Good morning and welcome to the Gladstone Investment Corporation’s second quarter ended September 30, 2012, shareholder’s conference call. [Operator Instructions] Please note this event is being recorded. I would now like to turn the conference over to David Gladstone. Please go ahead.

Thank you, Ashley. This is David Gladstone, Chairman, and this is the quarterly earnings call for shareholders and analysts of Gladstone Investments. And we have common stock traded at GAIN and we also have some preferred stock, trading symbol GAINP, for preferred. Thank you all for calling in. We are always happy to talk to shareholders about this company and I wish there was really more opportunities. We are trying to figure out another way to talk more to shareholders. Hope you take the opportunity to visit our website, www.gladstoneinvestment.com, where you can sign up for email notices so you receive information about your fund in a timely manner. And please remember that if you are ever in the Washington, D.C., area, you have an open invitation to come by and visit us here in McLean, Virginia. We are just outside of Washington, D.C., Please stop by and say hello, you will see some of the finest people in the business. I do want to mention that hurricane Sandy came through and packed a lot wind and rain and we are very thankful that it was not devastating here in McLean as it has been in some of the surrounding areas. The office we are in here in a park in Tyson’s Corner with about 170 office buildings seems to be full power on. They seem to be operating, all the buildings seem to be good. At least all the buildings I went by this morning had lights on. Traffic lights, a couple of them out but everything else seems to be good. Surrounding residential areas are without power primarily due to the trees falling down and I am sure the power lines, once they get them back up things will be back to normal in a few days. We…

Well, thank you, David, and good morning all. As we get into the main part of the review of the quarter, I would like to quickly refresh our memories on what it is we actually do here. And of course the business of Gladstone Investment is to provide capital for businesses that are being purchased with a management team and other equity investors. These are usually companies with annual sales generally between about $20 million and $100 million, which is what we describe as the lower middle market. We provide subordinated debt and equity and occasionally we do some senior debt if it helps the transaction. This combination of debt and equity produces a mix of assets which is the key really to our strategy. Our debt investments, they provide the income to grow our dividends while we expect the equity that we invest in to appreciate and build the shareholder value over the longer term. At September 30, 2012, quarter just ended, and based on their actual costs, our investments consisted of a mix of approximately $221 million or roughly 70% in debt investments and these produce income and about $96 million or approximately 30% in the equity securities portion and this is where we expect to produce capital gains overtime. This ratio of 70:30 is slightly higher, frankly, in the equity proportion and we would like to have as our goal of roughly 80% debt, 20% equity. But this happens for a number reasons, in some cases the ratio is affected if we have loan payoffs relative to equity or if we in certain cases, which we do occasionally, have to convert a loan to equity in a particular company. Also, obviously, if we like the equity in a transaction, we will tend to do a little higher…

All right. Well, we will move on now to David Watson. That was a good report Dave Dullum. And David Watson is our CFO and Treasurer. David Watson, go ahead.

Good morning and I do hope everyone has stayed safe and dry as Hurricane Sandy is passing by a good number of us. I will start my report and I am going to go over our recent capital activity. As I am sure some of you are aware on October 5, we completed a public offering of 4 million shares of our common stock at a public offering price of $7.50 per share, which was below our then NAV of $9.10 per share. Gross proceeds totaled $30 million and net proceeds, after deducting underwriting discounts and operating expenses borne by us, were $28.3 million, which was due to repaid borrowings under our credit facility. In connection with the offering, we granted the underwriters a 30-day option which expires November 1, to purchase up to an additional 600,000 shares of our common stock to cover over allotments. This has not been exercised as of today. These proceeds in part will allow us to grow the portfolio by making new investments, generate additional income through these new investments. And provide us additional equity capital to help ensure continued compliance with regulatory tests and allow us to increase our debt capital while still complying with our applicable debt to equity ratios. Also on October 5, we extended the maturity date on our credit facility one year with our bankers. As a result, the credit facility is now 3 years in duration again with a scheduled maturity date in October 2015. If we do not extend it again, all principal and interest will be due in October 2016 or 4 years out. There remains a one year extension option to be agreed upon by us and our bankers which might by exercised on or before October 2013. All other terms of our credit facility…

All right, thank you, David Watson. I hope each of our listeners will read the press release and also obtain a copy of our quarterly report called the 10-Q, which has been filed with the SEC. That can be accessed on our website at www.gladstoneinvestment.com and also on the SEC website. I think the big news for this quarter are that we’re actively investing in new portfolio companies and we think the rest of the fiscal year will continue to be good for investments and we’re looking forward to the next 6 months. We have been active in the capital marketplace of course obtaining long-term capital in March with $40 million term preferred offering and again in October just recently with about $28 million common offering. Additionally, we have a favorable line of credit which has been extended until October 2015 with BB&T and KeyBanc, so we have room to borrow under that line as well. So we’re looking for new investments for the company to invest in. We did something this time that I don’t like to do and that is sell stock below net asset value. We did that because we were running out of money to invest and the ratio of debt to equity was getting too high. And by taking some dilution, we put the company in good position to grow its assets and we hope we can grow the dividend as well. It didn’t impact the ability to pay the dividends, so we should be good for going forward. Also at that time we changed the strategy and objectives. It was more of a cosmetic than it was actual changing anything. We did this because the SEC is now looking more carefully at that section in our offerings and we did this also so that…

[Operator Instructions] And our first question comes from Daniel Furtado of Jefferies.

First, they are really actually 2 relatively straightforward. The first is, Mitchell Rubber, can you talk about the valuation adjustment there that happened during the quarter?

Sure, Dan. Nothing significant really. The company, we do our valuations on a look back on a trailing 12. The company continues to perform very well. Had a slight downtick in trailing 12 EBITDA and as I think David Watson mentioned, there was some multiple compression again not specific to Mitchell but the way we do our valuations. So that had a decline. And it actually had an uptick the prior quarter so nothing unusual. The company is doing really well and actually expanding as we speak.

And Dan just so you know, we use an outside service to gain multiples that we use to value our companies by. And we use that to adjust the multiple that we bought in at. So if we bought in at a 5 and the multiple has changed in the marketplace, we adjust that by the change in the marketplace. We don’t use the marketplace numbers because they tend to be extremely high compared to what we have been paying. I hope that answers the question.

It certainly does. And the second is simply, and I am sorry if I missed this, but are there any, over the last 90 days is maybe too short of a window, but are you seeing any ebbs and flows as it pertains to competition in your space right now? Or has it been kind of steady sailing?

I would say pretty steady sailing. I think where we see most competition is in terms of the pure mezzanine type products, I am sure you are familiar with that. As you know we are a combination really as far as Gladstone Investment is concerned, mezzanine and equity. So we are generally not just doing a pure mez type product. We always have our equity in combination which as I mentioned really is a good advantage for us because it really brings that element to the transaction that’s necessary. We are not seeing too much in terms of folks directly competing with us in this combination. So I would say, to use your words, sort of steady sailing.

Our next question is from Ross Demmerle of Hilliard Lyons.

I realize you have talked about the amount of debt that’s been paid off subsequent to the end of the quarter. But in trying to get a better grasp at what interest expense might be for the current quarter we are in right now, do you have a sense of what your average debt might be during the current quarter?

Sure, Ross. This is David Watson. Right now, after we paid off that short-term loan on I guess October 4, of that $71.5 million, we are actually at $5 million on our line of credit. And we don’t expect that to go up unless there is additional deal flow -- additional deals that we make this quarter which we -- what we have [ph] been able to do over the past several quarters. So from a interest expense run rate, I mean at this at point it’s 5 million times 4% over the quarter. We also now have a secured borrowing of $5 million. A secured borrowing which is at 7% for the quarter. And again that was required due to the accounting guidance, the ASC 860, where we have a corresponding asset in our portfolio that offsets it. So it’s basically a close up of our interest expense and interest income.

And, Ross, just to tag on to that. As you see us announce transactions, you will be able to increase the line of credit by that amount and unfortunately we don’t when we get big -- and we do big repayments but just normal repayments. So it will be hard over the next quarter for you to guess what that might be. But I am sorry, there is no way for us to help you out on that one.

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

The press release mentioned that you participated some small parts of a couple of your recent investments to third parties. Could you just give us some background on that and your reasons for doing that?

Sure, David, this is David Watson again. So we obviously are trying to manage the exposure at any one given portfolio company down to get it below 5% of our total assets. Again to remind our callers, we have a RIC test where 50% of our assets have to be qualifying. And one of the tests for it to be qualifying is that certain asset has to be less than 5% of our total assets. So we have to address this. We have had to buy U.S. treasuries with short-term borrowings. And our goal is to reduce those purchases and many of the steps that we are taking include decreasing, taking action to decrease our exposure at certain portfolio companies. So for example, Ginsey, we participated out $5 million of our debt investments and Drew Foam we actually had a senior lender get into that portfolio company and took our line of credit and $4 million of our senior debt investment to get that qualifying for RIC purposes. So we are really strategically managing our portfolio not only to ensure our current income and cash to make our distributions and optimize it, but also to reduce our exposure where we can and where it makes sense to be able to reduce our reliance on the gross up that we had to do every quarter which frankly makes our debt capital look a little funky.

David, this is Dave Dullum, let me just add to that from a deal transaction standpoint. When we do these and go in and specifically as David Watson mentioned, both Ginsey and Drew Foam, 2 really good companies. The good news is we have the capacity, capability to get those deals closed the way we do them. And we actually -- we do go into them with the expectation as we did here of participating out a portion of the senior debt. And we look at that and obviously how that impacts our overall current cash. Again, just to give you the sense that we do it with thought beforehand and for some of the reasons David Watson mentioned but also because from the standpoint of putting good quality assets overall on the books that we want to keep. We might have to close to do it that way and then again as he said, lay it off.

That makes great sense. Did that participation activity generate any fees for GAIN?

David, it did not.

Okay. And then lastly, now that you have done the equity offering here in early October, is there -- and your borrowings are quite low as a result of the payoffs, is there any dollar figure of new investments you feel comfortable with adding to the balance sheet at this point?

Well, we just keep doing our job. Our objective all the time obviously is to continue adding good quality assets and that’s what we will continue doing. As we keep doing we will obviously look to continue supporting the growth through additional borrowing as necessary and other forms of capital.

Just to tag on to that, this is David Gladstone. We will obviously go into our line of credit in a significant way. I don’t know exactly where we’ll stop, certainly we would want to leave $10 million or so on the line to use for anything that we might need. So we pretty much have room to do 2 or 3 more deals in the line of credit.

[Operator Instructions] There is one more question from J.T. Rogers of Janney Capital Markets.

Just had a question surrounding the decision to raise equity. As you guys pointed out the trading at $7.50, traded on 56% of cost and it’s 85% of fair value. How do you weigh raising equity at a discount to book value versus not doing new deals. And so I just wanted to get an idea about the thought process. What you guys see going forward?

Sure. The thought process is always first, would this damage the ability to pay dividends and so we have to make a judgment call of whether it would damage the dividend. Obviously, if it’s going to damage the dividend paying ability, we aren’t going to do the transaction. In this case we think we have room, plenty of room to pay the dividend and at the same time raise this capital at below net asset value. The real question for us always is what’s the income coming off the portfolio and what do we need in order to pay the preferred, the debt and then of course the common dividend. So the analysis is, first of all, can we raise money that will be accretive to dividend paying over perhaps not the short-term but certainly over the long-term? And second of all, how diluted is it to the net asset value? That’s the way we think about it.

Great. And it terms of -- I think you mentioned it’s accretive to raising the dividend over the longer term. So what's -- I wonder how you get there. What is sort of the return -- I guess what are you seeing in the market right now that the return you are going to get on your investments [indiscernible]?

All in returns are in the high teens to low-20s on transactions that we look at in this company. And it comes of course, part from the interest income on the debt side and then hopefully the appreciation and then the cash transaction when we sell our equity positions or do a dividend recap in this company's equity position. And we think both of those look good. Obviously, if we thought there was not much left in terms of the ability to pull money out of the equity section of these companies, we would have to think to ourselves, are we really on the track needed to both increase the dividend and trigger capital gains. It’s a mathematical equation that we look at constantly. Every month we look at what can we pay in dividend and then what do we think we are going to trigger in capital gains over this fiscal year and over the next fiscal year, those 2 projections are done on a monthly basis to try to figure out where we are driving this company.

That’s great. On the equity side, where are you seeing the best opportunity? Are there any particular industries or is it company by company?

Dave Dullum will answer that one.

Yes, J.T. just definitely company by company. We look at numerous industries. There are some we stay away from. Obviously, purposefully, like you know we do not do any early stage or any high technology driven types of business. So it’s clearly is on a company by company. As I mentioned, earlier when we look at valuation that’s an important part as well. I mean if you are paying high multiples, it obviously impacts your potential equity return for sure. And as a result of that we really work pretty hard. Easy to say, frankly, but we do really work hard trying to get multiples on companies that we think are good companies where there is an upside, not just a multiple expansion opportunity if you will. I think we have sort of proven that out with the actual capital gains that we have taken in the last couple of years and overall earning in our portfolio. It sort of reflects it as we look out there.

J.T., did we answer your question?

You did. I mean and then just one more question. In terms of the sources of capital going forward. Do you guys expect to increase the line of credit, do you look to issue more preferred, or maybe some other source of debt capital?

Right now we are looking at expanding the line of credit. No guarantee that we can do it. We are out talking to some of the banks about joining. It’s a very safe loan for most of the banks so we think we will be expand it. But you never know the mind of a banker so we will let you know as time goes on whether we have been able to expand that or not.

I am showing no further questions, so I will turn it back over to Mr. Gladstone at this time for closing remarks.

Well, thank you all for tuning in on this rainy east coast time and we hope all of you are safe and dry and that’s the end of this conference call.

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