Good morning and welcome to the Gladstone Investment Corporation Third Quarter Ended September 30, 2013 Shareholders Conference Call. [Operator Instructions]. After today's presentation there will be an opportunity to ask questions. [Operator Instructions]. Please note that this event is being recorded. Now I would like to turn the conference over to David Gladstone. Mr. Gladstone, please go ahead.

All right, thank you, Keith for that nice introduction and hello and good morning. This is David Gladstone, The Chairman and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment. Common stock is traded on NASDAQ under the GAIN and the preferred stock is trading under GAINP for preferred. Again thank you all for calling in, we love these times with shareholders to get some good questions and those kind of things and all of you take the opportunity to visit the website at www.gladstoneinvestment.com where you can sign up for email notices, so you can receive information about us in the timely fashion. And please remember that if you are ever in the Washington D.C. area, you have an open invitation to visit us here in McLean, Virginia. Please stop try and say hello. You'll see some of the finest people in the business. Now, let me read the statement about forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of the Securities Act of 1933 and the Securities Exchange Act of 1934 including statements with regard to the future performance of the company. These forward-looking statements inherently involve certain risks and uncertainties and other factors even though they are based on our current plans and we believe those plans to be reasonable. Many of these forward-looking statements can be identified by the use of words such as anticipate, believes, expects, intends, will, should, may, all of those and similar expressions. There are many factors that may cause our actual results to be materially different from any future results that are expressed or implied by these forward-looking statements including the factors listed under the caption Risk Factors that are seen in our 10-K and 10-Q filings and in our registration statement that’s filed with the Securities and Exchange Commission. All of those can be found on our website at www.gladstoneinvestment.com or on the SEC website at www.sec.gov. Company undertakes no obligation to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise after the date of this conference call. Please note that past performance or market information is not a guarantee of future results. Now we will hear from Dave Dullum. He is President and a Board member of the company. He will cover a lot of ground including views of the future of this fund. Dave, take it away.

Well, thank you David, and good morning all shareholders. As you know Gladstone Investment provides capital where businesses are being purchased by management team and other equity investors and these are used in companies with annual sales between $20 million to $100 million. And we provide a subordinated debt and the equity and occasionally some senior debt in these transactions. So this combination really produces a mix of assets for Gladstone Investment, your company, which is the basis of this strategy. Our debt investments provide income to pay our dividends while we expect the equity to appreciate, build shareholder value, provide capital gains and overtime collectively grow our dividend. This is a bit different from other public BDCs that are predominately debt focused. So please keep in mind that the equity portions of our assets are important to the overall value of your company. For example, in August we sold Venyu Solutions, Inc. a company that we purchased with its management team in late 2010. The equity portion of this investment generated cash proceeds of approximately $32.2 million resulting in a realized capital gain of approximately $24.8 million and the dividend income along the way of about $1.4 million. So in addition, we received a full repayment of our debt investment of $19 million and an additional $1.9 million in success fee income. Therefore our original $6 million equity investment, generated approximately a 5.5x return on that equity and this is including the dividends that we have received. So it’s representative of what we try to do here and hopefully we can continue making these types of investments. So state of Venyu is actually the fourth exit of our management supported buyout investments since June of 2010. These 4 investment events over the years have generated about $54.5 million in…

Alright. Good report, that was a great quarter. We are excited about the future of this company. Now let’s hear from the CFO and Treasurer, David Watson on the fund’s financial performance for this quarter. David?

Thanks David. Good morning everyone. As Dave Dullum noted, we had a big win with the sale of Venyu. This transaction generated approximately $24.8 million in realized gains along with $3.2 million in fee and dividend income which helped enable us to have a really strong quarter. However, I think it’s important to note, that if one excludes the impact of the Venyu sale from our financials, we still had a solid quarter with 5.2% net investment income growth quarter-over-quarter. So with these overriding thoughts in mind, I will get into the details. Regarding our balance sheet, at the end of the September quarter we had $347 million in assets consisting of $287 million in investments at fair value, $47 million in cash and cash equivalents and $13 million in other assets. Included in the cash and cash equivalents is $25 million U.S. treasury securities purchased through the use of borrowed funds at quarter end to satisfy our assets diversification requirements. The amount of these T-bills that we have had to purchase has generally been coming down consistently over the past year. And I am happy to report that we would have passed the diversification requirements this quarter without purchasing any T-bills. However we will continue to utilize the purchase of T-bills until we are 100% confident with our margins of error on the test. So moving to our liabilities, we had $106 million, consisting of $40 million in terms preferred stock, $34 million in borrowings outstanding on our 3 year credit facility, $5 million in secured borrowings, $22 million borrowed with a short term loan and $5 million in other liabilities. In all as of September 30, 2013 we had $241 million in net assets or $9.12 per common share. So we are less than 1 to 1 leverage…

Alright. That was a great report David Watson and I hope each of our listeners will read our press release and also obtain a copy of the quarterly report called a 10-Q which has been filed with the SEC and can be accessed on our website at www.gladestoneinvestment.com it’s also on the SEC website. With our quarter ending September 30, the major news for the quarter was the sale Venyu which has been touched on several times now. And the continued investment in new portfolio companies that we think for the rest of the fiscal year will continue to be a good time to invest. Given the liquidity generated from the Venyu sale and the expansion of our line of credit from $70 million to $105 million this year and with the addition of 2 new lenders, we have room to borrow under the line. So we are looking for new investment opportunities and continue to move forward. This is really a fabulous time right now and has a great opportunity for the future. On the other hand as we always mention people ask us about what’s going on in the business world and we are still worried about the economy, it’s not growing, I think there is still hope. And here is the problem that we are in today, difficult times to invest because there is so many externalities as they're called, external things that are in the mix. We ask questions about these things every time before we invest and unfortunately we don’t have a good answer for any of them because they are beyond our control. We are still worried that oil prices could spike, they are in great shape now. We had a lot of excess oil being recovered and the natural gas supply is increasing…

[Operator Instructions]. And the first question comes from the Mickey Schleien with Ladenburg.

Question first for David Gladstone, this year the volume in the middle market loans and debt has been driven to a great extent by refinancings, but I wanted to get your sense of how the M&A market is developing, particularly given that the equity markets are all-time highs and we are seeing expansion of valuation and that may motivate some folks to sell?

Mickey, this comes up a lot around the office in talking. The way I look at the market and I will let David Dullum speak to it in just a minute is that there is anywhere from 200,000 to 250,000 businesses that gets sold every year and half of those are really small businesses that are almost people just buying a job. There is another 50% of that say around a 100,000. Of that 100,000, 20,000 to 25,000 of those are what I call high growth companies that may have a technology component or some kind of great expansion component, those are in very high demand. The LBO funds are all looking for those because they love to buy them in year 1 and sell them in year 3 after they pumped up the growth rate to the next LBO fund or even to a public company. There is a group of maybe 60,000 or so sales every year, some of those are problem situations, but there is a number of those that are good steady growing companies and we love that segment of the marketplace. So we don’t end up competing with the LBO funds that like to go in and out real quick, we end up buying those with management teams and hopefully those are steady growers over a period of time, but that’s sort of an overview the way I see the marketplaces. Dave Dullum, why don’t you speak to that as well.

Thanks for the question. The way I would respond to that as it relates to GAIN obviously, as I mentioned before we really work hard at trying to find those opportunities where we bring of course the debt and the equity, mainly the sub debt because your point, which I believe and is well taken, is that leverage so to speak is not only somewhat inexpensive but also we are seeing multiples of leverage that are again reaching levels that we saw some years ago in some cases even in excess of 5x. We are going to have a hard time competing in say options where other private equity firms let’s say are able to put equity, get 5x or more of leverage from other funds. But where we do well then and obviously the deals that we have done as you have seen and what we talk about is where we are bringing that leverage along with the equity. And so that is our so to speak advantage, which is why we generally are not going to participate too often in options. We look at them certainly and in fact somebody closed deals there and we will close deals in that regard, but again it’s generally going to be smaller options and where our advantage is at work. But having said that to your point there is a pretty robust market we feel. There is lot of opportunities out there, we just have to keep finding those that fit our profile and that’s what we work hard on. Does that help?

Yes, that’s a very complete answer. David Gladstone, towards the end of your prepared remarks, I think you alluded to a potential share repurchase program, is management going to ask the Board for authorization repurchase shares at the next meeting?

We've talked about it at the Board meeting but didn’t make any decision. The real problem for us is we don’t have a huge amount of cash and so those companies that have lots of cash, example being Apple, for example with its billions of dollars of cash are being pressured to and use that cash to buy back shares and we just don’t have that. So the real problem for us is do you want to borrow short-term to buy back shares, and it’s a pretty difficult decision especially since in our regulatory environment we really need in one respect to make sure that we don’t get near those ratios. The reason for selling shares last year at below net asset value was to make sure that we were getting pretty close, and as you know the volatility that we have on our valuations of these private companies could sink you one quarter, if you remember when Bernanke made the wrong statements and all the marketplaces went down. We for that quarter went down substantially. We could have busted our covenants with the banks. We could have done a lot of things. So for us, the worry is getting too close and when you are in a highly regulated environment as we are both under the 1940 Act as well as under at IRS guidelines and then the bank guidelines, it becomes very difficult to make that decision to raise debt money to buy back equity. But we haven't ruled it out, but we haven't ruled it in either.

Just a couple of housekeeping questions, then I'll get back in the queue. I wanted to understand the impact of ASH this quarter. So it has the cost basis of about $16 million which you’ve written down. So you’re going to reverse that and then recognize on $11 million realized loss. Is that how it's going to work?

Let's have David Watson answer that.

Sure. As a backdrop we sold the ASH to certain members of the existing management team there. And we are going to be recognizing in the December 31 quarter, a realized loss of approximately $11.4 million, but we have retained a $5 million debt revolving note which is now currently paying interest. And as you recall, ASH has been a non-accrual for gosh 4 plus years and its fair value has been at zero for the last several years. So we think now that with the current management team at ASH which is by the way generating positive EBITDA, I think with the ownership change, a reduction in the debt load we're best positioned to ASH for success and best positioned us to be able to at least receive a -- some of our capital back over time from a fully depreciated assets.

And so you’re going to reverse the $16 million unrealized loss that you’ve taken on over the last few years?

Well, the $5 million debt piece will get fair valued at 12/31 and through our evaluation process, we don’t know where that will end up, but yes we will be reversing at least $11.4 million in depreciation.

Okay. And then one last housekeeping question and I apologize just there are so many companies reporting and hard to get through all the numbers, but I am having a hard time footing to your portfolio on a cost basis because you started -- at the end of June you had a portfolio of rounding of $360 million at cost, you made purchases which was Schilling, of $20 million, you sold Venyu for $32 million and then the press release and then cash flow looks like you received principal repayments of $19 million which would leave us at $329 million, but the balance sheet is showing $354 million. Am I missing something here?

I would encourage you to look at page, I believe 44, of the 10-Q, it’s in the liquidity and capital resources section. It provides -- it is for the 6 months ended September 30, ‘13, but provides a roll forward of our investment portfolio from 3/31 through 09/30 and you can see the activity in there.

Did you say page 44?

Yes.

[Operator Instructions]. We have no additional questions at the present time.

All right. Thank you, Keith. And thank you all for calling in. And again, we’ll see you in 3 months. That's the end of this call.

Thank you. That does conclude today’s teleconference. You may now disconnect your phone lines. Thank you for participating and have a nice day.