.0)	%
Incentive fee	2,587		3,756		(1,169)		(31.1)	%
Administration fee	437		382		55		14.4	%
Interest and dividend expense	3,918		3,383		535		15.8	%
Amortization of deferred financing costs and discounts	447		451		(4)		(0.9)	%
Other	1,006		818		188		23.0	%
Expenses before credits from Adviser	13,793		13,692		101		0.7	%
Credits to fees from Adviser	(5,450)		(2,575)		(2,875)		111.7	%
Total expenses, net of credits to fees	8,343		11,117		(2,774)		(25.0)	%
NET INVESTMENT INCOME	8,399		6,255		2,144		34.3	%

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on investments	22,049		9,105		12,944		142.2	%
Net unrealized depreciation of investments	(20,102)		(89)		(20,013)		NM
Net realized and unrealized gain (loss)	1,947		9,016		(7,069)		NM

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	10,346	$	15,271	$	(4,925)	(32.3)	%

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Basic and diluted	33,205,023		33,205,023		—		—

BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.25	$	0.19	$	0.06	31.6	%
Net increase in net assets resulting from operations	$	0.31	$	0.46	$	(0.15)	(32.6)	%

NM = Not Meaningful

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Investment Income

Total investment income decreased 3.6% for the three months ended December 31, 2021, as compared to the prior year period, due to a decrease in dividend and success fee income, partially offset by an increase in interest income.

Interest income from our investments in debt securities increased 9.8% for the three months ended December 31, 2021, as compared to the prior year period. Generally, the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period multiplied by the weighted-average yield. The weighted-average principal balance of our interest-bearing investment portfolio during the three months ended December 31, 2021 was $443.6 million, compared to $404.0 million for the prior year period. This increase was primarily due to the $79.5 million of loans returned to accrual status, the origination of $21.6 million of new debt investments, and $58.3 million of follow-on debt investments to existing portfolio companies, partially offset by $64.2 million of loans placed on non-accrual status and $35.3 million of pay-offs, restructurings, or write-offs of debt investments after September 30, 2020, and their respective impact on the weighted-average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable. The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend and success fee income, was 11.9% for the three months ended December 31, 2021, compared to 11.9% for the prior year period. The weighted-average yield may vary from period to period, based on the current stated interest rate on interest-bearing investments.

As of December 31, 2021, our loans to J.R. Hobbs, The Mountain Corporation (“The Mountain”), and SBS were on non-accrual status, with an aggregate debt cost basis of $81.3 million. As of December 31, 2020, our loans to B+T Group Acquisition, Inc. (“B+T”), Horizon Facilities Services, Inc. (“Horizon”), The Mountain, PSI Molded Plastics, Inc. (“PSI Molded”), and SOG, were on non-accrual status, with an aggregate debt cost basis of $95.1 million.

Dividend and success fee income for the three months ended December 31, 2021 decreased $1.8 million from the prior year period. During the three months ended December 31, 2021, dividend and success fee income consisted of $3.4 million of success fee income. During the three months ended December 31, 2020, dividend and success fee income consisted primarily of $5.0 million of dividend income.

As of December 31, 2021 and March 31, 2021, no single investment represented greater than 10% of the total investment portfolio at fair value.

Expenses

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased 25.0% during the three months ended December 31, 2021, as compared to the prior year period, primarily due to an increase in credits to fees from the Adviser and a decrease in the incentive fee, partially offset by increases in interest and dividend expense and the base management fee.

In accordance with GAAP, we recorded a $0.4 million capital gains-based incentive fee during the three months ended December 31, 2021, compared to $1.8 million during the three months ended December 31, 2020. The capital gains-based incentive fee was a result of the net impact of net realized gains and net unrealized appreciation (depreciation) on investments during the respective periods. The income-based incentive fee increased by $0.2 million for the three months ended December 31, 2021, as compared to the prior year period, primarily due to an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.

The base management fee, loan servicing fee, incentive fee, and their related non-contractual, unconditional, and irrevocable credits are computed quarterly, as described under “Transactions with the Adviser” in Note 4 — Related Party Transactions in the accompanying Notes to Consolidated Financial Statements and are summarized in the following table:

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	Three Months Ended December 31,
	2021			2020
Average total assets subject to base management fee(A)	$	726,000		$	623,200
Multiplied by prorated annual base management fee of 2.0%	0.5		%	0.5		%
Base management fee(B)	$	3,630		$	3,116
Credits to fees from Adviser - other(B)	(3,682)			(789)
Net base management fee	$	(52)		$	2,327

Loan servicing fee(B)	$	1,768		$	1,786
Credits to base management fee - loan servicing fee(B)	(1,768)			(1,786)
Net loan servicing fee	$	—		$	—

Incentive fee – income-based	$	2,197		$	2,002
Incentive fee – capital gains-based(C)	390			1,754
Total incentive fee(B)	$	2,587		$	3,756
Credits to fees from Adviser - other(B)	—			—
Net total incentive fee	$	2,587		$	3,756

(B)Reflected as a line item on our Consolidated Statements of Operations.

(C)The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Interest and dividend expense increased 15.8% during the three months ended December 31, 2021, as compared to the prior year period, due to an increase in interest expense, partially offset by a decrease in dividend expense. Interest expense increased by $2.8 million primarily due to the issuance of the 2026 Notes in March 2021 and the 2028 Notes in August 2021, which was partially offset by lower interest expense related to the Credit Facility. The weighted-average balance outstanding on the Credit Facility during the three months ended December 31, 2021 was $21.2 million, as compared to $104.8 million in the prior year period. The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the three months ended December 31, 2021 was 11.1%, as compared to 3.8% in the prior year period. The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in unused commitment fees on the undrawn portion of the Credit Facility. Dividend expense decreased by $2.3 million as a result of the 6.25% Series D Cumulative Term Preferred Stock (“Series D Term Preferred Stock”) and 6.375% Series E Cumulative Term Preferred Stock (“Series E Term Preferred Stock”) redemptions in March 2021 and August 2021, respectively, partially offset by the Series E ATM Program sales during the prior fiscal year.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended December 31, 2021 and 2020 were as follows:

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	Three Months Ended December 31, 2021
Portfolio Company	Realized Gain (Loss)		Unrealized Appreciation (Depreciation)		Reversal of Unrealized (Appreciation) Depreciation		Net Gain (Loss)
Brunswick Bowling Products, Inc.	$	—	$	10,344	$	—	$	10,344
Horizon Facilities Service, Inc.	—		5,129		—		5,129
Schylling, Inc.	—		2,931		—		2,931
ImageWorks Display and Marketing Group, Inc.	—		1,019		—		1,019
The Maids International, LLC	—		(1,216)		—		(1,216)
J.R. Hobbs Co. – Atlanta, LLC	—		(1,575)		—		(1,575)
Mason West, LLC	—		(3,390)		—		(3,390)
Pioneer Square Brands, Inc.	21,939		—		(25,425)		(3,486)
Counsel Press, Inc.	—		(3,679)		—		(3,679)
Galaxy Technologies Holdings, Inc.	—		(4,464)		—		(4,464)
Other, net (<$1.0 million, net)	110		224		—		334
Total	$	22,049	$	5,323	$	(25,425)	$	1,947


	Three Months Ended December 31, 2020
Portfolio Company	Realized Gain (Loss)		Unrealized Appreciation (Depreciation)		Reversal of Unrealized (Appreciation) Depreciation		Net Gain (Loss)
Pioneer Square Brands, Inc.	$	—	$	4,420	$	—	$	4,420
Educators Resource, Inc.	—		3,488		—		3,488
Old World Christmas, Inc.	3,289		27		—		3,316
Diligent Delivery Systems	—		2,961		—		2,961
Frontier Packaging, Inc.	14,032		—		(11,869)		2,163
SOG Specialty Knives and Tools, LLC	—		1,806		—		1,806
Schylling, Inc.	—		1,138		—		1,138
Head Country, Inc.	—		916		—		916
Horizon Facilities Service, Inc.	—		909		—		909
The Maids International, LLC	—		495		—		495
Ginsey Home Solutions, Inc.	—		480		—		480
Bassett Creek Services, Inc.	—		469		—		469
PSI Molded Plastics, Inc.	—		459		—		459
ImageWorks Display and Marketing Group, Inc.	—		(1,411)		—		(1,411)
D.P.M.S., Inc.	—		(1,805)		—		(1,805)
Brunswick Bowling Products, Inc.	—		(4,825)		—		(4,825)
SBS Industries Holdings, Inc.	(8,470)		1,580		—		(6,890)
Other, net (<$1.0 million, net)	254		673		—		927
Total	$	9,105	$	11,780	$	(11,869)	$	9,016

Net Realized Gain (Loss) on Investments

During the three months ended December 31, 2021, we recorded net realized gains on investments of $22.0 million, primarily due to a $21.9 million realized gain from the exit of Pioneer and realized gains related to prior period exits of certain investments. During the three months ended December 31, 2020, we recorded net realized gains on investments of $9.1 million primarily related to a $14.0 million realized gain from the exit of Frontier Packaging, Inc. ("Frontier") and a $3.3 million realized gain from the recapitalization of Old World Christmas, Inc. ("Old World"), partially offset by an $8.5 million realized loss related to the partial write-off of a debt investment in SBS.

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Net Unrealized Appreciation (Depreciation) of Investments

Net unrealized depreciation of investments of $20.1 million for the three months ended December 31, 2021 was primarily due to the reversal of previously recorded unrealized appreciation of our investment in Pioneer upon its exit and the decreased performance of certain of our portfolio companies. These amounts were partially offset by the increased performance of certain of our other portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate, and increased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies. In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

Net unrealized depreciation of investments of $0.1 million for the three months ended December 31, 2020 was primarily due to the reversal of previously recorded unrealized appreciation of our investment in Frontier upon its exit and the decreased performance of certain of our portfolio companies, partially offset by the increased performance of certain of our portfolio companies. In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.

Across our entire investment portfolio, we recorded net unrealized depreciation of $1.9 million and $18.2 million on our debt and on our equity positions, respectively, for the three months ended December 31, 2021. As of December 31, 2021, the fair value of our investment portfolio was more than the cost basis by $25.2 million, as compared to September 30, 2021, when the fair value of our investment portfolio was more than the cost basis by $45.3 million, representing net unrealized depreciation of $20.1 million for the three months ended December 31, 2021. Our entire portfolio had a fair value of 103.7% of cost as of December 31, 2021.

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Comparison of the Nine Months Ended December 31, 2021 to the Nine Months Ended December 31, 2020


	For the Nine Months Ended December 31,
	2021		2020		$ Change		% Change
INVESTMENT INCOME
Interest income	$	43,634	$	34,513	$	9,121	26.4	%
Dividend and success fee income	9,672		5,406		4,266		78.9	%
Total investment income	53,306		39,919		13,387		33.5	%

EXPENSES
Base management fee	10,527		8,961		1,566		17.5	%
Loan servicing fee	5,430		5,242		188		3.6	%
Incentive fee	22,186		3,454		18,732		NM
Administration fee	1,407		1,218		189		15.5	%
Interest and dividend expense	11,606		9,615		1,991		20.7	%
Amortization of deferred financing costs and discounts	1,355		1,291		64		5.0	%
Other	3,828		3,178		650		20.5	%
Expenses before credits from Adviser	56,339		32,959		23,380		70.9	%
Credits to fees from Adviser	(11,293)		(7,836)		(3,457)		44.1	%
Total expenses, net of credits to fees	45,046		25,123		19,923		79.3	%
NET INVESTMENT INCOME	8,260		14,796		(6,536)		(44.2	%)

REALIZED AND UNREALIZED GAIN (LOSS)
Net realized gain on investments	24,442		10,479		13,963		133.2	%
Net realized loss on other	(1,998)		—		(1,998)		NM
Net unrealized appreciation (depreciation) of investments	54,916		(3,335)		58,251		NM
Net realized and unrealized gain (loss)	77,360		7,144		70,216		NM

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS	$	85,620	$	21,940	$	63,680	290.2	%

WEIGHTED-AVERAGE SHARES OF COMMON STOCK OUTSTANDING
Basic and diluted	33,205,023		33,167,511		37,512		0.1	%

BASIC AND DILUTED PER COMMON SHARE:
Net investment income	$	0.25	$	0.45	$	(0.20)	(44.4	%)
Net increase in net assets resulting from operations	$	2.58	$	0.66	$	1.92	NM

NM = Not Meaningful

Investment Income

Total investment income increased 33.5% for the nine months ended December 31, 2021, as compared to the prior year period, due to increases in both interest income and dividend and success fee income.

Interest income from our investments in debt securities increased 26.4% for the nine months ended December 31, 2021, as compared to the prior year period. During the nine months ended December 31, 2021, we received $3.9 million of past due interest from certain loans that were previously on non-accrual status. Generally, the level of interest income from investments is directly related to the principal balance of our interest-bearing investment portfolio outstanding during the period, multiplied by the weighted-average yield. The weighted-average principal balance of our interest-bearing investment portfolio during the nine months ended December 31, 2021 was $444.9 million, compared to $383.7 million for the prior year period. This increase was primarily due to $79.5 million of loans returned to accrual status, $59.2 million of follow-on debt investments to existing portfolio companies, and the origination of $54.2 million of new debt investments, partially offset by $64.2 million of loans placed on non-accrual status and $43.3 million of pay-offs, restructurings, or write-offs of debt investments after March 31, 2020, and their respective impact on the weighted-

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average principal balance when considering timing of new investments, pay-offs, restructurings, write-offs, and accrual status changes, as applicable. The weighted-average yield on our interest-bearing investments, excluding cash and cash equivalents and receipts recorded as dividend, success fee, and other income, was 13.0% for the nine months ended December 31, 2021, compared to 11.9% for the prior year period. The weighted-average yield may vary from period to period, based on the current stated interest rate on interest-bearing investments.

As of December 31, 2021, our loans to J.R. Hobbs, The Mountain, and SBS were on non-accrual status, with an aggregate debt cost basis of $81.3 million. As of December 31, 2020, our loans to B+T, Horizon, The Mountain, PSI Molded, and SOG were on non-accrual status, with an aggregate debt cost basis of $95.1 million.

Dividend and success fee income for the nine months ended December 31, 2021 increased by $4.3 million from the prior year period. During the nine months ended December 31, 2021, dividend and success fee income consisted of $8.1 million of success fee income and $1.6 million of dividend income. During the nine months ended December 31, 2020, dividend and success fee income consisted of $5.0 million of dividend income and $0.4 million of success fee income.

As of December 31, 2021 and March 31, 2021, no single investment represented greater than 10% of the total investment portfolio at fair value.

Expenses

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, increased 79.3% during the nine months ended December 31, 2021, as compared to the prior year period, primarily due to an increase in the incentive fee, as well as increases in interest and dividend expense and the base management fee, partially offset by an increase in credits to fees from the Adviser.

In accordance with GAAP, we recorded a $16.3 million capital gains-based incentive fee during the nine months ended December 31, 2021, compared to $1.5 million during the nine months ended December 31, 2020. The capital gains-based incentive fee was a result of the net impact of net realized gains (losses) and net unrealized appreciation (depreciation) on investments during the respective periods. The income-based incentive fee increased by $3.9 million for the nine months ended December 31, 2021, as compared to the prior year period, primarily due an increase in pre-incentive fee net investment income, coupled with an increase in net assets, which drives the hurdle rate.


	Nine Months Ended December 31,
	2021			2020
Average total assets subject to base management fee(A)	$	701,800		$	597,400
Multiplied by prorated annual base management fee of 2.0%	1.5		%	1.5		%
Base management fee(B)	10,527			8,961
Credits to fees from Adviser - other(B)	(5,863)			(2,594)
Net base management fee	$	4,664		$	6,367

Loan servicing fee(B)	5,430			5,242
Credits to base management fee - loan servicing fee(B)	(5,430)			(5,242)
Net loan servicing fee	$	—		$	—

Incentive fee – income-based	$	5,892		$	2,002
Incentive fee – capital gains-based(C)	16,294			1,452
Total incentive fee(B)	$	22,186		$	3,454
Credits to fees from Adviser - other(B)	—			—
Net total incentive fee	$	22,186		$	3,454

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(B)Reflected as a line item on our Consolidated Statements of Operations.

(C)The capital gains-based incentive fees are recorded in accordance with GAAP and do not necessarily reflect amounts contractually due under the terms of the Advisory Agreement.

Interest and dividend expense increased 20.7% during the nine months ended December 31, 2021, as compared to the prior year period, primarily due to the increase in interest expense, partially offset by a decrease in dividend expense. Interest expense increased by $6.2 million primarily due to the issuance of the 2026 Notes in March 2021 and the 2028 Notes in August 2021, which was partially offset by lower interest expense related to the Credit Facility. The weighted-average balance outstanding on the Credit Facility during the nine months ended December 31, 2021 was $24.0 million, as compared to $88.7 million in the prior year period. The effective interest rate on the Credit Facility, excluding the impact of deferred financing costs, during the nine months ended December 31, 2021 was 10.1%, as compared to 4.2% in the prior year period. The increase in the effective interest rate on the Credit Facility was primarily a result of an increase in unused commitment fees on the undrawn portion of the Credit Facility. Dividend expense decreased by $4.2 million as a result of the Series D Term Preferred Stock and Series E Term Preferred Stock redemptions in March 2021 and August 2021, respectively, partially offset by the Series E ATM Program sales during the prior fiscal year.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the nine months ended December 31, 2021 and 2020 were as follows:


	Nine Months Ended December 31, 2021
Portfolio Company	Realized Gain (Loss)		Unrealized Appreciation (Depreciation)		Reversal of Unrealized (Appreciation) Depreciation		Net Gain (Loss)
B+T Group Acquisition, Inc.	$	—	$	15,279	$	—	$	15,279
Brunswick Bowling Products, Inc.	—		13,842		—		13,842
Old World Christmas, Inc.	—		13,559		—		13,559
Schylling, Inc.	—		13,453		—		13,453
Horizon Facilities Service, Inc.	—		11,547		—		11,547
Educators Resource, Inc.	—		8,876		—		8,876
Bassett Creek Services, Inc.	—		7,877		—		7,877
SOG Specialty Knives & Tools, LLC	—		7,575		—		7,575
ImageWorks Display and Marketing Group, Inc.	—		6,321		—		6,321
PSI Molded Plastics, Inc.	—		3,633		—		3,633
Counsel Press, Inc.	—		3,366		—		3,366
Nocturne Villa Rentals, Inc.	—		1,504		—		1,504
Galaxy Technologies Holdings, Inc.	—		1,404		—		1,404
Head Country, Inc.	3,627		—		(2,469)		1,158
Channel Technologies Group, LLC	(1,841)		—		1,841		—
Diligent Delivery Systems	—		(903)		—		(903)
Mason West, LLC	—		(2,217)		—		(2,217)
SBS Industries Holdings, Inc.	—		(3,314)		—		(3,314)
Ginsey Home Solutions, Inc.	—		(4,012)		—		(4,012)
J.R. Hobbs Co. – Atlanta, LLC	—		(4,085)		—		(4,085)
Pioneer Square Brands, Inc.	21,939		(1,245)		(25,425)		(4,731)
Galaxy Technologies Holdings, Inc.	—		(10,784)		—		(10,784)
Other, net (<$1.0 million, net)	717		(759)		52		10
Total	$	24,442	$	80,917	$	(26,001)	$	79,358

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	Nine Months Ended December 31, 2020
Portfolio Company	Realized Gain (Loss)		Unrealized Appreciation (Depreciation)		Reversal of Unrealized (Appreciation) Depreciation		Net Gain (Loss)
Pioneer Square Brands, Inc.	$	—	$	20,635	$	—	$	20,635
Frontier Packaging, Inc.	14,032		2,534		(11,869)		4,697
Ginsey Home Solutions, Inc.	—		4,151		—		4,151
SOG Specialty Knives and Tools, LLC	—		3,964		—		3,964
Educators Resource, Inc.	—		3,335		—		3,335
Old World Christmas, Inc.	3,289		37		—		3,326
Diligent Delivery Systems	—		2,409		—		2,409
Galaxy Technologies, Inc.	—		2,173		—		2,173
Head Country, Inc.	—		1,762		—		1,762
Schylling, Inc.	—		1,069		—		1,069
Cambridge Sound Management, Inc.	740		—		—		740
ImageWorks Display and Marketing Group, Inc.	—		(1,312)		—		(1,312)
Bassett Creek Services, Inc.	—		(1,359)		—		(1,359)
Counsel Press, Inc.	—		(1,850)		—		(1,850)
Nth Degree, Inc.	113		(3,649)		—		(3,536)
PSI Molded Plastics, Inc.	—		(3,755)		—		(3,755)
D.P.M.S., Inc.	—		(4,442)		—		(4,442)
SBS Industries Holdings, Inc.	(8,470)		1,580		—		(6,890)
Brunswick Bowling Products, Inc.	—		(18,048)		—		(18,048)
Other, net (<$1.0 million, net)	775		(700)		—		75
Total	$	10,479	$	8,534	$	(11,869)	$	7,144

Net Realized Gain on Investments

During the nine months ended December 31, 2021, we recorded net realized gains on investments of $24.4 million, primarily due to a $21.9 million realized gain from the exit of Pioneer, a $3.6 million realized gain from the exit of Head Country and $0.7 million realized gains related to prior period exits, partially offset by a $1.8 million realized loss from the dissolution of CTG. During the nine months ended December 31, 2020, we recorded net realized gains on investments of $10.5 million, primarily related to a $14.0 million realized gain from the exit of Frontier, a $3.3 million realized gain from the recapitalization of Old World, and gains from previous exits, partially offset by an $8.5 million realized loss related to the partial write-off of a debt investment in SBS.

Net Unrealized Appreciation (Depreciation) of Investments

Net unrealized appreciation of investments of $54.9 million for the nine months ended December 31, 2021 was primarily due to increased performance of certain of our portfolio companies, driven partially by the reversal of the impact of COVID-19 on certain of our portfolio companies and the markets in which they operate, increased comparable multiples used to estimate the fair value of certain of our portfolio companies and the reversal of previously recorded unrealized depreciation of our investments in CTG upon its dissolution. These amounts were partially offset by the reversal of previously recorded unrealized appreciation of our investment in Pioneer and Head Country upon exit and the decreased performance of certain of our portfolio companies. In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, operating challenges, including but not limited to, labor shortages, supply chain delays, increased material costs and demand for their products, and general economic outlook, or the reversal of such impact towards pre-COVID-19 levels.

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Net unrealized depreciation of investments of $3.3 million for the nine months ended December 31, 2020 was primarily due to the reversal of previously recorded unrealized appreciation of our investment in Frontier upon its exit, the decreased performance of certain of our portfolio companies and decreased comparable transaction multiples used to estimate the fair value of certain of our portfolio companies, partially offset by increased performance of certain of our portfolio companies. In part, the performance of certain of our portfolio companies was driven by the impact COVID-19 has had or is expected to have on our portfolio companies and the markets in which they operate, including government restrictions on the portfolio companies’ ability to operate under historical conditions, current and future shutdowns and reopening restrictions, as well as demand for their products and general economic outlook.

Across our entire investment portfolio, we recorded net unrealized appreciation of $5.5 million and $49.4 million on our debt and on our equity positions, respectively, for the nine months ended December 31, 2021. As of December 31, 2021, the fair value of our investment portfolio was more than the cost basis by $25.2 million, as compared to March 31, 2021, when the fair value of our investment portfolio was less than the cost basis by $29.7 million, representing net unrealized appreciation of $54.9 million for the nine months ended December 31, 2021. Our entire portfolio had a fair value of 103.7% of cost as of December 31, 2021.

Net Realized Gain (Loss) on Other

During the nine months ended December 31, 2021, we recorded a net realized loss on other of $2.0 million which primarily related to unamortized deferred issuance costs written off upon the redemption of our Series E Term Preferred Stock in August 2021. During the nine months ended December 31, 2020, there were no realized gains or losses on other.

LIQUIDITY AND CAPITAL RESOURCES

Operating Activities

Net cash provided by operating activities for the nine months ended December 31, 2021 was $39.3 million, as compared to net cash used in operating activities of $32.6 million for the nine months ended December 31, 2020. This change was primarily due to an increase in principal repayments of investments and net proceeds from the sale of investments.

Principal repayments and net proceeds from the sale of investments totaled $96.9 million during the nine months ended December 31, 2021, compared to $51.2 million during the nine months ended December 31, 2020. Purchases of investments were $84.6 million during the nine months ended December 31, 2021, compared to $89.6 million during the nine months ended December 31, 2020.

As of December 31, 2021, we had equity investments in or loans to 26 portfolio companies with an aggregate cost basis of $675.6 million. As of December 31, 2020, we had equity investments in or loans to 28 portfolio companies with an aggregate cost basis of $657.9 million.

The following table summarizes our total portfolio investment activity during the nine months ended December 31, 2021 and 2020:


	Nine Months Ended December 31,
	2021		2020
Beginning investment portfolio, at fair value	$	633,829	$	565,924
New investments	34,200		46,902
Disbursements to existing portfolio companies	50,350		42,669
Unscheduled principal repayments	(46,898)		(20,734)
Net proceeds from sales of investments	(49,421)		(29,410)
Net realized gain on investments	23,748		8,858
Net unrealized appreciation (depreciation) of investments	80,917		8,534
Reversal of net unrealized appreciation of investments	(26,001)		(11,869)
Amortization of premiums, discounts, and acquisition costs, net	14		14
Ending investment portfolio, at fair value	$	700,738	$	610,888

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The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of December 31, 2021:


		Amount
For the remaining three months ending March 31:	2022	$	4,000
For the fiscal years ending March 31:	2023	90,950
	2024	96,168
	2025	204,187
	2026	52,250
	Thereafter	71,246
	Total contractual repayments	$	518,801
	Adjustments to cost basis of debt investments	(17)
	Investments in equity securities	156,772
	Total cost basis of investments held as of December 31, 2021:	$	675,556

Financing Activities

Net cash used in financing activities for the nine months ended December 31, 2021 was $13.0 million, which consisted primarily of the redemption of our Series E Term Preferred Stock of $94.4 million, $27.4 million in distributions to common stockholders, $22.4 million of net repayments under the Credit Facility and $3.4 million of deferred financing and offering costs, partially offset by $134.6 million in gross proceeds from the issuance of our 2028 Notes.

Net cash provided by financing activities for the nine months ended December 31, 2020 was $31.2 million, which consisted primarily of $34.8 million of net borrowings under the Credit Facility, $19.3 million of gross proceeds from the issuance of mandatorily redeemable preferred stock under the then existing Series E ATM Program, and $1.7 million of gross proceeds from the issuance of common stock under the then existing Common Stock ATM Program, partially offset by $23.9 million in distributions to common stockholders.

Distributions and Dividends to Stockholders

Common Stock Distributions

To qualify to be taxed as a RIC and thus avoid corporate level federal income tax on the income we distribute to our stockholders, we are required, among other requirements, to distribute to our stockholders on an annual basis at least 90% of our taxable ordinary income plus the excess of our net short-term capital gains over net long-term capital losses (“Investment Company Taxable Income”), determined without regard to the dividends paid deduction. Additionally, the Credit Facility generally restricts the amount of distributions to stockholders that we can pay out to be no greater than the sum of certain amounts, including our net investment income, plus net capital gains, plus amounts elected by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code. In accordance with these requirements, our Board of Directors declared, and we paid, monthly cash distributions of $0.07 per common share for each of the six months from April through September 2021, monthly cash distributions of $0.075 per common share for each of the three months from October through December 2021, and supplemental distributions of $0.06, $0.03, and $0.09 per common share in June, September, and December 2021, respectively. See also “Recent Developments - Distributions and Dividends” for a discussion of cash distributions to common stockholders declared by our Board of Directors in January 2022.

For the fiscal year ended March 31, 2021, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $16.1 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year. In addition, for the fiscal year ended March 31, 2021, net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $8.5 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year. For the year ended March 31, 2021, we recorded $2.0 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and Accumulated net realized gain in excess of distributions and increased Underdistributed net investment income. For the nine months ended December 31, 2021, we recorded $2.8 million of net adjustments for estimated permanent book-tax differences to reflect tax character, which

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decreased Capital in excess of par value and Overdistributed net investment income and increased Accumulated net realized gain in excess of distributions.

Preferred Stock Dividends

Our Board of Directors declared and we paid monthly cash dividends of $0.1328125 per share to holders of our Series E Term Preferred Stock per month from April through July 2021 and $0.07968750 per share of our Series E Term Preferred Stock for the period from August 1, 2021 up to, but excluding, the redemption date of August 19, 2021. In accordance with GAAP, we treat these monthly dividends as an operating expense.

Dividend Reinvestment Plan

Our common stockholders who hold their shares through our transfer agent, Computershare, Inc. (“Computershare”), have the option to participate in a dividend reinvestment plan offered by Computershare, as the plan agent. This is an “opt in” dividend reinvestment plan, meaning that common stockholders may elect to have their cash distributions automatically reinvested in additional shares of our common stock. Common stockholders who do not make such election will receive their distributions in cash. Any distributions reinvested under the plan will be taxable to a common stockholder to the same extent, and with the same character, as if the common stockholder had received the distribution in cash. The common stockholder generally will have an adjusted basis in the additional common shares purchased through the plan equal to the dollar amount that would have been received if the U.S. stockholder had received the dividend or distribution in cash. The additional common shares will have a new holding period commencing on the day following the date on which the shares are credited to the common stockholder’s account. Computershare purchases shares in the open market in connection with the obligations under the plan. The Computershare dividend reinvestment plan is not open to holders of our preferred stock.

Equity

Registration Statement

On September 3, 2021, we filed a registration statement on Form N-2 (File No. 333-259302), which the SEC declared effective on October 15, 2021. The registration statement permits us to issue, through one or more transactions, up to an aggregate of $300.0 million in securities, consisting of common stock, preferred stock, subscription rights, debt securities, and warrants to purchase common stock, preferred stock, or debt securities, including through concurrent, separate offerings of such securities. As of the date of this report, we have the ability to issue up to $300.0 million of the securities registered under the registration statement.

Common Stock

In December 2019, we entered into equity distribution agreements with Wedbush Securities, Inc., Cantor Fitzgerald & Co., and Ladenburg Thalmann & Co., Inc. (each, a “Common Stock ATM Sales Agent”), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Common Stock ATM Sales Agents, up to an aggregate offering price of $35.0 million in the Common Stock ATM Program. On August 11, 2021, we terminated the equity distribution agreements with each of the Common Stock ATM Sales Agents.

We did not sell any shares of our common stock under the Common Stock ATM Program during the nine months ended December 31, 2021. During the year ended March 31, 2021, we sold 155,560 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $11.39 per share and raised approximately $1.8 million of gross proceeds. The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $11.17 and resulted in total net proceeds of approximately $1.7 million. These sales were above our then current estimated NAV per share.

We anticipate issuing equity securities to obtain additional capital in the future. However, we cannot determine the timing or terms of any future equity issuances or whether we will be able to issue equity on terms favorable to us, or at all. When our common stock is trading at a price below NAV per share, the 1940 Act places regulatory constraints on our ability to obtain additional capital by issuing common stock. Generally, the 1940 Act provides that we may not issue and sell our common stock at a price below our NAV per common share, other than to our then-existing common stockholders pursuant to a rights offering, without first obtaining approval from our stockholders and our independent directors and meeting other stated requirements. On December 31, 2021, the closing market price of our common stock was $17.08 per share, representing a 28.7% premium to our NAV per share of $13.27 as of December 31, 2021.

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Term Preferred Stock

In August 2018, we completed a public offering of 2,990,000 shares of our Series E Term Preferred Stock at a public offering price of $25.00 per share. Gross proceeds totaled $74.8 million and net proceeds, after deducting underwriting discounts and offering costs borne by us, were $72.1 million. Total underwriting discounts and offering costs related to this offering were $2.7 million, which have been recorded as discounts to the liquidation value on our accompanying Consolidated Statements of Assets and Liabilities and were amortized over the period ending August 31, 2025, the mandatory redemption date, prior to redemption in August 2021. Prior to redemption in August 2021, the Series E Term Preferred Stock provided for a fixed dividend equal to 6.375% per year, payable monthly.

In May 2020, we entered into sales agreements with Wedbush Securities, Inc. and Virtu Americas LLC (each a “Series E ATM Sales Agent”), under which we have the ability to issue and sell shares of our Series E Term Preferred Stock, from time to time, through the Series E ATM Sales Agents, up to $50.0 million aggregate liquidation preference in the Series E ATM Program. On August 10, 2021, we terminated our sales agreements with each of the Series E ATM Sales Agents.

We did not sell any shares of our Series E Term Preferred Stock under the Series E ATM Program during the nine months ended December 31, 2021. During the year ended March 31, 2021, we sold 784,853 shares of our Series E Term Preferred Stock under the Series E ATM Program with an aggregate liquidation preference of $19.6 million. The weighted-average gross price per share net of discounts was $24.56 and resulted in gross proceeds of approximately $19.3 million. After deducting commissions and offering costs borne by us, net proceeds totaled approximately $19.1 million.

In March 2021, we used a portion of the proceeds from the issuance of our 2026 Notes, to voluntarily redeem all outstanding shares of our Series D Term Preferred Stock, which had a liquidation preference of $25.00 per share. In connection with the voluntary redemption, we incurred a loss on extinguishment of debt of $0.8 million, which was recorded in Realized loss on other in our Consolidated Statements of Operations and which was primarily comprised of unamortized deferred issuance costs at the time of redemption. Prior to redemption in March 2021, the Series D Term Preferred Stock provided for a fixed dividend equal to 6.25% per year, payable monthly, and would have otherwise been subject to mandatory redemption on September 30, 2023.

In August 2021, we used a portion of the proceeds from the issuance of our 2028 Notes, to voluntarily redeem all outstanding shares of our Series E Term Preferred Stock, which had a liquidation preference of $25.00 per share. In connection with the voluntary redemption, we incurred a loss on extinguishment of debt of $2.0 million, which was recorded in Realized loss on other in our accompanying Consolidated Statements of Operations and which was primarily comprised of unamortized deferred issuance costs at the time of redemption.

Revolving Line of Credit

On March 8, 2021, we, through our wholly-owned subsidiary, Gladstone Business Investment, LLC (“Business Investment”), entered into Amendment No. 6 to the Credit Facility with KeyBank National Association (“KeyBank”) as administrative agent, lead arranger, managing agent and lender, the Adviser, as servicer, and certain other lenders party thereto. The revolving period was extended to February 29, 2024, and if not renewed or extended by such date, all principal and interest will be due and payable on February 28, 2026 (two years after the revolving period end date). As of December 31, 2021, the Credit Facility provided two one-year extension options that may be exercised on or before the first and second anniversary of March 8, 2021, subject to approval by all lenders.

On August 10, 2020, we, through Business Investment, entered into Amendment No. 5 to the Credit Facility. Among other things, Amendment No. 5 amended the Credit Facility to (i) add LIBOR replacement language; (ii) implement a 0.5% LIBOR floor; (iii) reduce the facility size from $200.0 million to $180.0 million, which may be expanded to $300.0 million through additional commitments; and (iv) provide certain other changes to existing terms and covenants.

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Interest is payable monthly during the term of the Credit Facility. Available borrowings are subject to various constraints and applicable advance rates, which are generally based on the size, characteristics, and quality of the collateral pledged by Business Investment. The Credit Facility also requires that any interest and principal payments on pledged loans be remitted directly by the borrower into a lockbox account with KeyBank. KeyBank is also the trustee of the account and generally remits the collected funds to us once a month.

Among other things, the Credit Facility contains covenants that require Business Investment to maintain its status as a separate legal entity, prohibit certain significant corporate transactions (such as mergers, consolidations, liquidations or dissolutions) and restrict certain material changes to our credit and collection policies without the lenders’ consent. The Credit Facility also generally seeks to restrict distributions to stockholders to the sum of (i) our net investment income, (ii) net capital gains, and (iii) amounts deemed by the Company to be considered as having been paid during the prior fiscal year in accordance with Section 855(a) of the Code. Loans eligible to be pledged as collateral are subject to certain limitations, including, among other things, restrictions on geographic concentrations, industry concentrations, loan size, payment frequency and status, average life, portfolio company leverage, and lien property. The Credit Facility also requires Business Investment to comply with other financial and operational covenants, which obligate Business Investment to, among other things, maintain certain financial ratios, including asset and interest coverage and a minimum number of obligors required in the borrowing base. Additionally, the Credit Facility contains a performance guaranty that requires the Company to maintain (i) a minimum net worth (defined in the Credit Facility to include our mandatory redeemable term preferred stock) of the greater of $210.0 million or $210.0 million plus 50% of all equity and subordinated debt raised, minus 50% of any equity or subordinated debt redeemed or retired after November 16, 2016, which equated to $286.3 million as of December 31, 2021, (ii) asset coverage with respect to senior securities representing indebtedness of at least 150% (or such percentage as may be set forth in Section 18 of the 1940 Act, as modified by Section 61 of the 1940 Act), and (iii) our status as a BDC under the 1940 Act and as a RIC under the Code. As of December 31, 2021, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $695.5 million, asset coverage on our senior securities representing indebtedness of 259.5%, calculated in compliance with the requirements of Sections 18 and 61 of the 1940 Act, and an active status as a BDC and RIC. As of December 31, 2021, we had availability, after adjustments for various constraints based on collateral quality, of $179.4 million under the Credit Facility and were in compliance with all covenants under the Credit Facility.

Notes Payable

5.00% Notes due 2026

In March 2021, we completed a public offering of the 2026 Notes with an aggregate principal amount of $127.9 million, which resulted in net proceeds of approximately $123.8 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2026 Notes are traded under the ticker symbol “GAINN” on Nasdaq. The 2026 Notes will mature on May 1, 2026 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after May 1, 2023. The 2026 Notes bear interest at a rate of 5.00% per year (which equates to $6.4 million per year), payable quarterly in arrears.

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4.875% Notes due 2028

In August 2021, we completed a public offering of the 2028 Notes with an aggregate principal amount of $134.6 million, which resulted in net proceeds of approximately $131.3 million after deducting underwriting discounts, commissions and offering costs borne by us. The 2028 Notes are traded under the ticker symbol “GAINZ” on Nasdaq. The 2028 Notes will mature on November 1, 2028 and may be redeemed in whole or in part at any time or from time to time at the Company’s option on or after November 1, 2023. The 2028 Notes bear interest at a rate of 4.875% per year (which equates to $6.6 million per year), payable quarterly in arrears.

OFF-BALANCE SHEET ARRANGEMENTS

Unlike PIK income, we generally do not recognize success fees as income until payment has been received. Due to the contingent nature of success fees, there are no guarantees that we will be able to collect any or all of these success fees or know the timing of any such collections. As a result, as of December 31, 2021 and March 31, 2021, we had unrecognized, contractual off-balance sheet success fee receivables of $49.3 million and $46.2 million (or approximately $1.48 and $1.39 per common share), respectively, on our debt investments. Consistent with GAAP, we have not recognized success fee receivables and related income in our accompanying Consolidated Financial Statements until earned.

CONTRACTUAL OBLIGATIONS

We have line of credit and delayed draw term loan commitments to certain of our portfolio companies that have not been fully drawn. Since these line of credit and delayed draw term loan commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term loan commitment amounts do not necessarily represent future cash requirements. We estimate the fair value of the combined unused line of credit and delayed draw term loan commitments as of December 31, 2021 to be immaterial.

As of December 31, 2021, we have also extended a guaranty on behalf of one of our portfolio companies, Country Club Enterprises, LLC (“CCE”), whereby we have guaranteed $1.0 million of CCE’s obligations. As of December 31, 2021, we have not been required to make payments on this or any previous guaranties, and we consider the credit risks to be remote and the fair value of this guaranty to be immaterial.

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The following table shows our contractual obligations as of December 31, 2021, at cost/liquidation preference:


	Payments Due by Period
Contractual Obligations(A)	Total		Less than 1 Year		1-3 Years		3-5 Years		More than 5 Years
Credit Facility(B)	$	—	$	—	$	—	$	—	$	—
Notes payable	262,488		—		—		127,938		134,550
Secured borrowing	5,096		—		—		5,096		—
Interest payments on obligations(C)	81,231		15,143		30,292		23,771		12,025
Total	$	348,815	$	15,143	$	30,292	$	156,805	$	146,575

(A)Excludes unused line of credit and delayed draw term loan commitments and guaranties to our portfolio companies in the aggregate principal amount of $5.6 million.

(B)Principal balance of borrowings outstanding under the Credit Facility, based on the maturity date following the current contractual revolving period end date.

(C)Includes interest payments due on the Credit Facility, 2026 Notes, 2028 Notes, and secured borrowing, as applicable. The amount of interest payments calculated for purposes of this table was based upon rates and outstanding balances as of December 31, 2021.

Critical Accounting Policies

The preparation of financial statements and related disclosures in conformity with GAAP requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, including disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the period reported. Actual results could differ materially from those estimates under different assumptions or conditions. We have identified our investment valuation policy (which has been approved by our Board of Directors) as our most critical accounting policy, which is described in Note 2 — Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report. Additionally, refer to Note 3 — Investments in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report for additional information regarding fair value measurements and our application of Financial Accounting Standards Board Accounting Standards Codification Topic 820, “Fair Value Measurements and Disclosures.” We have also identified our revenue recognition policy as a critical accounting policy, which is described in Note 2 — Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report.

Investment Valuation

Credit Monitoring and Risk Rating

The Adviser monitors a wide variety of key credit statistics that provide information regarding our portfolio companies to help us assess credit quality and portfolio performance and, in some instances, are used as inputs in our valuation techniques. Generally, we, through the Adviser, participate in periodic board meetings of our portfolio companies in which we hold board seats and also require them to provide annual audited and monthly unaudited financial statements. Using these statements or comparable information and board discussions, the Adviser calculates and evaluates certain credit statistics.

The Adviser risk rates all of our investments in debt securities. The Adviser does not risk rate equity securities. For loans that have been rated by a SEC-registered Nationally Recognized Statistical Rating Organization (“NRSRO”), the Adviser generally uses the average of two corporate level NRSRO’s risk ratings for such security. For all other debt securities, the Adviser uses a proprietary risk rating system. While the Adviser seeks to mirror the NRSRO systems, we cannot provide any assurance that the Adviser’s risk rating system will provide the same risk rating as an NRSRO for these securities. The Adviser’s risk rating system is used to estimate the probability of default on debt securities and the expected loss, if there is a default. The Adviser’s risk rating system uses a scale of 0 to >10, with >10 being the lowest probability of default. It is the Adviser’s understanding that most debt securities of Lower Middle Market companies do not exceed the grade of BBB on an NRSRO scale, so there would be no debt securities in the Lower Middle Market that would meet the definition of AAA, AA or A. Therefore, the Adviser’s scale begins with the designation >10 as the best risk rating which may be equivalent to a BBB from an NRSRO; however, no assurance can be given that a >10 on the Adviser’s scale is equal to a BBB or Baa2 on an NRSRO scale. The Adviser’s risk rating system covers both qualitative and quantitative aspects of the business and the securities we hold.

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The following table reflects risk ratings for all loans in our portfolio as of December 31, 2021 and March 31, 2021:


Rating	December 31, 2021	March 31, 2021
Highest	9.0	9.0
Average	6.6	6.2
Weighted-average	6.6	6.6
Lowest	3.0	4.0

Tax Status

We intend to continue to maintain our qualification as a RIC under Subchapter M of the Code for U.S. federal income tax purposes. As a RIC, we generally are not subject to U.S. federal income tax on the portion of our taxable income and gains distributed to our stockholders. To maintain our qualification as a RIC, we must maintain our status as a BDC and meet certain source-of-income and asset diversification requirements. In addition, to qualify to be taxed as a RIC, we must distribute to stockholders at least 90% of our Investment Company Taxable Income, determined without regard to the dividends paid deduction. Our policy generally is to make distributions to our stockholders in an amount up to 100% of Investment Company Taxable Income. We may retain some or all of our net long-term capital gains, if any, and designate them as deemed distributions, or distribute such gains to stockholders in cash. See “— Liquidity and Capital Resources — Distributions and Dividends to Stockholders.”

In an effort to limit federal excise taxes, we have to distribute to stockholders, during each calendar year, an amount close to the sum of: (1) 98% of our ordinary income for the calendar year, (2) 98.2% of our net capital gains (both long-term and short-term), if any, for the one-year period ending on October 31 of the calendar year, and (3) any income realized, but not distributed, in the preceding period (to the extent that income tax was not imposed on such amounts), less certain reductions, as applicable. Under the RIC Modernization Act, we are permitted to carryforward any capital losses that we may incur for an unlimited period, and such capital loss carryforwards will retain their character as either short-term or long-term capital losses. Our capital loss carryforward balance was $0 as of both December 31, 2021 and March 31, 2021.

Recent Accounting Pronouncements

Refer to Note 2 — Summary of Significant Accounting Policies in the accompanying Notes to Consolidated Financial Statements included elsewhere in this Quarterly Report for a description of recent accounting pronouncements.

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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Market risk includes risks that arise from changes in interest rates, foreign currency exchange rates, commodity prices, equity prices and other market changes that affect market sensitive instruments. The prices of securities held by us may decline in response to certain events, including those directly involving the companies whose securities are owned by us; conditions affecting the general economy, including COVID-19 or other health emergencies; overall market changes; local, regional or global political, social or economic instability; and interest rate fluctuations.

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

We target to have approximately 90% of the loans in our portfolio at variable rates or variable rates with a floor mechanism, and up to approximately 10% at fixed rates. As of December 31, 2021 and March 31, 2021, all of our variable-rate loans have rates associated with the current 30-day LIBOR rate and our total debt investment portfolio consisted of the following breakdown based on the principal balance:


Rates:	December 31, 2021		March 31, 2021
Variable rates with a floor	100.0	%	97.7	%
Fixed rates	—		2.3	%
Total	100.0	%	100.0	%

There have been no material changes in the quantitative and qualitative market risk disclosures during the nine months ended December 31, 2021 from those included in our Annual Report.

ITEM 4. CONTROLS AND PROCEDURES.

a)Evaluation of Disclosure Controls and Procedures

As of December 31, 2021 (the end of the period covered by this report), we, including our chief executive officer and chief financial officer, evaluated the effectiveness, design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the chief executive officer and chief financial officer, concluded that our disclosure controls and procedures were effective at a reasonable assurance level in timely alerting management, including the chief executive officer and chief financial officer, of material information about us required to be included in periodic SEC filings. However, in evaluation of the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

b)Changes in Internal Control over Financial Reporting

There were no changes in internal controls for the three months ended December 31, 2021 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

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PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

From time to time, we may become involved in various investigations, claims and legal proceedings that arise in the ordinary course of our business. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While we do not expect that the resolution of these matters, if they arise, would materially affect our business, financial condition, results of operations or cash flows, resolution will be subject to various uncertainties and could result in the expenditure of significant financial and managerial resources. Further, we are not named as a party to any proceeding that involves a claim for damages that exceeds 10% of our consolidated current assets.

ITEM 1A. RISK FACTORS.

Our business is subject to certain risks and events that, if they occur, could adversely affect our financial condition and results of operations and the trading price of our securities. For a discussion of these risks, please refer to the section captioned “Item 1A. Risk Factors” in Part I of our Annual Report on Form 10-K for the fiscal year ended March 31, 2021, as filed with the SEC on May 11, 2021. The risks described in our Annual Report are not the only risks we face. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially and adversely affect our business, financial condition and/or operating results.

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

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. MINE SAFETY DISCLOSURES.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS

See the exhibit index.

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Exhibit						Description
3.1						Amended and Restated Certificate of Incorporation, incorporated by reference to Exhibit A.2 to Pre-Effective Amendment No. 1 to the Registration Statement on Form N-2 (File No. 333-123699), filed May 13, 2005.
3.2						Second Amended and Restated Bylaws, incorporated by reference to Exhibit 3.1 to the Current Report on Form 8-K (File No. 814-00704), filed May 15, 2020.
4.1						Specimen Stock Certificate, incorporated by reference to Exhibit d to Pre-Effective Amendment No. 3 to the Registration Statement on Form N-2 (File No. 333-123699), filed June 21, 2005.
4.2						Indenture, dated as of May 22, 2020, between Gladstone Investment Corporation and UMB Bank, National Association, as trustee incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00704), filed May 22, 2020.
4.3						Second Supplemental Indenture between Gladstone Investment Corporation and UMB Bank, National Association, dated as of March 2, 2021, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00704), filed March 2, 2021.
4.4						Third Supplemental Indenture between Gladstone Investment Corporation and UMB Bank, National Association, dated as of August 18, 2021, incorporated by reference to Exhibit 4.1 to the Current Report on Form 8-K (File No. 814-00704), filed August 18, 2021.
31.1*						Certification of Chief Executive Officer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
31.2*						Certification of Chief Financial Officer and Treasurer pursuant to section 302 of The Sarbanes-Oxley Act of 2002.
32.1†						Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
32.2†						Certification of Chief Financial Officer and Treasurer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.

______________________

*Filed herewith

†Furnished herewith

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

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SIGNATURE

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


GLADSTONE INVESTMENT CORPORATION

By:			/s/ Rachael Easton
			Rachael Easton
			Chief Financial Officer and Treasurer
			(principal financial and accounting officer)

Date: February 8, 2022