Good morning, and welcome to the Gladstone Investment Corporation Third Quarter Ended December 31, 2011 Shareholder Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to David Gladstone, Chairman. Please go ahead, sir.

All right. Thank you, Denise, for that nice introduction and all the instructions. And hello out there, and good morning. This is David Gladstone, Chairman, and this is the quarterly conference call for shareholders and analysts of Gladstone Investment. The trading symbol is GAIN. And thank you all for calling in. We're always happy to talk with shareholders and like to see some of you come by and see us. If you're in the Washington D.C. area, we're here in McLean, Virginia, a suburb of Washington. So next time you’re in the area, stop by and say hello. We'd be very pleased to see you. I know you’ll see a great team at work here. I think they're the best in the business. Now let’s 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, even though they are based on our current plans. And we believe those plans to be reasonable. There are many factors that may cause our actual results to be materially different from any future results that are expressed and implied in these forward-looking statements, including those factors listed under the caption "Risk Factors” in the periodic filings that we file with the Securities and Exchange Commission. And those can be found on our website at www.gladstoneinvestment.com and at the SEC website. 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. As we always start out, we'll start with Dave Dullum. He’s President and Director of the company. He will cover a lot of ground, including his views of the future of this fund. So, Dave, take it away.

Well, thanks, David, and good morning all. We continue to hold to the plan for Gladstone Investment, which is to invest in buy-out transactions of businesses in the lower middle market. Our investments generally take the form of some senior debt, primarily subordinated debt and equity. This combination produces a mix of assets in our portfolio, which we believe is key to our strategy. Our debt investments provide income to grow our dividends while we build shareholder value through capital appreciation of our equity investments. For instance, this quarter end 12/31/11, our investment assets at cost consisted of approximately $188 million or roughly 71% of debt investments and about $75 million or 29% in equity securities, which over time we hope will produce the capital gains. This ratio of 71:29 is slightly higher in equity than our goal of 80:20. And this past quarter was due mainly to certain loan payoffs and a debt-to-equity conversion in a portfolio company, though we seek to have this ratio track towards 80:20 over time. So we believe the 80:20 ratio will provide the appropriate balance to be competitive in our marketplace, achieve our long-term growth plans and result in payment of increasing dividends to our shareholders. I wish to emphasize a point though that while the portion of our assets we hold in equity securities is not producing income, the debt proportion is. And in the most recent quarter, our total interest-bearing debt portfolio had a 12.5% current cash return, which is a primary source to pay our dividends. Additionally, we often negotiate as a component of our debt instruments what we call success fees. These are enhancements to the return. And when we receive these success fees, generally upon exiting an investment, that extra income is designed to enhance the total returns…

Well, thanks very much. That's a great report, David Dullum, and we share your excitement about the future of this company. Now let’s hear from our Chief Financial Officer, David Watson, on the company’s financial performance for the quarter.

Good morning, everyone. Before I go through the financial statements, I would like to highlight several key points. First, our closing on 1 new buyout, Channel, during the quarter, totaling $18.5 million, highlights our commitment to steady investment growth. Since October 2010, we have invested in 6 new portfolio companies totaling $114 million. Second, we believe our portfolio is continuing to perform well. This is reflected in the $1.7 million of net appreciation on our portfolio of investments during the most recent quarter, and $13.1 million since March 31st of 2011. Third, we extended the term on our line of credit with BB&T and KeyBank, increased its size and decreased the interest rate. At the time of this call, we have $21 million borrowed on our line of credit, and we have about $2.1 million in cash on the balance sheet. We have the ability to deploy more capital for the right opportunities. And lastly, we forecast that 100% of our distribution is paid -- distributions paid in fiscal year ending March 31, 2012, to be covered by income and not a return to capital, which highlights our commitment to sustainable distributions and preservation of stockholder capital. Now for the details, and I’ll start with the balance sheet. At the end of the December quarter, we had $319 million in assets, consisting of $227 million in investments at fair value, $86 million in cash and cash equivalents, and $6 million in other assets. Included in the cash and cash equivalents is $85 million of U.S. Treasury Securities through the use of borrowed funds at quarter end to satisfy our asset diversification requirements. We had $107 million in liabilities, which consisted of $29 million in borrowings and outstandings on our line of credit; $76 million borrowed via short-term loans; and $2…

All right. Thank you, David Watson. You got through that with your bad cold, and we appreciate that. I hope each of our listeners will read our press releases and also obtain a copy of our quarterly report called the 10-Q, which has been filled with the SEC and can be accessed on our website, www.gladstoneinvestment.com and on the SEC website. I think really the big news in the first 9 months of the fiscal year was that we believe we’ve recovered from the recession and on a good way back up. As you can see, the net asset value moved from $9 in March 31, 2010 to December 31, 2011 at $9.58, 6.4%, and we're putting some new deals on the books. We do have a favorable and new 3-year line of credit with BB&T and KeyBank and room to borrow under that line. We're also looking for new transactions, and I think we are also looking and hope to find another bank to join the line of credit. We've closed another promising investment this quarter, and we had some loans marked down by our valuation service that paid off at a 100%. And this is an indication that we do bring investments back from problems that they might have and get them back to a period where we can make additional money from them. The next step in our fund is to obtain some long-term credit from a lender or in capital markets. And we're exploring that now. We’re looking at debt and preferred stock, and we have some serious offers for long-term debt. So we’re looking at that as well. This is really a fabulous fund at this point in time and a great opportunity for the future, so we’re very excited about this fund's opportunity in…

[Operator Instructions] And our first question this morning will come from Mr. J.T. Rogers of Janney Montgomery & Scott.

We had another strong quarter of portfolio appreciation, I guess particularly in the equity of Mitchell Rubber and Tread Corp. Would you all expect another -- to see another exit sometime in the near future?

I don’t think there's anything on the horizon that we want to fill right now. As you know, our goal many times is to hold on to these deals, and we don’t really see selling any of them in the near term. It may happen, but it’s not something we’re currently working on. So I would say don’t look for any uncertainly in the next 6six months or year.

Okay, great. And then you touched on the number of opportunities out there a little bit. I was wondering if you could talk about how the pipeline looks now versus in the prior quarter. And then also, I was just wondering if you could talk about the competitive environment, and what is the supply of junior capital look like and then on the buyout side, are you seeing any competition from strategic buyers?

Well, Dave Dullum's in a position to do that. He's just back from a trip. So go ahead, Dave.

Sure J.T. Yes, a lot of questions in there. I'd say, on a global level, as I mentioned, the pipeline, the flow of deals, let’s say, is good. We think and what we’re hearing from certain investment bankers and other guys involved in the M&A side is that over this next year, it ought to increase. So we’re sort of looking for that. I'd say that the one area -- I mentioned as well that we really look carefully at obviously evaluations. And so if there's one thing I’d say, valuation seemed to us, in some cases, a little bit on the high end, and we are not going to push the envelope from our side. So if we don’t feel really good about, as I mentioned, the risk/reward, we are probably not going to be a player. And there is competition certainly in the junior debt category as you mentioned and clearly, from our end, we're competing more where we can combine the junior debt with our equity. And that’s a differentiator, frankly, so you'll find the sorts of deals that we're going to be really competitive and we keep working hard on, the Channel Technology types where our equity has a meaningful part in that particular transaction, and we think of it from that perspective. So all in all, I'd say certainly, the outlook is good. We're going to keep working hard, keep finding the deal opportunities, but we really ramped up that effort. So again, we think we should have a fairly decent year over the next 12 months.

And our next question will come from David West of Davenport & Company.

I was wondering -- you’ve done the short-term borrowings at quarter ends for the asset diversification test. That dollar amount was up this quarter. Was there any particular reason for that?

Dave Watson?

Sure David. It was up, because we put on a lot of new large deals over the past year. But we actually believe we're getting closer to the inflection point. I've been able to reduce the amount of T-bills going forward. For example, if we were to put another $15 million of non-qualifying assets on to our books, we actually would have been able to reduce the amount of T-bills we bought this quarter by $15 million. And conversely, if we put another $15 million of qualifying assets on our books, we actually would only had to have purchased $15 million for T-bills. So we're getting critical mass from a size standpoint in our portfolio, which is resulting in a lot more of our portfolio companies becoming qualified versus be non-qualified from the 5% size standpoint. So we feel like we’re at a high watermark and hope to see that the amount of T-bills that we purchase at each quarter to reduce over the next year.

You've got a follow-up question, Dave?

Yes, just turning to the borrowing side of things, you -- great achievement now to get your line of credit extended in a great rate. Your borrowing levels currently are very modest. You clearly have room for further leverage. Is there a point, assuming that you don’t get the other sources of longer term financing that you discussed, that you'd start to consider options like a common equity if borrowings, say, reach 50% or more above current net assets?

Well, there's a lot of ways to solve that problem as you just brought up. First of all, if we can get additional members to the borrowing of the short-term, we can raise that up. As you know, in our other fund, we’re up around $137 million. So if we can move this one up to $100 million or $150 million, as I think we may be able to do, we don’t need as much current borrowings as you’re indicating. But the problem here is that both of those lines, whether in this company or in the other, are short term. And we always want to get into the long term. So the question for us is should we go ahead and find some long-term borrowing now? We’re working with one lender, I don’t know if it'll come thorough or not. It was indicated that they will lend to us. And there is always the possibility of doing some term preferred stock or some regular preferred stock before we get to the common stock. We always hate to do common stock at this price, simply because it’s dilutive to our existing shareholders. And the goal here is to increase the dividend to the common shareholders. So sometimes, we can borrow money at a cheaper rate or do a preferred stock at a cheaper rate, and that becomes accretive, meaning we can increase the amount of money going to the common shareholders. So we play that game and we analyze it probably once a week. We sort of run it through our model to determine which is best for common shareholders. And I don’t have a decision for you today, but look over the next 6 months or so that we will have to make a decision.

Just this one follow-up to those comments, is the long-term lender you mentioned, is that like an insurance company?

It’s a good long-term lender. I'd rather not categorize them because I think they would -- you might know who they are if we categorize them.

By the way, just a follow-up on Dave West, the borrowing of the $85 million is done over a 3-, 4-, 5-day period. So it has very little impact on the earnings power. It just allows us to qualify under some regulations that the IRS has.

[Operator Instructions] And we have a follow-up question from J.T. Rogers of Janney Montgomery & Scott.

David, just another question on -- sold weighted average credit quality fell during the quarter. Just wondering what drove that? And then just a follow-up. So I guess CCE was structured partially, and the fair value was written down in zeros. Wondering if you'll give some detail on what’s going on there?

David Watson's going to handle that one.

Sure J.T. I'll discuss the credit quality, and Dave Dullum will talk to you a little bit, really give you a little color on CCE. On the credit quality, on our loan ratings, a major component of those is the duration of our securities. So the farther out the maturity date is, the lower our risk rating goes based on the risk of time. So since October 2010, we've put 114 million of new deals on our books. It generally had a maturity date of 5 years or more. So even though they are new investments and are performing as expected, our risk rating system penalizes them based on the maturity date being way down the road. Another example is Acme, which is performing really well, but we just extended the maturity date out 3 years during this current quarter. And it’s risk rating decreased 4 points based off just the extension of the maturity date. So we felt good about the quality of our portfolio, and don’t believe a drop of 10% on our loan ratings at this time. It’s really indicative of current credit quality, but it’s more reflected of just -- of having a younger portfolio at this time.

And J.T. just briefly, if you want me to touch on CCE, what we did there, as I think I've mentioned in our last call, the company had, as a lot of companies in the economy and in particular around the Gulf industry, there was clearly a drop off, if you will, in demand, although they stayed very, very high, relatively speaking, because they have a fairly unique niche in the New England area. There was some margin compression frankly. So as a result of that, their EBITDA, while it was still positive and good relative to where we bought the company, it was clearly off. So what we did frankly were a couple of things. One, we strengthened the executive management approach to the business, which is a positive. That’s one. And two, we actually did do some restructuring of their balance sheet, which meant really that we converted some of our debt to a preferred stock and we took some additional preferred stock for some interest accrued, et cetera. So we restructured the balance sheet just to give the company more flexibility. It’s got positive cash flow and restructured the debt also where we expected it'd be able toggle back overtime. So it’s one of those that we’re just working through. The businesses is actually performing well. It’s picking up. Things are going better. So I think over time, we’ll see it get back to where it needs to be. So the 0, if you will, was more a function of the overall enterprise value, the way we do it, certainly being not high enough, if you will, to cover all the debt. So all in all, though, we would feel good about the business, and it just had the impact in that quarter.

Okay, great. And I think you’ve talked about this before. Do they still have that irrational competitor out there negatively affecting pricing?

a great, great question. What we actually have found is -- and as we go into this New Year, of course, it tends to be seasonal business. We actually are winning more than we’re losing and actually have had some pretty good wins. And what we’ve found is they can only be rationale so long. And plus, we’ve frankly have gotten much better support from our manufacturer, which happens to Club Car, which is the main competitor to the irrational competitor. And as a result of that, frankly, it's helping. So I’d say we got a good team effort going there now, and as we go into the New Year, I think we will end up improving our market share again relative to where we were before.

And just to end, J.T. had asked about selling businesses. That’s one way that we can get additional income is when we sell them. Another way of course, and it happens quite frequently in larger companies, is to do a dividend recap, as they call it, in which the company borrows money and pay the dividend out to the shareholders, and management usually gets a bonus as part of that. So another way for us to cash in and not really sell our company is to have a dividend recap. And while we don’t have any of those on the horizon, that’s just another way to play the game of taking money out of very successful deals.

Mr. Gladstone, at this time, I’m showing no questions in the queue.

All right. That will end this conversation, and we look to talk to you again next quarter. Thank you all.

The conference has now concluded. Thank you for attending today’s presentation. You may now disconnect.