GLADSTONE INVESTMENT CORPORATION\DE

Gladstone Investment Corporation (GAIN) operates as an externally managed, closed-end, non-diversified management investment company, structured as a Business Development Company (BDC) and electing to be treated as a Regulated Investment Company (RIC) for U.S. federal income tax purposes ¹. The company's core business model involves investing in debt and equity securities of established private businesses in the United States, primarily focusing on the Lower Middle Market, defined as private companies with annual EBITDA of $5 million to $25 million ². Revenue is generated through interest income from debt securities, dividend income, and success fees, which are generally recognized upon receipt due to their contingent nature ³. The company aims for a portfolio composition of approximately 70% in debt investments and 30% in equity investments, at cost, to achieve current income growth and long-term capital appreciation ⁴.

As of March 31, 2026, GAIN's investment portfolio consisted of 70.8% in debt investments and 29.2% in equity investments, at cost ⁵. The portfolio was diversified across 29 portfolio companies located in 20 states and Canada, spanning 16 different industries ⁶. The five largest portfolio investments by fair value were SFEG Holdings, Inc., The E3 Company, LLC, Schylling, Inc., Brunswick Bowling Products, Inc., and Detroit Defense, Inc., collectively comprising $582.6 million, or 44.5%, of the total investment portfolio ⁷.

For the fiscal year ended March 31, 2026, GAIN reported total investment income of $99.077 million ⁸, an increase of 5.8% from the prior year ⁹. Gross expenses before credits from the Adviser were $120.083 million ¹⁰, leading to total expenses, net of credits, of $102.829 million ¹¹. The company recorded a net investment loss of $3.752 million ¹², compared to net investment income of $28.095 million in the prior year ¹³. Net realized loss on investments was $26.294 million ¹⁴, primarily due to the restructuring of J.R. Hobbs Co. - Atlanta, LLC ¹⁵. However, net unrealized appreciation of investments was $216.146 million ¹⁶, resulting in a net increase in net assets from operations of $184.753 million ¹⁷. Diluted EPS was a loss of $0.10 ¹⁸ for net investment income and a gain of $4.77 ¹⁹ for net increase in net assets from operations. As of March 31, 2026, cash and cash equivalents totaled $1.157 million ²⁰, and total borrowings were $564.474 million ²¹. The net asset value per share was $16.78 ²².

Year-over-year, total investment income increased by $5.415 million ²³, or 5.8% ²⁴, driven by a $6.129 million ²⁵ increase in interest income, partially offset by a $0.714 million ²⁶ decrease in dividend and success fee income ²⁷. Total expenses, net of credits, increased by $37.262 million ²⁸, or 56.8% ²⁹, primarily due to a $26.015 million ³⁰ increase in incentive fees and an $8.894 million ³¹ increase in interest expense on borrowings ³². The net investment loss of $3.752 million ³³ for the current year represents a significant decline from the prior year's net investment income of $28.095 million ³⁴. Net unrealized appreciation of investments saw a substantial positive shift, increasing by $242.106 million ³⁵ from a depreciation of $25.960 million in the prior year to an appreciation of $216.146 million in the current year ³⁶.

During the fiscal year, GAIN invested in four new portfolio companies: Smart Chemical Solutions, LLC ($49.5 million) ³⁷, Sun State Nursery and Landscaping, LLC ($12.8 million) ³⁸, Global GRAB Technologies, Inc. ($67.6 million) ³⁹, and Rowan Energy Inc. ($33.1 million) ⁴⁰. A significant operational development was the restructuring of the investment in PSI Molded Plastics, Inc., converting $10.6 million of debt into preferred equity ⁴¹. Additionally, the company restructured its investment in J.R. Hobbs Co. - Atlanta, LLC, resulting in a realized loss of $29.9 million ⁴². GAIN also issued $60.0 million of 6.875% Notes due 2028 ⁴³ and $100.0 million of 7.125% Notes due 2031 ⁴⁴, and sold 2,984,586 shares of common stock under its "at-the-market" program for gross proceeds of approximately $42.1 million ⁴⁵. The 8.00% 2028 Notes were voluntarily redeemed for $74.8 million ⁴⁶.

Management has declared monthly cash distributions to common stockholders of $0.08 per common share for April, May, and June 2026, totaling $0.24 per common share for the quarter ⁴⁷.

The company's investment strategy continues to focus on 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. ⁴⁸. GAIN has invested in four new portfolio companies during the fiscal year ended March 31, 2026, and from inception through March 31, 2026, has invested approximately $2.2 billion in 66 companies ⁴⁹. The company anticipates that liquidity in its equity positions will be achieved through mergers, acquisitions, recapitalizations, or public offerings of portfolio company stock, or, to a lesser extent, by exercising rights to repurchase warrants ⁵⁰. The Co-Investment Order granted by the SEC in September 2025 is expected to enhance the company's ability to further its investment objectives and strategies by allowing co-investments with certain affiliates under more flexible "fair and equitable" allocation requirements ⁵¹.

Regarding operational outlook, the company's investment portfolio is expected to consist of approximately 70% in debt investments and 30% in equity investments, at cost, over time ⁵². As of March 31, 2026, the portfolio was 70.8% debt and 29.2% equity, at cost ⁵³. The company's loan portfolio consisted of 100.0% variable rate loans with floors as of March 31, 2026 ⁵⁴. The weighted-average yield on interest-bearing investments was 13.3% for the year ended March 31, 2026 ⁵⁵. The company aims to limit federal excise taxes by distributing an amount close to the sum of 98% of its ordinary income for the calendar year, 98.2% of its net capital gains for the one-year period ending October 31, and any undistributed income from the preceding period ⁵⁶.

Planned capital allocation includes continued reliance on external financing, including extensions and increases to its Credit Facility and public offerings of unsecured notes and common stock ⁵⁷. The Credit Facility has a total commitment amount of $300.0 million with a revolving period end date of October 30, 2026 ⁵⁸. As of May 1, 2026, the company repaid $127.9 million of 5.00% 2026 Notes ⁵⁹. The company has remaining capacity to issue up to an additional $119.3 million of securities under its registration statement on Form N-2 ⁶⁰ and up to an additional $30.8 million of common stock under the 2024 Common Stock ATM Program ⁶¹.

Management explicitly flagged several structural headwinds and execution risks. Market conditions, including changes in interest rates, credit spreads, inflation, and geopolitical conflicts, could negatively impact the business ⁶². Volatility in capital markets may make it difficult to raise capital and adversely affect investment valuations ⁶³. The illiquidity of privately held investments may hinder quick cash realization ⁶⁴. Investments in Lower Middle Market companies are inherently risky, with potential for greater exposure to economic downturns, limited financial resources, narrower product lines, less predictable operating results, and dependence on key personnel ⁶⁵. The portfolio's concentration in a limited number of companies and industries increases the risk of significant loss ⁶⁶. The ability to renew, extend, or replace the Credit Facility on favorable terms is crucial for liquidity and funding new investments ⁶⁷. Regulatory limitations under the 1940 Act, particularly the 150% asset coverage requirement, constrain the ability to issue senior securities and pay distributions ⁶⁸. The company is dependent on its key management personnel and the Adviser, and the Adviser's compensation structure may induce it to make riskier or more speculative investments ⁶⁹.

The company faces material risks including market conditions such as changes in interest rates, credit spreads, inflation, geopolitical conflicts, and risks of recession, which could negatively impact its business, results of operations, cash flows, and financial condition ⁷⁰. Volatility in the capital markets may impede capital raising efforts and adversely affect investment valuations ⁷¹. The illiquidity of privately held investments could make it difficult to obtain cash quickly, potentially leading to substantial realized losses if forced to liquidate ⁷². Investments in Lower Middle Market companies are inherently risky due to their greater exposure to economic downturns, limited financial resources, narrower product lines, less predictable operating results, and dependence on key personnel ⁷³. The portfolio's concentration in a limited number of companies and industries, with the five largest investments representing 44.5% of the total investment portfolio at fair value as of March 31, 2026 ⁷⁴, subjects the company to an increased risk of significant loss if any of these companies underperform or if the industries experience downturns ⁷⁵. Specifically, investments related to the oil and gas industry, representing 9.6% of the total portfolio at fair value as of March 31, 2026 ⁷⁶, are exposed to volatility in oil and natural gas prices ⁷⁷. The company's Credit Facility contains covenants, including a minimum net worth of $476.6 million as of March 31, 2026 ⁷⁸ and an asset coverage of at least 150% ⁷⁹, which, if not complied with, could accelerate repayment obligations and materially adversely affect liquidity and ability to pay distributions ⁸⁰. Cybersecurity risks and cyber incidents, including those employing artificial intelligence, could disrupt operations, compromise confidential information, and damage business relationships ⁸¹.

Management's message to shareholders emphasizes a continued focus on its 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. The company aims to achieve and grow current income through debt securities and provide long-term capital appreciation through equity investments. Management has declared monthly cash distributions of $0.08 per common share for April, May, and June 2026, totaling $0.24 per common share for the quarter ⁸². Strategic priorities include leveraging the expanded Co-Investment Order to enhance investment opportunities, actively monitoring and managing the existing portfolio to mitigate risks and drive performance, and maintaining access to capital markets to fund new investments and support growth. The recent appointment of David Dullum as Chief Executive Officer and Erika Highland as President effective October 1, 2026, along with John Sateri as Chief Investment Officer, highlights a focus on leadership continuity and investment expertise.