GLADSTONE INVESTMENT CORPORATIONDE

RESULTS OF OPERATIONS

Comparison of the Three Months Ended June 30, 2024 to the Three Months Ended June 30, 2023

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Investment Income

Total investment income increased $1.9 million, or 9.3%, for the three months ended June 30, 2024, as compared to the prior year period, primarily due to an increase in interest income, partially offset by a decrease in dividend and success fee income.

Interest income from our investments in debt securities increased $2.2 million, or 12.1%, for the three months ended June 30, 2024, as compared to the prior year period. Generally, the level of interest income from investments is directly related to the weighted-average 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 June 30, 2024 was $571.0 million, compared to $495.3 million for the prior year period. This increase was primarily due to the $92.4 million of follow-on debt investments in existing portfolio companies and the origination of $46.8 million of new debt investments after March 31, 2023, partially offset by $31.0 million of pay-offs, restructurings, or write-offs of debt investments and $27.0 million of loans placed on non-accrual status after March 31, 2023, 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 14.5% for the three months ended June 30, 2024, compared to 14.7% 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, coupled with any collection of past due interest during the period.

As of June 30, 2024, certain of our loans to B+T Group Acquisition, Inc., Diligent Delivery Systems, Edge Adhesives Holdings, Inc. ("Edge"), and J.R. Hobbs Co. – Atlanta, LLC ("J.R. Hobbs") were on non-accrual status, with an aggregate debt cost basis of $86.1 million. As of June 30, 2023, our loans to Edge, J.R. Hobbs and The Mountain Corporation were on non-accrual status, with an aggregate debt cost basis of $66.9 million.

As of June 30, 2024, SFEG Holdings, Inc. ("SFEG") represented 10.3% of the total investment portfolio at fair value. As of March 31, 2024, SFEG represented 10.1% of the total investment portfolio at fair value.

Dividend and success fee income for the three months ended June 30, 2024 decreased $0.4 million, or 18.6%, from the prior year period. During the three months ended June 30, 2024, dividend and success fee income consisted of $1.6 million of success fee income. During the three months ended June 30, 2023, dividend and success fee income consisted of $1.9 million of dividend income.

Expenses

Total expenses, net of any non-contractual, unconditional, and irrevocable credits from the Adviser, decreased $2.1 million, or 17.7%, during the three months ended June 30, 2024, as compared to the prior year period, primarily due to a decrease in incentive fees, partially offset by an increase in interest expense, other expense and base management fee expense and a decrease in credits from the Adviser.

In accordance with GAAP, during the three months ended June 30, 2024, we recorded a $3.8 million reversal of previously accrued capital gains-based incentive fee compared to a capital gains-based incentive fee of $0.1 million during the three months ended June 30, 2023. The capital gains-based incentive fee is 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 decreased by $2.1 million, for the three months ended June 30, 2024, as compared to the prior year period, primarily due to a decrease in pre-incentive fee net investment income and 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:

(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 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 expense increased $1.5 million, or 30.3%, during the three months ended June 30, 2024, as compared to the prior year period, primarily due to interest expense related to the 8.00% 2028 Notes issued in May 2023 and increased borrowings on the Credit Facility, partially offset by a decrease in the effective interest rate. The weighted-average balance outstanding under the Credit Facility during the three months ended June 30, 2024 was $64.7 million, compared to $43.6 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 June 30, 2024 was 10.8%, as compared to 11.2% in the prior year period. The decrease in the effective interest rate on the Credit Facility was primarily a result of the decrease in the unused fee associated with the undrawn portion of the Credit Facility, partially offset by an increase in interest rates.

Other expenses increased $1.0 million, or 100.6%, during the three months ended June 30, 2024, as compared to the prior year period, due to an increase in bad debt expense.

Realized and Unrealized Gain (Loss)

The realized gains (losses) and unrealized appreciation (depreciation) across our investments for the three months ended June 30, 2024 and 2023 were as follows:

Net Realized Gain (Loss)

During the three months ended June 30, 2024, we recorded net realized gains on investments of $2 thousand, primarily due to the realized gain from the exit of Funko. During the three months ended June 30, 2023, we recorded net realized gains on investments of $1.2 million, primarily due to $0.9 million of realized gains related to a prior period exit and a $0.3 million realized gain from the recapitalization of Old World Christmas, Inc.

Net Unrealized Appreciation (Depreciation)

Net unrealized depreciation of investments of $18.9 million for the three months ended June 30, 2024 was primarily due to a decrease in transaction multiples used to estimate the fair value of certain of our portfolio companies and a decrease in performance of certain of our portfolio companies. These decreases were partially offset by increased performance of certain of our other portfolio companies.

Net unrealized depreciation of investments of $0.8 million for the three months ended June 30, 2023 was primarily due to decreased performance of certain of our portfolio companies. These amounts were partially offset by increased performance of certain of our other portfolio companies and an increase in transaction multiples used to estimate the fair value of certain of our portfolio companies.

Across our entire investment portfolio, we recordednet unrealized depreciation of $10.1 million on our debt positions and net unrealized depreciation of$8.8 million on ourequity positions for thethree months ended June 30, 2024. As of June 30, 2024, the fair value of our investment portfolio was more than the cost basis by $47.3 million, as compared to March 31, 2024, when the fair value of our investment portfolio was more than the cost basis by $66.2 million, representing net unrealized depreciation of$18.9 million for thethree months ended June 30, 2024. Our entire portfolio had a fair value of 105.5% of cost as of June 30, 2024.