What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2022-11-01 compared with 2022-08-03 · 364 added, 201 removed, 1386 unchanged (29% of the section changed)

3 unchanged sentences

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

September 30,

2022 March 31,

6 unchanged sentences

Cash and cash equivalents

43,880 14,190

Restricted cash and cash equivalents

21 unchanged sentences

ANALYSIS OF NET ASSETS

Common stock, $0.001 par value per share, 100,000,000 shares authorized, 33,205,023 shares issued and outstanding

Common stock, $ 0.001 par value per share, 100,000,000 shares authorized, 33,234,663 and 33,205,023 shares issued and outstanding, respectively

Capital in excess of par value

2 unchanged sentences

34,717 45,148

(Overdistributed) underdistributed net investment income

Overdistributed net investment income

( 1,073 ) ( 12,995 )

13 unchanged sentences

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

2022 2021 2022 2021

INVESTMENT INCOME

3 unchanged sentences

Affiliate investments

4,286 6,678 8,296 15,509

Control investments — 213 — 497

4 unchanged sentences

Non-Control/Non-Affiliate investments

4,825 1 4,829 3

Affiliate investments

— 1,589 1,552 1,589

Total dividend income

4,825 1,590 6,381 1,592

Success fee income

Non-Control/Non-Affiliate investments

1,733 1,650 6,733 1,650

Affiliate investments

— 1,000 — 3,032

Total success fee income

1,733 2,650 6,733 4,682

Total investment income

3 unchanged sentences

Loan servicing fee (A)

1,916 1,794 3,674 3,662

Incentive fee (A)

768 7,351 3,777 19,599

Administration fee (A)

562 571 942 970

Interest expense on borrowings

3,857 3,082 7,641 5,382

Dividends on mandatorily redeemable preferred stock

— 802 — 2,306

Amortization of deferred financing costs and discounts

450 452 898 908

Professional fees

938 343 1,233 649

Other general and administrative expenses

816 1,125 2,013 2,173

Expenses before credits from Adviser

13 unchanged sentences

Affiliate investments

— 464 — 2,250

Control investments

— — ( 277 ) —

Other — ( 1,998 ) — ( 1,998 )

Total net realized gain

2,302 ( 1,534 ) 6,754 395

Net unrealized appreciation (depreciation):

4 unchanged sentences

Control investments

— ( 4,523 ) — ( 3,119 )

Total net unrealized (depreciation) appreciation

Net realized and unrealized gain 4,664 49,443

( 10,643 ) 27,504 ( 10,431 ) 75,018

Net realized and unrealized gain (loss) ( 8,341 ) 25,970 ( 3,677 ) 75,413

NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS

1 unchanged sentence

BASIC AND DILUTED PER COMMON SHARE:

Net investment income (loss)

Net investment income

$ 0.34 $ 0.07 $ 0.57 $ —

28 unchanged sentences

$ 446,409 $ 420,538

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

Net investment income $ 11,416 $ 2,165

Net realized gain on investments 2,302 464

Net realized loss on other — ( 1,998 )

Net unrealized (depreciation) appreciation of investments ( 10,643 ) 27,504

Net increase in net assets from operations

DISTRIBUTIONS (A)

Distributions to common stockholders from net investment income ( $ 0.14 and $ 0.16 per share, respectively)

( 4,678 ) ( 5,490 )

Distributions to common stockholders from net realized gains ( $ 0.08 and $ 0.08 per share, respectively)

( 2,797 ) ( 2,482 )

Net decrease in net assets from distributions

( 7,475 ) ( 7,972 )

CAPITAL ACTIVITY

Issuance of common stock

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

Net increase in net assets from capital activity

NET INCREASE (DECREASE) IN NET ASSETS

( 3,939 ) 20,163

NET ASSETS, SEPTEMBER 30

$ 442,470 $ 440,701

(A) Refer t o 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.

2 unchanged sentences

(IN THOUSANDS)

Three Months Ended June 30,

Six Months Ended September 30,

CASH FLOWS FROM OPERATING ACTIVITIES

6 unchanged sentences

48,000 14,060

Net proceeds from the sale of investments

Net proceeds from the sale and recapitalization of investments

Net realized gain on investments

( 6,754 ) ( 2,393 )

Net unrealized appreciation of investments

Net realized loss on other

Net unrealized depreciation (appreciation) of investments

10,431 ( 75,018 )

5 unchanged sentences

Decrease (increase) in due from administrative agent

Increase in other assets, net

4,164 ( 656 )

(Increase) decrease in other assets, net

Increase in accounts payable and accrued expenses

(Decrease) increase in interest payable

Increase in fees due to Adviser (A)

Increase in fee due to Administrator (A)

Increase in other liabilities

Net cash provided by operating activities 41,312 14,419

Increase in interest payable

(Decrease) increase in fees due to Adviser (A)

( 1,578 ) 15,698

Decrease in fee due to Administrator (A)

Increase (decrease) in other liabilities

Net cash used in operating activities ( 9,445 ) ( 6,286 )

CASH FLOWS FROM FINANCING ACTIVITIES

Proceeds from issuance of common stock

Discounts, commissions, and offering costs for issuance of common stock ( 6 ) —

Proceeds from line of credit

41,500 62,700

Repayments on line of credit

( 24,900 ) ( 76,200 )

Proceeds from issuance of notes payable — 134,550

Redemption of mandatorily redeemable preferred stock — ( 94,371 )

Deferred financing and offering costs

( 277 ) ( 3,432 )

Distributions paid to common stockholders

2 unchanged sentences

( 2,147 ) 6,310

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

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

( 11,592 ) 24

5 unchanged sentences

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

Supplemental disclosures of non-cash operating activities:

• In August 2022, in conjunction with a refinancing at Ginsey Home Solutions, Inc.

("Ginsey"), there was a $ 5.1 million payment made by Ginsey to extinguish our secured borrowing liability.

Refer to Note 3 - Investments and Note 5 - Borrowings for further discussion.

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

1 unchanged sentence

CONSOLIDATED SCHEDULE OF INVESTMENTS

JUNE 30, 2022

SEPTEMBER 30, 2022

(DOLLAR AMOUNTS IN THOUSANDS)

Company and Investment (A)(B)(D)(E)

Principal/Shares/

Principal/Shares/ Units (F)(I)

Cost Fair Value

1 unchanged sentence

Secured First Lien Debt – 61.9 %

Buildings and Real Estate Total – 8.9 %

Dema/Mai Holdings, Inc.

– Line of Credit, $ 2,200 available (L+ 8.0 %, 11.1 % Cash, Due 7/2023) (K)

$ 800 $ 800 $ 800

Dema/Mai Holdings, Inc.

– Term Debt (L+ 11.0 %, 14.1 % Cash, Due 7/2027) (K)

38,250 38,250 38,250

39,050 39,050

Diversified/Conglomerate Manufacturing – 1.2 %

28 unchanged sentences

6,850 6,850 6,850

Ginsey Home Solutions, Inc.

– Term Debt (L+ 10.0 %, 13.5 % Cash, Due 11/2025) (K)

12,200 12,200 12,200

36,750 36,750

Hotels, Motels, Inns, and Gaming Total – 7.7 %

26 unchanged sentences

13,000 12,996 13,000

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)(K)

13,300 13,300 13,300

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) – 3.4 %

SFEG Holdings, Inc.

– Term Debt (L+7.0%, 9.0% Cash, Due 11/2024) (G)(K)

– Term Debt (L+ 7.0 %, 10.1 % Cash, Due 11/2024) (K)

3,128 3,128 3,128

SFEG Holdings, Inc.

– Term Debt (L+7.0%, 9.0% Cash, Due 11/2024) (G)(K)

– Term Debt (L+ 7.0 %, 10.1 % Cash, Due 11/2024) (K)

11,736 11,736 11,736

3 unchanged sentences

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

JUNE 30, 2022

SEPTEMBER 30, 2022

(DOLLAR AMOUNTS IN THOUSANDS)

Company and Investment (A)(B)(D)(E)

Principal/Shares/

Principal/Shares/ Units (F)(I)

Cost Fair Value

Preferred Equity – 36.2 %

Buildings and Real Estate – 4.7 %

Dema/Mai Holdings, Inc.

- Preferred Equity (C)(K)

21,000 $ 21,000 $ 21,000

Diversified/Conglomerate Services – 12.3 %

20 unchanged sentences

16,236 27,980

Hotels, Motels, Inns, and Gaming Total – 3.7%

Hotels, Motels, Inns, and Gaming – 4.3 %

Nocturne Villa Rentals, Inc.

33 unchanged sentences

Total Non-Control/Non-Affiliate Investments $ 421,643 $ 488,999

AFFILIATE INVESTMENTS (N) – 57.5%

Secured First Lien Debt – 41.4%

Chemicals, Plastics, and Rubber – 6.0%

PSI Molded Plastics, Inc.

– Term Debt (L+5.5%, 7.3% Cash, Due 1/2024) (K)

$ 26,618 $ 26,618 $ 26,618

Diversified/Conglomerate Manufacturing – 2.0%

Edge Adhesives Holdings, Inc.

(L) – Term Debt (L+5.5%, 7.5% Cash, Due 8/2024) (J)

9,210 9,210 8,968

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

JUNE 30, 2022

SEPTEMBER 30, 2022

(DOLLAR AMOUNTS IN THOUSANDS)

Company and Investment (A)(B)(D)(E)

Principal/Shares/

Principal/Shares/ Units (F)(I)

Cost Fair Value

AFFILIATE INVESTMENTS (N) – 56.1 %

Secured First Lien Debt – 33.3 %

Diversified/Conglomerate Manufacturing – 0.9 %

Edge Adhesives Holdings, Inc.

(L) – Term Debt (L+ 5.5 %, 8.6 % Cash, Due 8/2024) (K)

9,210 $ 9,210 $ 3,825

Diversified/Conglomerate Services – 18.3 %

2 unchanged sentences

22,000 22,000 22,000

- Atlanta, LLC – Line of Credit, $ 4,000 available (L+ 6.0 %, 9.1 % Cash, Due 6/2025) (G)(K)

1,000 1,000 660

- Atlanta, LLC - Term Debt (L+ 6.0 %, 9.1 % Cash, Due 6/2025) (G)(K)

12 unchanged sentences

Mining, Steel, Iron and Non-Precious Metals Total – 4.1 %

Utah Pacific Bridge & Steel, Ltd., $2,000 available (L+8.5%, 10.3% Cash, Due 7/2022) (K)

Utah Pacific Bridge & Steel, Ltd.

1 unchanged sentence

18,250 18,250 18,250

18,250 18,250

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.5 %

12 unchanged sentences

Secured Second Lien Debt – 5.3 %

Chemicals, Plastics, and Rubber – 5.3 %

PSI Molded Plastics, Inc.

– Term Debt (L+ 5.5 %, 8.6 % Cash, Due 1/2024) (K)

$ 26,618 $ 26,618 $ 23,642

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0 %

4 unchanged sentences

Total Secured Second Lien Debt

$ 39,818 $ 23,642

Preferred Equity – 15.6 %

7 unchanged sentences

8,199 8,199 —

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

SEPTEMBER 30, 2022

(DOLLAR AMOUNTS IN THOUSANDS)

Company and Investment (A)(B)(D)(E)

Principal/Shares/ Units (F)(I)

Cost Fair Value

Diversified/Conglomerate Services – 3.2 %

15 unchanged sentences

6,000 6,000 5,118

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

JUNE 30, 2022

(DOLLAR AMOUNTS IN THOUSANDS)

Company and Investment (A)(B)(D)(E)

Principal/Shares/

Cost Fair Value

Personal and Non-Durable Consumer Products (Manufacturing Only) – 0.0 %

18 unchanged sentences

CONTROL INVESTMENTS (O) – 0.2 %:

Preferred Equity - 4.7%

Buildings and Real Estate Total - 4.7%

Dema/Mai Holdings, Inc - Preferred Equity 21,000 $ 21,000 $ 21,000

Total Preferred Equity $ 21,000 $ 21,000

Common Equity/Equivalents – 0.2 %

10 unchanged sentences

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 June 30, 2022, 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 1.8% as of June 30, 2022.

As of September 30, 2022, 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 3.1 % as of September 30, 2022.

If applicable, paid-in-kind interest rates are noted separately from the cash interest rate.

3 unchanged sentences

(D) Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of June 30, 2022

(D) Category percentages represent the fair value of each category and subcategory as a percentage of net assets as of September 30, 2022.

(E) Unless indicated otherwise, all of our investments are valued using Level 3 inputs within the Financial Accounting Standards Board ("FASB") Accounting Standards Codification ("ASC") Topic 820, "Fair Value Measurements and Disclosures" ("ASC 820") fair value hierarchy.

1 unchanged sentence

(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 June 30, 2022.

GLADSTONE INVESTMENT CORPORATION

CONSOLIDATED SCHEDULE OF INVESTMENTS (Continued)

JUNE 30, 2022

SEPTEMBER 30, 2022

(DOLLAR AMOUNTS IN THOUSANDS)

(I) Represents the principal balance for debt investments and the number of shares/units held for equity investments.

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

(H) Reserved.

(I) Represents the principal balance, presented in thousands, for debt investments and the number of shares/units held for equity investments.

Warrants are represented as a percentage of ownership, as applicable.

311 unchanged sentences

and presented as Secured borrowing on our accompanying Consolidated Statements of Assets and Liabilities as of March 31, 2022.

(I) Represents the principal balance for debt investments and the number of shares/units held for equity investments.

(I) Represents the principal balance, presented in thousands, for debt investments and the number of shares/units held for equity investments.

Warrants are represented as a percentage of ownership, as applicable.

24 unchanged sentences

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2022

SEPTEMBER 30, 2022

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

11 unchanged sentences

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 June 30, 2022, our investment portfolio was comprised of 72.9% in debt investments and 27.1% in equity investments, at cost.

As of September 30, 2022, our investment portfolio was comprised of 76.6 % in debt investments and 23.4 % in equity investments, at cost.

Gladstone Business Investment, LLC (“Business Investment”), a wholly-owned subsidiary of ours, was established on August 11, 2006 for the sole purpose of holding certain investments pledged as collateral under our line of credit.

14 unchanged sentences

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 months ended June 30, 2022 are not necessarily indicative of results that ultimately may be achieved for the fiscal year ending March 31, 2023 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, 2022, as filed with the SEC on May 11, 2022.

The results of operations for the three and six months ended September 30, 2022 are not necessarily indicative of results that ultimately may be achieved for the fiscal year ending March 31, 2023 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, 2022, as filed with the SEC on May 11, 2022.

Use of Estimates

8 unchanged sentences

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.

In December 2020, the SEC adopted Rule 2a-5 under the 1940 Act, which permits a BDC’s board of directors to designate its investment adviser as a valuation designee to perform fair value determinations for its investment portfolio, subject to the active oversight of such board.

Our board of directors (the “Board of Directors”) has approved investment valuation policies and procedures pursuant to Rule 2a-5 (the “Policy”) and, in July 2022, designated the Adviser to serve as the Board of Directors’ valuation designee.

In accordance with the 1940 Act and SEC Rule 2a-5, our 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 Policy and for overseeing the valuation designee.

Such review and oversight includes receiving written fair value determinations and supporting materials provided by the valuation designee, in coordination with the Administrator and with the oversight by the Company’s chief valuation officer (collectively, the “Valuation Team”).

The Valuation Committee of our Board of Directors (comprised entirely of independent directors) meets to review the valuation determinations and supporting materials, discusses the information provided by the Valuation Team, determines whether the Valuation Team has followed the Policy, and reviews other facts and circumstances, including current valuation risks, conflicts of interest, material valuation matters, appropriateness of valuation methodologies, back-testing results, price challenges/overrides, and ongoing monitoring and oversight of pricing services.

After the Valuation Committee concludes its meeting, it and the chief valuation officer, representing the Valuation Designee, present the Valuation Committee’s findings to the entire Board of Directors so that the full Board of Directors may review and approve in good faith the Valuation Designee’s determined fair values 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.

25 unchanged sentences

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:

6 unchanged sentences

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 securities that are publicly traded, we generally base fair value on the closing market price of the

securities we hold as of the reporting date.

For restricted securities that are publicly traded, we generally base fair value on the closing market price of the securities we hold as of the reporting date less a discount for the restriction, which includes consideration of the nature and term to expiration of the restriction.

17 unchanged sentences

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 June 30, 2022, our loans to J.R.

As of September 30, 2022, our loans to J.R.

– Atlanta, LLC (“J.R.

Hobbs”), The Mountain Corporation (“The Mountain”), and SFEG Holdings, Inc.

("SFEG") were on non-accrual status, with an aggregate debt cost basis of $77.3 million, or 16.5% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $53.1 million, or 11.9% of the fair value of all debt investments in our portfolio.

Hobbs”) and The Mountain Corporation (“The Mountain”) were on non-accrual status, with an aggregate debt cost basis of $ 63.4 million, or 11.8 % of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $ 32.8 million, or 6.6 % of the fair value of all debt investments in our portfolio.

As of March 31, 2022, our loans to J.R.

Hobbs, The Mountain, and SFEG were on non-accrual status, with an aggregate debt cost basis of $77.2 million, or 15.1% of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $60.0 million, or 12.2% of the fair value of all debt investments in our portfolio.

Hobbs, The Mountain, and SFEG Holdings, Inc.

were on non-accrual status, with an aggregate debt cost basis of $ 77.2 million, or 15.1 % of the cost basis of all debt investments in our portfolio, and an aggregate fair value of $ 60.0 million, or 12.2 % 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 June 30, 2022 and March 31, 2022, we did not have any loans with a PIK interest component.

As of September 30, 2022 and March 31, 2022, we did not have any loans with a PIK interest component.

Success Fee Income Recognition

9 unchanged sentences

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

Recent Accounting Pronouncements

In June 2022, the FASB issued Accounting Standards Update 2022-03, “Fair Value Measurement (Topic 820):

Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions” (“ASU 2022-03”), which clarifies the measurement and presentation of fair value for equity securities subject to contractual restrictions that prohibit the sale of the equity security.

ASU 2022-03 is effective for annual reporting periods beginning after December 15, 2023, including interim periods within those fiscal years, with early adoption permitted.

Our adoption of ASU 2022-03 did not have a material impact on our financial position, results of operations or cash flows .

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.

9 unchanged sentences

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.

As of June 30, 2022 and March 31, 2022, 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.

As of September 30, 2022 and March 31, 2022, 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 three months ended June 30, 2022 and 2021, respectively.

As of June 30, 2022 and March 31, 2022, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:

There were no transfers in or out of Level 1, 2 and 3 during the six months ended September 30, 2022 and 2021, respectively.

As of September 30, 2022 and March 31, 2022, our investments, by security type, at fair value were categorized as follows within the ASC 820 fair value hierarchy:

Fair Value Measurements

3 unchanged sentences

Observable Inputs

As of June 30, 2022:

As of September 30, 2022:

Secured first lien debt

4 unchanged sentences

Common equity/equivalents

Total Investments as of June 30, 2022

Total Investments as of September 30, 2022

$ 737,935 $ — $ 58 $ 737,877

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(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.

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 June 30, 2022 and March 31, 2022, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:

The following table presents our investments, valued using Level 3 inputs within the ASC 820 fair value hierarchy, and carried at fair value as of September 30, 2022 and March 31, 2022, by caption on our accompanying Consolidated Statements of Assets and Liabilities, and by security type:

Total Recurring Fair Value Measurements

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Valued Using Level 3 Inputs

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Non-Control/Non-Affiliate Investments

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Total investments at fair value using Level 3 inputs $ 737,877 $ 714,322

(A) Excludes our investment in Funko with a fair value of $88 thousand and $74 thousand as of June 30, 2022 and March 31, 2022, 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 June 30, 2022 and March 31, 2022.

(A) Excludes our investment in Funko with a fair value of $ 58 thousand and $ 74 thousand as of September 30, 2022 and March 31, 2022, 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 September 30, 2022 and March 31, 2022.

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.

4 unchanged sentences

Input Range / Weighted-Average as of

September 30,

2022 March 31,

2022 June 30,

2022 September 30,

2022 March 31,

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10.0 % – 12.2 % / 11.6 %

238,665 217,599 TEV EBITDA multiple 2.9x – 8.0x /

equity 229,430 217,599 TEV EBITDA multiple 3.2 x – 8.0 x /

3.4 x – 9.3 x /

6 unchanged sentences

Common equity/

equivalents (B)

equivalents (A)

10,789 3,678 TEV EBITDA multiple 4.4 x – 7.5 x /

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Total $ 737,877 $ 714,322

(A) Fair value as of June 30, 2022 includes one new proprietary equity investment for $21.0 million, which was valued at cost using the transaction price as the unobservable input.

(B) Fair value as of both June 30, 2022 and March 31, 2022 excludes our investment in Funko with a fair value of $88 thousand and $74 thousand, respectively, which was valued using Level 2 inputs.

(A) Fair value as of both September 30, 2022 and March 31, 2022 excludes our investment in Funko with a fair value of $ 58 thousand and $ 74 thousand, respectively, which was valued using Level 2 inputs.

Fair value measurements can be sensitive to changes in one or more of the valuation inputs.

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Changes in Level 3 Fair Value Measurements of Investments

The following tables provide our portfolio’s changes in fair value, broken out by security type, during the three months ended June 30, 2022 and 2021 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs.

The following tables provide our portfolio’s changes in fair value, broken out by security type, during the three and six months ended September 30, 2022 and 2021 for all investments for which the Adviser determines fair value using unobservable (Level 3) inputs.

Fair Value Measurements Using Significant Unobservable Inputs (Level 3)

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Equivalents Total

Three Months ended June 30, 2022:

Three Months ended September 30, 2022:

Fair value as of June 30, 2022

$ 376,752 $ 67,936 $ 238,665 $ 6,072 $ 689,425

Total gain (loss):

Net realized gain (loss) (A)

— — 2,218 — 2,218

Net unrealized appreciation (depreciation) (B)

( 11,677 ) ( 4,507 ) 845 4,717 ( 10,622 )

Reversal of previously recorded (appreciation) depreciation upon realization (B)

New investments, repayments and settlements (C):

Issuances / originations

70,250 4,000 — — 74,250

Settlements / repayments

— ( 5,096 ) — — ( 5,096 )

— — ( 12,298 ) — ( 12,298 )

Transfers (E)

( 14,418 ) 14,418 — — —

Fair value as of September 30, 2022

$ 420,907 $ 76,751 $ 229,430 $ 10,789 $ 737,877

Debt Preferred

Equivalents Total

Six Months ended September 30, 2022:

Fair value as of March 31, 2022 $ 425,087 $ 67,958 $ 217,599 $ 3,678 $ 714,322

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— — ( 21,926 ) — ( 21,926 )

Transfers (D)

Transfers (E)

( 14,418 ) 14,418 — — —

Fair value as of September 30, 2022

$ 420,907 $ 76,751 $ 229,430 $ 10,789 $ 737,877

Three Months ended September 30, 2021:

Fair value as of June 30, 2021

$ 416,973 $ 57,044 $ 202,465 $ 2,021 $ 678,503

Three Months ended June 30, 2021:

Total gain (loss):

Net realized gain (loss) (A)

Net unrealized appreciation (depreciation) (B)

( 2,618 ) 4,098 36,500 ( 10,463 ) 27,517

Reversal of previously recorded (appreciation) depreciation upon realization (B)

New investments, repayments and settlements (C) :

Issuances / originations

24,400 5 6,000 — 30,405

Settlements / repayments

Transfers (E)

( 7,342 ) 7,342 ( 16,034 ) 16,034 —

Fair value as of September 30, 2021

$ 431,413 $ 68,489 $ 228,931 $ 7,592 $ 736,425

Six Months ended September 30, 2021:

Fair value as of March 31, 2021

$ 368,688 $ 102,897 $ 159,478 $ 2,671 $ 633,734

Total gain (loss):

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— — ( 7,626 ) — ( 7,626 )

Transfers (D)

Transfers (E)

45,043 ( 45,043 ) ( 16,034 ) 16,034 —

Fair value as of June 30, 2021

Fair value as of September 30, 2021

$ 431,413 $ 68,489 $ 228,931 $ 7,592 $ 736,425

(A) Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the respective periods ended June 30, 2022 and 2021.

(B) Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated Statements of Operations for the respective periods ended June 30, 2022 and 2021.

(A) Included in net realized gain (loss) on investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2022 and 2021.

(B) Included in net unrealized appreciation (depreciation) of investments on our accompanying Consolidated Statements of Operations for the respective periods ended September 30, 2022 and 2021.

(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) Includes $ 10.1 million return of preferred equity cost basis from Horizon Facilities Services, Inc.

Transfers represent (1) secured second lien debt of Ginsey with a total cost basis and fair value of $ 12.2 million, which was converted into secured first lien debt during the three months ended September 30, 2022 and (2) secured first lien debt of PSI Molded Plastics, Inc.

with a total cost basis and fair value of $ 26.6 million, which was converted into secured second lien debt during the three months ended September 30, 2022.

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.

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.

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 and (3) preferred equity of Galaxy Technologies, Inc.

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.

Investment Activity

During the three months ended June 30, 2022, the following significant transactions occurred:

During the six months ended September 30, 2022, the following significant transactions occurred:

• In May 2022, we invested an additional $ 6.4 million in the form of secured first lien debt in Nocturne Villa Rentals, Inc.

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Hobbs, an existing portfolio company.

Refer to Note 13 – Subsequent Events for discussion of add-on investment activity in Dema/Mai that occurred subsequent to June 30, 2022.

In July 2022, we invested an additional $ 39.1 million in the form of secured first lien debt in Dema/Mai to fund the acquisition of Dema Plumbing, a plumbing and mechanical systems installation and service provider to single-family residential homebuilders.

• In July 2022, we recapitalized our investment in Horizon and invested an additional $ 30.0 million in the form of secured first lien debt.

In connection with this investment, we received equity proceeds of $ 12.3 million, which were recognized as a $ 10.1 million return of preferred equity cost basis and a realized gain of $ 2.2 million, as well as dividend income of $ 3.1 million and success fee income of $ 1.7 million.

• In August 2022, in conjunction with a refinancing at Ginsey, our outstanding $ 13.3 million of secured second lien debt was reduced to $ 12.2 million and converted to secured first lien debt.

The reduction in our cost basis was the result of a $ 5.1 million payment made by Ginsey to extinguish our secured borrowing liability, which was partially offset by an additional investment in Ginsey of $ 4.0 million.

Refer to Note 5 - Borrowings for discussion of the secured borrowing liability.

Investment Concentrations

As of June 30, 2022, our investment portfolio consisted of investments in 26 portfolio companies located in 18 states across 15 different industries with an aggregate fair value of $689.5 million.

Our investments in Old World Christmas, Inc., Horizon Facilities Services, Inc.

("Horizon"), Counsel Press, Inc., Brunswick Bowling Products, Inc., and Nocturne represented our five largest portfolio investments at fair value and collectively comprised $281.4 million, or 40.8%, of our total investment portfolio at fair value as of June 30, 2022.

The following table summarizes our investments by security type as of June 30, 2022 and March 31, 2022:

June 30, 2022 March 31, 2022

As of September 30, 2022, our investment portfolio consisted of investments in 26 portfolio companies located in 18 states across 15 different industries with an aggregate fair value of $ 737.9 million.

Our investments in Horizon, Old World Christmas, Inc., Dema/Mai, Counsel Press, Inc., and Nocturne represented our five largest portfolio investments at fair value and collectively comprised $ 315.7 million, or 42.8 %, of our total investment portfolio at fair value as of September 30, 2022.

The following table summarizes our investments by security type as of September 30, 2022 and March 31, 2022:

September 30, 2022 March 31, 2022

Cost Fair Value Cost Fair Value

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$ 703,218 100.0 % $ 737,935 100.0 % $ 669,248 100.0 % $ 714,396 100.0 %

Investments at fair value consisted of the following industry classifications as of June 30, 2022 and March 31, 2022:

June 30, 2022 March 31, 2022

Investments at fair value consisted of the following industry classifications as of September 30, 2022 and March 31, 2022:

September 30, 2022 March 31, 2022

Fair Value Percentage of

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Home and Office Furnishings, Housewares, and Durable Consumer Products 133,359 18.1 % 125,440 17.6 %

Buildings and Real Estate 60,050 8.1 % — — %

Hotels, Motels, Inns, and Gaming 53,090 7.2 % 37,923 5.3 %

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Healthcare, Education, and Childcare 38,937 5.3 % 39,252 5.5 %

Chemicals, Plastics, and Rubber 26,618 3.9 % 26,618 3.7 %

Telecommunications 26,234 3.8 % 32,467 4.6 %

Aerospace and Defense 23,746 3.2 % 25,296 3.5 %

Chemicals, Plastics, and Rubber 23,642 3.2 % 26,618 3.7 %

Mining, Steel, Iron and Non-Precious Metals 23,368 3.2 % 24,250 3.4 %

Buildings and Real Estate 21,000 3.0 % — — %

Telecommunications 23,200 3.1 % 32,467 4.6 %

Machinery (Non-Agriculture, Non-Construction, and Non-Electronic) 17,407 2.4 % 13,823 1.9 %

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Investments at fair value were included in the following geographic regions of the U.S.

as of June 30, 2022 and March 31, 2022:

June 30, 2022 March 31, 2022

as of September 30, 2022 and March 31, 2022:

September 30, 2022 March 31, 2022

Location Fair Value Percentage of

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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 June 30, 2022:

For the remaining nine months ending March 31, 2023 $ 89,488

The following table summarizes the contractual principal repayment and maturity of our investment portfolio by fiscal year, assuming no voluntary prepayments, as of September 30, 2022:

For the remaining six months ending March 31, 2023

For the fiscal years ending March 31:

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Investments in equity securities 164,655

Total cost basis of investments held as of June 30, 2022:

Total cost basis of investments held as of September 30, 2022:

Receivables from Portfolio Companies

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We write-off accounts receivable when we have exhausted collection efforts and have deemed the receivables uncollectible.

As of June 30, 2022 and March 31, 2022, we had gross receivables from portfolio companies of $1.9 million and $1.7 million, respectively.

As of June 30, 2022 and March 31, 2022, the allowance for uncollectible receivables was $1.4 million and $1.3 million, respectively.

As of September 30, 2022 and March 31, 2022, we had gross receivables from portfolio companies of $ 2.1 million and $ 1.7 million, respectively.

As of September 30, 2022 and March 31, 2022, the allowance for uncollectible receivables was $ 1.4 million and $ 1.3 million, respectively.

RELATED PARTY TRANSACTIONS

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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 June 30,

Three Months Ended September 30, Six Months Ended September 30,

2022 2021 2022 2021

Average total assets subject to base management fee (A)

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Multiplied by prorated annual base management fee of 2.0 %

0.5 % 0.5 % 1.0 % 1.0 %

Base management fee (B)

3,613 3,577 7,176 6,897

Credits to fees from Adviser - other (B)

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Loan servicing fee (B)

1,916 1,794 3,674 3,662

Credits to base management fee - loan servicing fee (B)

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Incentive fee – capital gains-based (C)

( 1,669 ) 5,594 ( 736 ) 15,904

Total incentive fee (B)

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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 $36 thousand for the three months ended June 30, 2022, and $69 thousand for the three months ended June 30, 2021, 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.

however, pursuant to the terms of the Advisory Agreement, a small percentage of certain of such fees, totaling $ 70 thousand and $ 106 thousand for the three and six months ended September 30, 2022, respectively, and $ 63 thousand and $ 132 thousand for the three and six months ended September 30, 2021, respectively, was retained by the Adviser in the form of reimbursement, at cost, for tasks completed by personnel of the Adviser, primarily related to the valuation of portfolio companies.

Loan Servicing Fee

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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 June 30, 2022, no capital gains-based incentive fees were contractually due to the Adviser.

As of and for the period ended September 30, 2022, no capital gains-based incentive fees were contractually due to the Adviser.

During the year ended March 31, 2022, capital gains-based incentive fees of $ 5.3 million were contractually due and paid to the Adviser.

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If such amount is negative, then there is no accrual for such period and prior period accruals are reversed, as appropriate.

During the three months ended June 30, 2022, we recorded capital gains-based incentive fees of $0.9 million.

During the three months ended June 30, 2021, we recorded capital gains-based incentive fees of $10.3 million.

During the three and six months ended September 30, 2022, we recorded a reversal of $ 1.7 million and $ 0.7 million, respectively, of previously accrued capital gains-based incentive fees.

During the three and six months ended September 30, 2021, we recorded capital gains-based incentive fees of $ 5.6 million and $ 15.9 million, respectively.

Transactions with the Administrator

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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 months ended June 30, 2022, the fees received by Gladstone Securities from our portfolio companies totaled $0.3 million.

During the three months ended June 30, 2021, the fees received by Gladstone Securities from our portfolio companies totaled $0.1 million.

During the three and six months ended September 30, 2022, the fees received by Gladstone Securities from our portfolio companies totaled $ 1.0 million and $ 1.3 million.

During the three and six months ended September 30, 2021, the fees received by Gladstone Securities from our portfolio companies totaled $ 0.3 million and $ 0.4 million.

Related Party Fees Due

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

As of June 30,

As of September 30,

As of March 31,

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Total related party fees due $ 28,406 $ 29,915

(A) Includes a capital gains-based incentive fee of $26.3 million and $25.4 million as of June 30, 2022 and March 31, 2022, respectively, recorded in accordance with GAAP requirements, and which was not contractually due under the terms of the Advisory Agreement.

(A) Includes a capital gains-based incentive fee of $ 24.7 million and $ 25.4 million as of September 30, 2022 and March 31, 2022, 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 $27 thousand, as of March 31, 2022.

There were no co-investment expenses outstanding as of June 30, 2022.

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.

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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 June 30, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.

As of September 30, 2022, the Credit Facility provided a one-year extension option that may be exercised on or before March 8, 2023, subject to approval by all lenders.

On August 10, 2020, we, through Business Investment, entered into Amendment No.

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

As of June 30, 2022

As of September 30, 2022

As of March 31, 2022

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$ 163,400 $ 180,000

For the Three Months Ended June 30,

For the Three Months Ended September 30,

For the Six Months Ended September 30,

2022 2021 2022 2021

Weighted-average borrowings outstanding $ 11,671 $ 24,355 $ 5,867 $ 25,354

Effective interest rate (B)

20.1 % 10.0 % 35.5 % 9.6 %

Commitment (unused) fees incurred $ 431 $ 397 $ 886 $ 786

(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 $177.4 million and $180.0 million as of June 30, 2022 and March 31, 2022, respectively.

(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 $ 163.4 million and $ 180.0 million as of September 30, 2022 and March 31, 2022, 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 June 30, 2022;

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 $ 286.5 million as of September 30, 2022;

(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 June 30, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $702.1 million, asset coverage on our senior securities representing indebtedness of 261.9%, 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 June 30, 2022, we were in compliance with all covenants under the Credit Facility.

As of September 30, 2022, and as defined in the performance guaranty of the Credit Facility, we had a net worth of $ 698.6 million, asset coverage on our senior securities representing indebtedness of 254.1 %, 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 September 30, 2022, we were in compliance with all covenants under the Credit Facility.

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 June 30, 2022 and March 31, 2022, 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%.

As of September 30, 2022 and March 31, 2022, 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 June 30, 2022 and March 31, 2022, the Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in Net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements of Operations.

We had no borrowings outstanding on the Credit Facility as of June 30, 2022 and March 31, 2022.

The following tables provide relevant information and disclosures about the Credit Facility as of June 30, 2022 and March 31, 2022, and for the three months ended June 30, 2022 and 2021, as required by ASC 820:

As of each of September 30, 2022 and March 31, 2022, the Credit Facility was valued using Level 3 inputs and any changes in its fair value are recorded in Net unrealized appreciation (depreciation) of other on our accompanying Consolidated Statements of Operations.

The following tables provide relevant information and disclosures about the Credit Facility as of September 30, 2022 and March 31, 2022, and for the three and six months ended September 30, 2022 and 2021, as required by ASC 820:

Level 3 – Borrowings

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Statements of Assets and Liabilities Using Significant Unobservable Inputs (Level 3)

June 30, 2022 March 31, 2022

September 30, 2022 March 31, 2022

Credit Facility $ 16,600 $ —

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Credit Facility

Three Months Ended June 30, 2022:

Three Months Ended September 30, 2022:

Fair value at June 30, 2022 $ —

Borrowings 41,500

Repayments ( 24,900 )

Unrealized appreciation (depreciation) —

Fair value at September 30, 2022

Six Months Ended September 30, 2022:

Fair value at March 31, 2022

Borrowings 41,500

Repayments ( 24,900 )

Unrealized appreciation (depreciation) —

Fair value at June 30, 2022

Fair value at September 30, 2022

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

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Credit Facility

Three Months Ended June 30, 2021:

Three Months Ended September 30, 2021:

Fair value at June 30, 2021

Borrowings 32,900

Repayments ( 65,900 )

Unrealized appreciation (depreciation) —

Fair value at September 30, 2021

Six Months Ended September 30, 2021:

Fair value at March 31, 2021

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Unrealized appreciation (depreciation) —

Fair value at June 30, 2021

The fair value of the collateral under the Credit Facility was $566.3 million and $537.5 million as of June 30, 2022 and March 31, 2022, respectively.

Fair value at September 30, 2021

The fair value of the collateral under the Credit Facility was $ 624.9 million and $ 537.5 million as of September 30, 2022 and March 31, 2022, respectively.

Notes Payable

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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 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.

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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 Notes and 2028 Notes as of June 30, 2022 and March 31, 2022:

As of June 30, 2022:

The following tables summarize our 2026 Notes and 2028 Notes as of September 30, 2022 and March 31, 2022:

As of September 30, 2022:

Description Ticker

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The 2028 Notes can be redeemed at our option at any time on or after November 1, 2023.

(B) As of June 30, 2022 and March 31, 2022, asset coverage on our senior securities representing indebtedness, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 261.9% and 252.9%, respectively.

(B) As of September 30, 2022 and March 31, 2022, asset coverage on our senior securities representing indebtedness, calculated pursuant to Sections 18 and 61 of the 1940 Act, was 254.1 % and 252.9 %, respectively.

The fair value, based on the last reported closing prices, of the 2026 Notes and 2028 Notes as of June 30, 2022 was $122.8 million and $126.5 million, respectively.

The fair value, based on the last reported closing prices, of the 2026 Notes and 2028 Notes as of September 30, 2022 was $ 121.8 million and $ 124.8 million, respectively.

The fair value, based on the last reported closing prices, of the 2026 Notes and 2028 Notes as of March 31, 2022 was $ 128.3 million and $ 134.3 million, respectively.

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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.

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.

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 and in May 2014, we amended the agreement with the third-party to include an additional $ 0.1 million.

ASC Topic 860, “ Transfers and Servicing ” required us to treat the participation as a financing-type transaction.

Specifically, the third-party had 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 as of March 31, 2022 reflect the entire secured second lien term debt investment in Ginsey and a corresponding $ 5.1 million secured borrowing liability.

In conjunction with the August 2022 refinancing at Ginsey, the $ 5.1 million secured borrowing liability was extinguished.

MANDATORILY REDEEMABLE PREFERRED STOCK

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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 tables summarize dividends declared by our Board of Directors and paid by us on our Series E Term Preferred Stock during the three months ended June 30, 2021:

For the Three Months Ended June 30, 2021 :

The following tables summarize dividends declared by our Board of Directors and paid by us on our Series E Term Preferred Stock during the six months ended September 30, 2021:

For the Six Months Ended September 30, 2021 :

Declaration Date Record

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April 13, 2021 June 18, 2021 June 30, 2021 0.1328125

July 13, 2021 July 23, 2021 July 30, 2021 0.1328125

July 13, 2021 August 23, 2021 August 31, 2021 0.0796875 (B)

Total $ 0.6109375

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

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

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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 June 30, 2022, we had the ability to issue up to $300.0 million of the securities registered under the registration statement.

As of September 30, 2022, we had the ability to issue up to $ 299.5 million of the securities registered under the registration statement.

Common Equity Offering

In August 2022, we entered into equity distribution agreements with Oppenheimer & Co.

and Virtu Americas LLC (each a “Sales Agent”), under which we have the ability to issue and sell shares of our common stock, from time to time, through the Sales Agents, up to an aggregate offering price of $ 50.0 million in what is commonly referred to as an “at-the-market” program (“Common Stock ATM Program”).

As of September 30, 2022, we had remaining capacity to sell up to an additional $ 49.5 million of common stock under the Common Stock ATM program.

During the three and six months ended September 30, 2022, we sold 29,640 shares of our common stock under the Common Stock ATM Program at a weighted-average gross price of $ 15.75 per share and raised approximately $ 0.5 million of gross proceeds.

The weighted-average net price per share, after deducting commissions and offering costs borne by us, was $ 15.59 and resulted in total net proceeds of approximately $ 0.5 million.

These sales were above our then current

estimated NAV per share.

We did not sell any shares of our common stock under the Common Stock ATM Program during the three and six months ended September 30, 2021.

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 months ended June 30, 2022 and 2021:

Three Months Ended June 30,

The following table sets forth the computation of basic and diluted Net increase in net assets resulting from operations per weighted-average common share for the three and six months ended September 30, 2022 and 2021:

Three Months Ended September 30, Six Months Ended September 30,

2022 2021 2022 2021

Net increase in net assets resulting from operations

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Estimates made on a quarterly basis are updated as of each interim reporting date.

If we determined the tax characterization of cash distributions paid to common stockholders during the current calendar year as of June 30, 2022, 60.6% would be from ordinary income and 39.4% would be from capital gains.

We paid the following cash distributions to our common stockholders for the three months ended June 30, 2022 and 2021:

For the Three Months Ended June 30, 2022 :

If we determined the tax characterization of cash distributions paid to common stockholders during the current calendar year as of September 30, 2022, 61.1 % would be from ordinary income and 38.9 % would be from capital gains.

We paid the following cash distributions to our common stockholders for the six months ended September 30, 2022 and 2021:

For the Six Months Ended September 30, 2022 :

Declaration Date

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April 12, 2022 June 22, 2022 June 30, 2022 0.075

Three Months Ended June 30, 2022 $ 0.345

For the Three Months Ended June 30, 2021 :

July 12, 2022 July 22, 2022 July 29, 2022 0.075

July 12, 2022 August 23, 2022 August 31, 2022 0.075

July 12, 2022 September 22, 2022 September 30, 2022 0.075

Six Months Ended September 30, 2022 $ 0.570

For the Six Months Ended September 30, 2021 :

Declaration Date

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April 13, 2021 June 18, 2021 June 30, 2021 0.070

Three Months Ended June 30, 2021 $ 0.270

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

Six Months Ended September 30, 2021 $ 0.510

(A) Represents a supplemental distribution to common stockholders.

Aggregate cash distributions to our common stockholders declared and paid were $11.5 million and $9.0 million for the three months ended June 30, 2022 and 2021, respectively.

Aggregate cash distributions to our common stockholders declared and paid were $ 18.9 million and $ 16.9 million for the six months ended September 30, 2022 and 2021, respectively.

For the fiscal year ended March 31, 2022, Investment Company Taxable Income exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $ 13.9 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, 2022 net capital gains exceeded distributions declared and paid, and, in accordance with Section 855(a) of the Code, we elected to treat $ 15.7 million of the first distributions paid subsequent to fiscal year-end as having been paid in the prior year.

For the three months ended June 30, 2022, we recorded $0.9 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 and Accumulated net realized gain in excess of distributions on our accompanying Consolidated Statements of Assets and Liabilities .

For the three months ended June 30, 2021, we recorded $0.6 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 six months ended September 30, 2022, we recorded $ 0.4 million and $ 1.3 million, respectively, of net adjustments for estimated permanent book-tax differences to reflect tax character, which decreased Capital in excess of par value and increased Overdistributed net investment income and Accumulated net realized gain in excess of distributions on our accompanying Consolidated Statements of Assets and Liabilities .

For the three months ended September 30, 2021, we recorded $ 2.1 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 and Accumulated net realized gain in excess of distributions on our accompanying Consolidated Statements of Assets and Liabilities .

For the six months ended September 30, 2021, we recorded $ 2.7 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 .

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.

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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 June 30, 2022 and March 31, 2022, we had no established reserves for such loss contingencies.

Additionally, based on our current knowledge, we do not believe such loss contingencies are both probable and estimable and therefore, as of September 30, 2022 and March 31, 2022, we had no established reserves for such loss contingencies.

Escrow Holdbacks

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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 $1.0 million and $0.2 million as of June 30, 2022 and March 31, 2022, respectively.

Reserves and holdbacks against escrow amounts were $ 0.9 million and $ 0.2 million as of September 30, 2022 and March 31, 2022, respectively.

Financial Commitments and Obligations

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Since these lines of credit and delayed draw term debt commitments have expiration dates and we expect many will never be fully drawn, the total line of credit and delayed draw term debt 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 debt commitments as of June 30, 2022 and March 31, 2022 to be insignificant.

As of June 30, 2022, a guaranty is in place with one of our portfolio companies, Country Club Enterprises, LLC (“CCE”), whereby we have guaranteed $1.0 million of CCE’s obligations.

As of June 30, 2022, 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 June 30, 2022 and March 31, 2022 to be insignificant.

The following table summarizes the principal balances of unused line of credit and delayed draw term debt commitments and guaranties as of June 30, 2022 and March 31, 2022, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:

June 30, 2022 March 31, 2022

We estimate the fair value of the combined unused line of credit and delayed draw term debt commitments as of September 30, 2022 and March 31, 2022 to be insignificant.

As of September 30, 2022, a guaranty is in place with one of our portfolio companies, Country Club Enterprises, LLC (“CCE”), whereby we have guaranteed $ 1.0 million of CCE’s obligations.

As of September 30, 2022, we have not been required to make any payments on this guaranty, or any guaranties that existed in previous periods, and we consider the credit risk to be remote and the fair value of the guaranty as of September 30, 2022 and March 31, 2022 to be insignificant.

The following table summarizes the principal balances of unused line of credit and delayed draw term debt commitments and guaranties as of September 30, 2022 and March 31, 2022, which are not reflected as liabilities in the accompanying Consolidated Statements of Assets and Liabilities:

September 30, 2022 March 31, 2022

Unused line of credit and delayed draw term debt commitments

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FINANCIAL HIGHLIGHTS

Three Months Ended June 30,

Three Months Ended September 30, Six Months Ended September 30,

2022 2021 2022 2021

Per Common Share Data:

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Income from investment operations (B)

Net investment income (loss)

Net investment income

0.34 0.07 0.57 —

Net realized gain (loss) on investments and other

0.07 ( 0.05 ) 0.20 0.01

Net unrealized appreciation (depreciation) of investments

( 0.32 ) 0.83 ( 0.32 ) 2.26

Total from investment operations

0.09 0.85 0.45 2.27

Effect of equity capital activity (B)

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( 0.14 ) ( 0.16 ) ( 0.24 ) ( 0.36 )

Cash distributions to common stockholders from realized gains (C)

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

( 0.08 ) ( 0.08 ) ( 0.33 ) ( 0.15 )

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Other, net (B)(D)

— — — ( 0.01 )

Net asset value at end of period (A)

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$ 279,088 $ 276,484 $ 279,088 $ 276,484

Mandatorily redeemable preferred stock (G)

Ratios/Supplemental Data:

Ratio of net expenses to average net assets – annualized (H)

Ratio of net expenses to average net assets – annualized (G)

8.35 % 15.35 % 9.52 % 17.88 %

Ratio of net investment income (loss) to average net assets – annualized (I)

Ratio of net investment income (loss) to average net assets – annualized (H)

10.16 % 2.03 % 8.40 % ( 0.07 ) %

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(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 12.96% and 23.78% for the three months ended June 30, 2022 and 2021, respectively.

(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 4.37% and (5.50)% for the three months ended June 30, 2022 and 2021, respectively.

(G) 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 11.50 % and 17.90 % for the three months ended September 30, 2022 and 2021, respectively, and 12.23 % and 20.73 % for the six months ended September 30, 2022 and 2021, respectively.

(H) 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 7.01 % and ( 0.52 )% for the three months ended September 30, 2022 and 2021, respectively, and 5.69 % and ( 2.91 )% for the six months ended September 30, 2022 and 2021, respectively.

UNCONSOLIDATED SIGNIFICANT SUBSIDIARIES

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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 three month periods ended June 30, 2022 and 2021.

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 six month periods ended September 30, 2022 and 2021.

SUBSEQUENT EVENTS

Investment Activity

• In July 2022, we invested an additional $39.1 million in the form of secured first lien debt in Dema/Mai to fund an add-on acquisition of Dema Plumbing, a plumbing and mechanical systems installation and service provider to single-family residential homebuilders.

• In July 2022, we recapitalized our investment in Horizon and invested an additional $30.0 million in the form of secured first lien debt.

In connection with this investment, we received equity proceeds of $12.3 million, which were recognized as a $10.1 million return of preferred equity cost basis and a realized gain of $2.2 million, as well as dividend income of $3.1 million and success fee income of $1.7 million.

• In October 2022, we invested an additional $ 8.4 million in the form of secured first lien debt in Nocturne to fund an add-on acquisition.

Distributions and Dividends

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

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

Payment Date Distribution per Common Share

July 22, 2022 July 29, 2022 $ 0.075

August 23, 2022 August 31, 2022 0.075

September 22, 2022 September 30, 2022 0.075

October 21, 2022 October 31, 2022 $ 0.080

November 18, 2022 November 30, 2022 0.080

December 6, 2022 December 15, 2022 0.120 (A)

December 20, 2022 December 30, 2022 0.080

Total for the Quarter:

Revolving Line of Credit

As of the date of this report, we had $12.6 million outstanding under the Credit Facility.

(A) Represents a supplemental distribution to common stockholders.

Election of Director

Effective October 11, 2022, Paula Novara was elected to our Board of Directors.

Novara also serves as head of human resources, facilities and office management and IT of the Adviser and certain of its affiliates.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements