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Gladstone Investment Corporation Quarterly Overview for the period ended June 30, 2012

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Page 1: Gladstone Investment

Gladstone Investment Corporation

Quarterly Overview

for the period ended June 30, 2012

Page 2: Gladstone Investment

Legal Disclaimer

This presentation may include forward-looking statements. These forward-looking

statements include comments with respect to our objectives and strategies, and the results

of our operations and our business.

However, by their nature, these forward-looking statements involve numerous assumptions,

uncertainties and opportunities, both general and specific. The risk exists that these

statements may not be fulfilled. We caution readers of this presentation not to place undue

reliance on these forward-looking statements as a number of factors could cause future

company results to differ materially from these statements.

Forward-looking statements may be influenced in particular by factors such as fluctuations

in interest rates and stock indices, the effects of competition in the areas in which we

operate, and changes in economic, political, regulatory and technological conditions. We

caution that the foregoing list is not exhaustive.

When relying on forward-looking statements to make decisions, investors should carefully

consider the aforementioned factors as well as other uncertainties and events.

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Page 3: Gladstone Investment

Overview

• Gladstone Investment Corporation

• Business Development Company (BDC) with publicly traded common and preferred stock

• Common stock (NASDAQ: GAIN)

• Preferred stock (NASDAQ: GAINP)

• Managed by Gladstone Management Corporation, an investment adviser registered with the SEC that manages more than a billion dollars of assets

• One of a family of funds known as The Gladstone Companies (www.gladstone.com)

• Focused on investing in subordinated debt, preferred stock, and common stock or warrants to purchase common stock in buyouts of private U.S. businesses

• Went public in 2005 and has never missed paying a monthly dividend

• Current common stock dividend is $0.60 per share (per year), paid monthly at $0.05 per share

• Paid $0.03 bonus dividend per common share in March 2012

• First preferred stock dividend was paid in March 2012. The annual rate is 7.125% or $0.1484 per month per share

• Current Portfolio

• Over $230 million at fair value in total investments as of June 30, 2012

• Invested in 18 companies, 13 states, 13 industries as of June 30, 2012

Disclaimer: Past performance is not an indication of future performance

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Page 4: Gladstone Investment

What is Gladstone Investment?

• Gladstone Investment Corporation is a publicly traded business development company (BDC) that invests in debt and equity securities consisting primarily of subordinated loans, mezzanine debt, preferred equity, and common stock or warrants to purchase common stock in small and medium-sized U.S. businesses in connection with buyouts and other recapitalizations.

• The company seeks to:

• Lend to and invest in companies with proven cash flows and successful track records led by great managers

• Generate current income to pay monthly dividends to stockholders

• Achieve capital gains from the sale of appreciated equity securities

• Gladstone Investment is operated by an experienced management team, as discussed in the following slides

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Page 5: Gladstone Investment

Experienced Management Team

David Gladstone, Chairman & CEO

• Over 25 years of experience investing in mid-sized and small private

businesses

• Current Chairman and CEO of all three Gladstone funds, these are

public companies numbers 7, 8, and 9 in his career

• Past Chairman of Allied Capital and American Capital

• MBA from Harvard Business School; MA from American University;

BA from University of Virginia

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Page 6: Gladstone Investment

Experienced Management Team

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Terry Brubaker, COO

• More than 25 years experience in managing businesses

• Currently COO and head of all portfolio management for all three Gladstone public funds

• Previously on the acquisition team of James River Corp., as it grew from $200 million to $7 billion in revenues

• Group VP of two operating divisions at James River with 2,300 employees, $440 million in revenue and 14 locations

• After James River, was CEO of two businesses with 800 employees, $250 million in revenue and 4 locations

• Former consultant with McKinsey & Company

• MBA from Harvard Business School; BSE in Aeronautical Engineering from Princeton University

Chip Stelljes, CIO

• More than 25 years experience in portfolio investing

• Currently CIO and head of all investing for all Gladstone public funds, reviewing hundreds of opportunities and supervising the due diligence process on each new investment

• Past EVP at Allied Capital, making loans and investments in middle market companies

• Past manager of Camden Partners and Columbia Capital funds, investing in communications, healthcare and business services

• MBA from University of Virginia Business School; BA Degree in Economics from Vanderbilt University

David Dullum, President

• More than 25 years experience in portfolio investing

• Currently head of Gladstone Investment and seeking mezzanine and buyout opportunities

• Experienced in investing, due diligence, reviewing hundreds of new opportunities and reviewing each new investment

• Past partner of New England Partners, a small buyout fund located in Boston and Washington, DC

• Past partner of Frontenac Company for over 14 years in Chicago, investing in many mid-market businesses in the Midwest

• MBA from Stanford; BS in Engineering from Georgia Tech

Page 7: Gladstone Investment

Experienced Management Team

Over 20 professionals concentrating on sourcing, due diligence and portfolio management and 15 professionals in reporting

*Directors noted here are not members of the funds’ boards of directors, rather, these are junior Managing Director positions of the Adviser

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Managing Directors and Directors*

David Gladstone Terry Brubaker Chip Stelljes David Dullum Bob Cutlip

Chairman & CEO Chief Operating Officer Chief Investment Officer President Sr. Managing Director

25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience 25+ Years Experience

Buzz Cooper

25+ Years Experience

Chris Massey

19 Years Experience

Bob Pierce

25+ Years Experience

Lud Kimbrough

25+ Years Experience

John Freal

25+ Years Experience

David Meier

25+ Years Experience

Laura Gladstone

12 Years Experience

John Sateri

23 Years Experience

Jennifer Simpson

12 Years Experience

Chris Daniel

20 Years Experience

Matt Tucker

13 Years Experience

Greg Bowie

10 Years Experience

M. Kipp Kranbuhl

14 Years Experience

Chris Lee

11 Years Experience

Michael Beckett

17 Years Experience

Blair Gertmenian

10 Years Experience

Erika Highland

11 Years Experience

Kyle Largent

10 Years Experience

Page 8: Gladstone Investment

Target Market

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Why we target companies in the lower middle market

Smaller companies typically offer a more compelling investment profile

than larger ones because of:

Lower purchase price multiples

Lower debt multiples

More protective covenants for lenders

Meaningful equity co-investment and likely multiple expansion upon exit

Small businesses are often less complicated

Page 9: Gladstone Investment

Examples of Investments Made in Private Businesses

• Small manufacturer of a product or a service business needs money to grow

• Banks will make short-term loans if the business has collateral and solid cash flow

• The business gets from us: – Management expertise,

– A long-term loan, but at a higher interest rate, and

– Additional capital in the form of an equity co-investment

• We typically get: – An attractive long-term loan that pays monthly interest that we can

pass on as monthly dividends to our shareholders,

– Board seats and an ownership stake in the company through our equity investment, and

– Potential for accrued dividend payouts on our preferred equity, as well as capital appreciation of our common stock upon an exit

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Page 10: Gladstone Investment

Examples of Areas Where We Invest

• Light manufacturing

• Manufacturing of small products

• Specialty manufacturing

• Custom and precision manufacturing

• Chemicals, plastics and rubber manufacturing

• Packaging and specialty items

• Business services

• Service companies with logistic services

• Consumer products

• Specialty items

• Leisure and entertainment

• Equipment and products

• Distribution and transportation

• Storage and transportation of parts

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Page 11: Gladstone Investment

Industries We Avoid

• Housing or Home Mortgage

• Auto Manufacturing & Tier One Suppliers

– However, we have one investment, Auto Safety House,

that is in the business of selling and servicing school

busses and school bus parts.

• Banks & Financial Institutions

• High-tech Companies or Early Stage Start-ups

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Page 12: Gladstone Investment

Typical Investment Structure

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Options to own Common Stock

Preferred stock

Dividend paid or accrued at 6% to

8% per year

5 year term

Common stock or warrants to purchase

common stock

Usually accompanied by options that

provide an exit from common stock

Expected gross return is 25% to 30%

Preferred & Common Stock

(20%)

Senior-variable rates with current pay of 8-

10%

Subordinated-variable with a floor and

fixed rates with current pay of 12-15%

5-year term with interest only paid

1st and 2nd Lien: some collateral and

reasonable cash flow coverage

Strong inter-creditor agreement that avoid

blockage of interest payments

Reasonable leverage ratios and attractive

terms

Options or success fees to enhance the

return

Expected gross return is 18% to 20%,

depending on risk profile

Senior & Junior Debt

(80%)

Disclaimer: Past performance is not an indication of future performance

Page 13: Gladstone Investment

Track Record

• Common Stock traded on NASDAQ (GAIN) – Paying $0.05 per share per month, or $0.60 per share per year

– Paid bonus dividend of $0.03 per share in March 2012

• Preferred Stock traded on NASDAQ (GAINP) – Paying $0.1484 per share per month, or $1.78 per share per year

• Conservative balance sheet: – Debt to equity ratio of 0.4 to 1.0 as of June 30, 2012, net of short-term

borrowings

– $31 million borrowed on $60 million line of credit

• Invested in 18 companies as of June 30, 2012

• At June 30, 2012, had two investments in default, representing 2.0% of our investment portfolio at fair value

Disclaimer: Past performance is not an indication of future performance

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Page 14: Gladstone Investment

Portfolio Diversification as of June 30, 2012

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Gladstone Investment: By Industry at fair value

Chemicals, Plastics and Rubber - 20.5%

Machinery (Non-Agriculture, Non-Construction and Non-Electronic) - 14.2%

Leisure, Amusement, Motion Pictures, Entertainment - 13.3%

Diversified/Conglomerate Manufacturing - 11.1%

Containers, Packaging and Glass - 10.8%

Electronics - 9.6%

Beverage, Food and Tobacco - 4.1%

Buildings and Real Estate - 3.9%

Oil and Gas - 3.8%

Cargo Transport -3.8%

Automobile

Aerospace and Defense - 1.5%

Home and Office Furnishings - 1.4%

Page 15: Gladstone Investment

Geographic Diversification as of June 30, 2012

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We have outstanding investments to businesses in states highlighted in blue

Page 16: Gladstone Investment

Historical Net Investment Income

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Net Investment Income

FYE March 31:

Total Amount

(in millions)

Amount Per

Common Share

2006 $5.9 $0.36

2007 $11.1 $0.67

2008 $13.1 $0.79

2009 $13.4 $0.62

2010 $10.6 $0.48

2011 $16.2 $0.73

2012 $13.7 $0.62

2013* $13.0 $0.59

*Annualized based on 3 months operating results

Disclaimer: Past performance is not an indication of future performance

Page 17: Gladstone Investment

Gladstone Statistics vs. Public Market BDCs

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GAIN BDC Median

Price/NAV 0.82x 0.99x

Debt/Equity 35.3%(1) 53.6%

Dividend Yield 8.0% 9.7%

Market Cap $165 $305

(1) Excludes short-term borrowings.

Source: Raymond James BDC Industry Weekly Newsletter, August 3, 2012

Disclaimer: Past performance is not an indication of future performance

Page 18: Gladstone Investment

We are a Shareholder Focused Company

• Maintain the monthly distribution and grow that distribution when earnings increase

• Emphasis on stability of income first and growth in income second

• Maintain liquidity so shareholder may buy or sell the stock in the market

• Quarterly published reports and quarterly calls to shareholders

• Robust informational website (www.gladstoneinvestment.com) and notifications by e-mail to those who sign up

• Shareholder dividend reinvestment plan for common stock

• Audited by PricewaterhouseCoopers LLP

• Investor Relations Hotline: (866) 366-5745

• Adviser with strong reputation (www.gladstone.com)

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Page 19: Gladstone Investment

Highlights

• Experienced Management Team: Operating team with a successful track record underwriting private businesses

• Successful CEO: Has a “brand name” reputation demonstrated by the success of nine public companies

• Business Model: Emphasis on deal flow from a proprietary originations network and strategic relationships with LBO funds

• Market Opportunity: Right time in the business cycle to take advantage of the lack of funding for businesses

• Conservative Underwriting: Focused on the cash flow of the small value-oriented businesses

• Focused on Interest Income Plus Capital Gains: Interest payments on our loans allow us to pay dividends to our shareholders and capital gains are extra

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Page 20: Gladstone Investment

Why Own GAIN Stock

• Common stock current yield of 8.0% at August 15, 2012

• Preferred stock current yield of 7.0% at August 15, 2012

• 85 straight monthly distributions since its IPO as of August 1, 2012

plus a bonus one-time dividend paid in March 2012

• Potential for significant appreciation or capital gain distributions from

equity investments

• Diversification of borrowers in various states and various industries to

protect the dividend

• Investing in small- and mid-sized U.S. businesses with steady cash

flows and good growth prospects

• Liquidity for investors – common and preferred stocks are listed on

NASDAQ (GAIN & GAINP)

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Disclaimer: Past performance is not an indication of future performance

Page 21: Gladstone Investment

Other Information

• Website for Gladstone Investment

• www.gladstoneinvestment.com

• Contains much more information about our company and the companies in our portfolio

• Website for our investment adviser

• www.gladstonemanagement.com

• Information on all funds managed by the company’s investment adviser

• www.gladstone.com

• Common stock traded on NASDAQ (GAIN)

• Preferred stock traded on NASDAQ (GAINP)

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