Good day, ladies and gentlemen, and welcome to the Gladstone Investment Corporation's first quarter ended 6/30/2014 earnings call and webcast. [Operator Instructions] As a reminder, this conference is being recorded. I would like to introduce your host for today's conference, Mr. David Gladstone. Sir, you may begin.

All right. Thank you, Vincent, for that introduction, and good morning to you all. This is David Gladstone, Chairman, and this is the quarterly earnings conference call for shareholders and analysts of Gladstone Investment. The common stock NASDAQ traded symbol, GAIN. And thank you, all, for calling in. We're always happy to talk to loyal shareholders and potential shareholders. I'd like to give an update on our company and our portfolio and our business environment. I wish we could do this much more often so you'd be more informed but we only do it once a quarter. By the way, this is an open invitation to visit our offices in McLean, Virginia, just outside of Washington D.C. Please stop by and say hello. You'll see some team members here, there's about 60 people now in the company. And I think they're some of the finest people in the business. Now we'll hear from our General Counsel and Secretary, who's also President of our -- administrator, Michael LiCalsi, he'll make a statement regarding forward-looking statements and give you some other information.

Good morning, everyone. 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, which we believe to be reasonable. Many of these forward-looking statements can be identified by the use of words such as anticipates, believes, expects, intends, will, should, may 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 those factors listed under the caption Risk Factors in our 10-K filings and our registration statement as filed with the SEC, all of which can be found on our website at www.gladstoneinvestment.com or the SEC's website, www.sec.gov. The 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 day of this conference call, except as required by law. And please also note that past performance or market information is not a guarantee of future results. Please take this opportunity to visit our website, www.gladstoneinvestment.com, to sign up for our e-mail notification service. We don't send out junk mail, just timely news on your company. You can also find us on Facebook, keyword, the Gladstone Companies. And you can follow us on Twitter, @GladstoneComps. The presentation today will be an overview, so we ask that you read our press release issued yesterday and also to review our Form 10-Q for the June 2014 quarter end filed this morning with the SEC. You can access the…

Thanks, Michael, and good morning, all. I'll just briefly review what it is we do, as this always helps to keep the long-term goals in mind, while we update the near-term results. So Gladstone Investment provides capital for the buyout of businesses. These are usually companies with annual sales between $20 million to $100 million. We provide what we call a subordinated debt, in combination with the equity and senior debt, if available. So this combination produces a mix of assets for Gladstone Investment, which is the basis of our strategy. This means the debt portion of our investments provide income to pay and grow our monthly dividends, and then we look to the equity portion to increase in value and provide the capital gains from time to time. So you might ask how are we different from other BDCs and, perhaps, other finance companies? Well, we take large equity positions in the companies that we finance and this differs from other public BDCs that are predominantly the debt-focused firms. So for instance, the proportion of equity and debt for the investments in our portfolio is at approximately a 30-70 mix. Most other BDCs you'll find are closer to around 10-to-90, in other words, 10 equity, 90 debt. Also, we generally do not buy syndicated loans or portion of loans where there is no equity participation, and we certainly are different from most banks and finance companies that are generally just lenders. So -- and as far as other private equity funds, we are -- which are generally private partnerships, we are different in that, as a publicly traded entity, our structure allows liquidity for shareholders. So keep in mind that we look to the equity portion of our assets as a contributor to the overall value of our company…

Thank you, and good morning, everyone. As one would expect with a quiet quarter on the production front during the 3 months ended June 30, 2014, numbers and ratios remain pretty even at a good level and will remain poised to grow still. There are a few things I want to highlight before getting into the details, and the first one is, we were able to extend the maturity date of our $105 million line of credit approximately 14 months to June 2017 or 3 years out. If it is not renewed or extended by the maturity date, all principal and interest will be due and payable on or before June 2019 or 5 years out. In addition, there are 2 1-year extension options to be agreed upon by all parties which, if exercised, could, in effect, push this facility out 7 years. We were also able to reduce the interest rate from LIBOR plus 3.75% to LIBOR plus 3.25%. Other highlights include $5.5 million of appreciation on our investments, not having to purchase T-Bills in order to comply with RIC size requirements for the second straight quarter and earning our dividend, as net investment income, or NII, of $0.18 per share equaled our distributions for the quarter. So regarding our balance sheet position, at the end of the June quarter, we had $338 million in assets, consisting of $322 million in investments at fair value, with a cost basis of $385 million. At our cost basis, 73% of our portfolio assets consist of debt investments of approximately $280 million and 27%, or $105 million, consist of equity securities, which we hope will produce capital gains. As for our liabilities and equities at June 30, 2014, we had $63 million in borrowings outstanding on our renewed 3-year $105 million credit…

All right. Thank you, David, and Michael and Dave, all 3 of you gave good reports. This first quarter was mixed for us. We're able to report some accomplishments, such as the earnings of our dividends. We're always proud to do that. The renewal of our line of credit, which reduced the interest rate and pushed out the terms substantially and put us in a better position if there is a recession. And recorded appreciation on our investment portfolio. However, as mentioned, we are disappointed in not making any new investments during the quarter, but I believe that should change as we move forward. We had our Monday morning meeting the other day, and quite a number of deals in that list. Switching back over, although the recent economic indicators have been more positive, the economic recovery still continues to be sluggish. We continue to monitor the economic outlook, which affects all of our investments and the investment climate in which we operate. We feel we have some still tremendous concerns out there. There's a lot of uncertainty around the federal reserves, monetary policies and the impact on future interest rates. Fiscal crisis that the federal government is still not on top of. There are about $17 trillion in deficit and will continue to climb as the government continues to spend. And we all know that, that spending rate is unsustainable. Many of the private companies like those we invest in feel there is much too much regulation coming out of Washington. Some of the areas, like health care, financial services, the energy area, emissions, the environment, taxes, these seem to be hindering the performance and expansion of job growth of many of the small businesses in our country. This company, though, is in a strong position to move forward,…

[Operator Instructions] Our first question comes from Mickey Schleien of Ladenburg.

My first question relates to the overall market, probably directed at Dave Dullum. Dave, given what's going on in the equity markets and valuations in general, it would seem like a good time to sell. Do you have expectations to sell any of your positions this fiscal year?

Mickey, as I mentioned on my part of it, we always assess, obviously, and look at our portfolio. I think as we have made -- chatted to you before, we're not frankly aggressive sellers, in part, because the structure of our deals give us an opportunity to continue generating good income. And we also, typically, are investing with management teams and sponsors. We always say, "Look, you guys are the ones that are going to dictate to us generally when the right time to sell is." So sure, we could look at it and we'll continue to look at it, with multiples where they are. Of course, the other side of that coin is, if we have a good company doing well, good management team, you sell it, you might take a gain, no question. And then, obviously, we've taken an asset of the portfolio. So we really are careful sellers and again, always looking if it makes sense both for -- both evaluation, as it was, certainly, with a few that we've sold in the past, and also if the management team believes that it's the right time to do it.

And Mickey, just to tag on to that, sometimes, it's better for us to do a dividend recap, that is, if they paid down the debt, we can lend them money, we can pay everybody a dividend or the bank can come in and lend them money and do a dividend recap. A lot of that is going on in the marketplace, as you know. So just another way to continue to generate income for our company, as well as for the management team that may want to stay for another 10 years.

We've seen some significant dividend recap activity in the last quarter or so. So do you -- is that something you -- we might see at Gladstone in this fiscal year?

Well, we certainly are looking at a number of situations. It just depends on how much you want to lever a company. And so leverage is cutting both ways, it's nice to have it, but it also needs to be repaid one day. So that's our dilemma every time we look at doing that in any one of our companies.

The other thing that we -- just to be -- again, touched on, and David Watson mentioned it, and we keep making the point, our exit fees that we have structured in our deals, again, being different as we all know from the traditional pick. We have the ability with some of our companies and, from time to time, they may choose to pay down part of the exit fee. It helps on their tax planning purposes and it's cash income to us. And so that's another income stream, if you will, that we manage in our portfolio companies.

Okay, I wasn't aware of that. That's interesting. In the past, you've mentioned that you generally consider your valuations to be somewhat conservative. Could you give us any update on changes you've made to your valuation methodology or thinking about?

I'll take that first, Mickey. We have one way of doing it. As you may imagine, the SEC has its own approach to this and we have to give out 1 single number. So whether that's more conservative or less conservative than others -- I think it is conservative, but who knows? You give a valuation to you and me and David Watson and David Dullum, and I think we'd have 4 different valuations on something. We go through a very lengthy process that's very expensive and, as you know, Price Waterhouse does its own valuations. They're telling us that probably 20% to 25% of our audit bill every year is due to their need to go through the valuations as well. So it's a lengthy process but I would guess that, overall, we have a pretty good handle on the total portfolio. There might be 1 here or there that's different, but we have not made any major changes to our valuation techniques at this point in time.

Yes, Mickey, you might have seen that we, in the 10-Q, that showed up this morning on the SEC website that we filed last night, we did revamp our disclosures around our valuation policies. And this is really an effort just to enhance the language we use and make it a little more understandable and reader-friendly, so I encourage you to take a look at those. David mentioned the underlying processes and policies have not changed and are generally in line with prevailing industry practice. I'd also like to note, we did hire an experienced valuation officer in September of last year, and we're very happy to have her here as an added resource on valuations and just really allows for us to put a lot more robust -- from what we had historically done, effort into those. So we don't really expect any changes, major changes in the future as it relates to any type of policy change, but the disclosures obviously have changed and enhanced.

My last question is just if you could give us any update on Noble and the lawsuits and how business is progressing there?

So we -- the company is now in our portfolio, called NDLI. And that business is progressing actually quite well. In fact, the business from prior to the bankruptcy and the 363 asset sale, which has been already indicated, that business fundamentally is the same and growing and actually improving. So from an NDLI investment going forward, we believe we've got some of the things corrected. The old Noble is dealing with -- within the -- under the bankruptcy law, court protection, doing what it needs to do there with some of those lawsuits. And I don't know, Mike LiCalsi, do you have anything you would add to that?

Yes, you might have noticed that in our previous 10-K, there was some disclosure regarding another lawsuit, where Gladstone Investment and Gladstone Business Investment and even Gladstone Capital were named as defendant. That lawsuit has been dismissed a few weeks back. So that is no longer a pending lawsuit.

That's good news. So there is no lawsuits related to Noble, where GAIN is the defendant, any longer?

That's absolutely correct.

At this time, I'm showing no other questions in queue, sir.

All right. We will wait 1 second if somebody wants to ask a question and, otherwise, we're going to be gone for another quarter. So ask your questions.

[Operator Instructions]

All right. Well, thank you very much, all of you, for calling in, and we will see you next quarter. That's the end of this conference call.