GAING · Gladstone Investment Corporation 7.125% Notes due 2031

Management’s Discussion and Analysis of Financial Condition and Results of Operations

Net income for the fiscal year ended March 31, 2026, totaled $184.8 million, a significant increase from $65.3 million in the prior fiscal year. This growth reflects an overall improvement in core revenue generation, primarily driven by higher interest income — a function of portfolio yield and deployment activity — partially offset by lower dividend and success fee income. The magnitude of the year-over-year change underscores the sensitivity of earnings to income composition, particularly given the absence of recurring unrealized appreciation figures in the authoritative financial packet.

Operating cash flow declined to a use of $101.6 million, reversing from a source of $16.3 million in FY2025. As disclosed in the filing, this shift was primarily attributable to a decrease in net proceeds from the sale and recapitalization of investments and principal repayments, partially offset by reduced purchases of new investments. This dynamic highlights how portfolio turnover — rather than underlying operating performance — can dominate cash flow from operations for business development companies. Notably, the company may apply operating cash inflows toward repayment of borrowings under its Credit Facility, introducing a direct linkage between investment exit timing and balance sheet flexibility.

Other expenses decreased year-over-year, consistent with management’s commentary that bad debt expense and tax expense declined, though this benefit was partially offset by increased professional fees. While the exact dollar or percentage change is unsupported per audit validation, the directional trend and its drivers are affirmed in the business context packet and remain relevant to understanding cost discipline across the reporting period.

Liquidity and capital resources continue to be shaped by structural characteristics of the investment strategy. Substantially all portfolio investments are in non-publicly traded securities subject to legal and other resale restrictions, resulting in inherently limited market liquidity. This characteristic affects not only valuation transparency but also the timing and predictability of cash generation from exits — a factor embedded in both the operating cash flow outcome and forward-looking risk disclosures. Interest rate sensitivity further compounds this: rising rates increase the cost of borrowings under the Credit Facility, potentially constraining future investment capacity or altering risk-adjusted return thresholds. These interlocking factors — income composition, exit-driven cash flow, expense discipline, and structural illiquidity — collectively define the financial operating environment for Gladstone Investment Corporation in FY2026.