Good morning. And welcome to the Gladstone Capital Corporation’s Third Quarter Ended June 30, 2012 Shareholders Conference Call. All participants will be in listen-only mode. (Operator Instructions) After today’s presentation there will be an opportunity to ask questions. (Operator Instructions) Please note, this event is being recorded. I would now like to turn the conference over to Mr. David Gladstone. Mr. David Gladstone, please go ahead.

All right. Thank you Amy for that nice introduction and hello, and good morning to all of you who called in. This is David Gladstone, Chairman, and this is the quarterly earnings call for shareholders and analysts of Gladstone Capital. Common stocks traded on the symbol GLAD and the term preferred stock trading symbol GLAD with P on end, both which are traded NASDAQ and thank you all for calling in. We are always happy to talk to shareholders about our company and I wish we could do it more often. We hope you will take the opportunity to visit our website at www.gladstonecapital.com where you can sign up for e-mail notices, so you can receive information about your company on a timely fashion. And please remember that if you're in the Washington D.C. area, you have an open invitation to visit McLean, Virginia. Please stop by and say hello, you’ll see some of the finest people in the business. Now, I’ll read the statement about forward-looking statements. This conference call may include statements that may constitute forward-looking statements within the meaning of Securities Act of 1933 and 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 may be identified by the words such as anticipate, believe, expect, intend, 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 and 10-Q filings, most recent form that we filed and into registration such statement, all of these filed with the Security Exchange Commission and can be found on our website at www.gladstonecapital.com and also on the SEC website at 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 date of this conference call. Please also note that past performance or market information is not a guarantee of future results. As we do each time, we start with our President, Chip Stelljes. President is also -- Chip is also the Chief Investment Officer of all our Gladstone publicly -- public funds. He'll provide a review of the company's last quarter events and then outlook for the company over the next several quarters. So Chip take it away?

Okay. Good morning. During this quarter the three months ended June 30, 2012 the company’s net production totaled $21.4 million due primarily to the new investments totaling $33 million, invested $16 million in debt and equity in Francis Drilling Fluids, a logistics network provider to oil and natural gas drilling companies and invested $12 million in senior and senior subordinated debt investments in POP Radio, an advertiser supported in-store audio network. In addition, we invested $3.6 million in existing portfolio companies through revolver draws or additional debt and equity investments, offsetting the new production repayments, which included normally amortization and pay down on revolver a $15.2 million, this includes three early payoffs at par, totaling a combined $8.3 million during the quarter for which we received $200,000 in prepayment fees. Additionally, we received $800,000 in success fees during the three months ended June 30, 2012, generated from an exit of a proprietary investment earlier in fiscal year 2012. This brings our success fees earnings totaled during fiscal year 2012 up to $2.8 million or approximately $0.13 per common share for the nine months ended June 30, 2012 and we’ll discuss our success fees in more detail later on the call. We funded this net increase and production from operating income and withdrawals on our credit facility which matures in January 2015. As subsequent to quarter end we had early payoff of one proprietary investment totaling $12.6 million for which we received an additional $1.2 million in success fees. Furthermore, we invested $300,000 in pre-existing portfolio companies and have received $500,000 in repayments. In addition, we received approval in July 2012 from Securities and Exchange Commission to co-invest with certain affiliated investment funds, including Gladstone Investment Corporation subject to certain conditions, which we believe will enhance our ability to further our…

All right. Good report. Now let’s turn to financials for that we hear from David Watson, our Chief Financial Officer and Treasurer. David?

Great. Good morning, everyone. Yesterday we released our third fiscal quarter earnings press release and Form 10-Q, which had -- which I hope you had a chance to review. On this call I will cover some of our financial highlights and I will start with the income statement. For our third quarter ended June 30, 2012, net investment income was $4.9 million versus $4.5 million for the same quarter last year, which is an increase of 7.4%. This increase was primarily due to an increase in interest and other investment income of $1 million. Interest income increased by $0.5 million or 5.2% during the three months ended June 30, 2012 as compared to the prior year period. This was due to an increase in the overall portfolio size and an increase in the weighted average yield, as compared to the prior year period. The annualized weighted average yield on our interest-bearing debt investment or accruing debt investment was 11.3% for the third quarter of 2012, as compared to 10.8% for the third quarter of 2011. The increase in the yield of our accruing debt investment is primarily due to the addition of new high-yielding proprietary investments subsequent to June 30, 2011. The early payoff with some of our syndicate loans that generally bear lower interest rates and finally the placement of certain loans on non-accrual that had lower interest rates. Other investment income totaled $1 million for the three months ended June 30, 2012, an increase of approximately 120% over the prior year period and consisted primarily of success fees of $800,000 from the early payoff at par of a proprietary investment earlier in 2012. Partially offsetting these increases to net investment income were increases of $0.9 million in aggregate of interest and dividend expense, due to increased borrowings under…

All right. Thanks, David Watson. That was a good report. I hope all our listeners will read our press release and review our quarterly reports on Form 10-Q that we just filed with the SEC. You can access the press release, the 10-Q, and other information on our website at www.gladstonecapital.com and also on the SEC's website. The big news this quarter of course is good production increase in the quarter. Three new investments totaling $33 million and these new investments are good investments plus are good pipeline. We feel like we are moving in the right direction. We did receive of course $8,000 in success fees from investments that paid off at par, which brings our total success fees for the fiscal year to $2.8 million. And after the quarter end of June 30, 2012, we successfully exited proprietary deal for $12.6 million at par and got $1.2 million in success fees, which will be reported of course more in detail in the September 30, 2012 discussion that we have late November, probably early December. At these points, the good news for shareholders are very strong. And I think we're on the right way of road today. Our biggest challenge today is our access to long-term debt marketplace. We have a line of credit, very supportive lending institutions and our line of credit is working fine and we believe it's sufficient for the near-term. However 2011, we issued some new Term Preferred Stock as a substitute for long-term debt in order to make a lot of new long-term investments. We will need to raise additional long-term debt, long-term capital such as the issuance of our Term Preferred Stock and perhaps even common stock. Now, for our portfolio companies, we also worry that they are not able to get long-term…

(Operator Instructions) Our first question is from Troy Ward with Stifel Nicolaus. Go ahead, sir.

Thank you. And good morning, gentlemen.

Good morning.

Hey, David. Real quick, the co-investment order from the SEC. Can you just give us little bit a color on how you believe you can use that at Glad to better the performance?

Sure. As many of you know, we had a -- an order from the SEC. Sometime ago, that allowed us to co-invest with other entities, but not with Gladstone Investment or some of the other public companies. And this time, we went and asked the SEC, if they would let the two public traded EDC’s co-invest along with some others that we are contemplating. And as a result, where there is an overlap in goals and objectives of the two companies. Where there is a company that fits both of those objectives and strategies, then we could co-invest and probably will co-invest. And what that what will do is give us an opportunity to do some transactions that are larger than we would normally do, because there will be split between the two companies. So there is a little bit of extra opportunity there. It was just something that we thought we should go ahead and do and we will just see how it works out, Troy.

Okay. Great. And then in the June quarter, I guess I was a little bit surprised to see investment in -- it was POP Radio, I think was the name of it. Historically, you’ve been in some very difficult industries, have gone through some change with media publishing, broadcasting. As you look at the portfolio today, you specifically looking add in-- in specific industries like radio or conversely there are some places, where you won’t invest, because you feel like you have enough exposure?

Chip, going to take this one.

Yeah. Troy, the name is misleading it is not a radio business. The company has contracts nationally with grocery stores and CBSs of the world, in order to pipe in these again advertising and products that are primarily carried in those stores. And they have a substantial market share exceeding 90%, not long-term contract with those locations. And so it’s really not a radio business, that we were obviously sensitive to the fact it is an advertising driven business. They held up very well during the downturn. And the company has really high value add to advertisers that demonstrated at the check out counter. So, we thought it was a good investment. We did it with a very strong equity firm that know this industry. And so again the names a little misleading. It’s not a radio business and we are not concentrating on adding any additional radio to the portfolio.

Right. Great. Thanks, Chip. And then just moving into little bit of credit quality, the non-accrual bucket, everybody knows, has increased pretty significantly. In the quarter end year-to-date, Chip said it is 16% of all debt investments. I think you said are non-accrual. One of our biggest concerns is we look at this non-accrual bucket is they marked it just $0.08 on the dollar, 8% of original cost. It’s been our experience that when you see this level of deterioration, it’s pretty rare that we see any significant recovery of this value. Can you speak a little bit David, about your kind of that bucket and how you plan to recapture some of that 50 plus million that’s been written down.

Sure. Overtime, we’ve been pretty good at doing workout. The recession has taken these workouts a longer period of time than we’ve anticipated. And we’ve seen some pretty strange things going in the marketplace. But we do have pretty good record of recovery. I think when we reach a point in time, when standard employees and our other methodology for valuing these is a pretty brutal on anything that comes along and I’ve noticed that the depreciation that we have been recognizing, it seems to be much higher than we would have seen in other companies that I have run as well as some of our competition. I don’t throw cold water on anybody else’s valuations but I do say that we are being extremely conservative, when you take a company that for whatever reason misses couple of quarters and doesn’t make what it supposed to make and you see the risk rating go down as well as the valuation go down by 50% or 60%, it’s a bit harsh. I know we will recover some if not all on some of these. And we’ll just have to see. I don’t want to make any promises, but I think we will be just fine.

Just a bit more color there because when I think of the valuation I get that on something that’s still accruing. But how would the valuation cause something to go on non-accrual. I mean it would seems like to me these are experience real stress if they are non-accrual and it’s not just a mark?

Well, it’s both. And obviously, a company’s performance causes the markdown as well as values in the marketplace will cause it to go down, so it’s both. And we’ve seen some pretty significant changes in the marketplace as well as in our portfolio. So I can’t -- I am not going to into each one of these that we’ve marked down, but it is a significant markdown. For example, a company that temporarily is not making money that is they are actually losing some money. We’ve typically mark those at zero. And I think we could sell those for something, so there were question as what. And its better for us to mark them down and be extremely conservative than it would be for us to try to set them at some value that we think someone who is a good turnaround artist would come in and pay that in order to get the company because we do own the company most of the time in those cases. So its -- you will see one of the companies coming along. I don’t know what we’ll sell it for that went through the ringer. And hopefully in the next six months, that gets sold and we'll just see how good our workout group is.

Okay. Great. Thanks. I’ve got another question, but I’ll get back in the queue behind some others. Thanks.

Okay.

Your next question is from Mr. [Lee Carter], Private Investor. Go ahead, sir.

Your book is about 75% or 77% of original investment. Is part of that markdown from those bonds that you bought that didn’t have the base on them?

No. That’s not part of it. What you are referring to is some old syndicated loans that we had, that we had to sell at a discount, some of its based on the equity ownership that we have in some of these companies that we mark down pretty severely when the company is in a turnaround mode, usually, the zero. So, it’s an overall analysis. And again, I think if you give us a couple of more quarters, we’ll show you that some of those were coming back pretty strong. It’s just a painful period of time when the economy is down so bad and folks are wondering which way things are going. Are we going back into recession or are we going to climb back out of this? And so at this point in time, it’s just a rugged period for us to get through to some of our companies.

So what you’re saying is on the workouts, we probably could see in the next two, three quarters increase in book value?

I think so. I think you’ll see some appreciation there and we also are putting off some new deals on the portfolio -- in the portfolio and those are performing. The new ones that we put on are performing reasonably well. It’s an unsettling period of time but at the same time, we’ve got some awfully good entrepreneurs. And as some people know, we often will replace our management teams that’s not performing with the new management team and that usually takes another year after they arrive before they can get their hands around it. And we’ve seen a couple of companies that we’ve replaced the management team with very significant changes at the company and growth in the company, and who knows, we may quote a couple of these over the next year on -- back on accrual. We just have to see what happens.

Thank you.

You’re welcome. Next question, please.

(Operator Instructions) We have a follow-up from Troy Ward with Stifel Nicolaus.

Hi, David. I just -- I wanted to hop back in the queue. The final questions maybe a bit uncomfortable but I genuinely will like your view on it. Your investment performance quite honestly has been near the bottom at the BTC sector for return on equity for both the three year and the five-year timeframe. Given the considerable credit issues that you’re still facing in the portfolio, your near-term ROE probably isn’t going to turn significantly positive in the near-term as well. Have you considered making any significant changes to the business model, either changes in personnel or even evaluating strategic alternatives to address this underperformance?

No, as you know, our underperformance was damaged significantly during the last five and even for the three-year period by our friends at Deutsche Bank who didn’t renew our line. We had to sell off a whole portfolio of loans and take significant losses. And what happens in those cases as you well know is that you have to sell off your extremely good loans. Those are the only ones that you can sell on a big downturn. And as a result of selling those off, I almost cry sometimes knowing that all of those loans paid off in full and performed admirably after we sold them off. But we are now taking those loans that we have left and the new ones that we’re putting on the books. And my guess is that next year this time or certainly for the year ending 2013, we will see some real progress in the portfolio. So while we are at the bottom of the list, as you say it in terms of return on equity, we have maintained the dividend since our demise under Deutsche Bank’s rule. And I think you’ll see the dividend continue to strengthen and go-forward.

Great. I appreciate the color, David. Thank you.

Our next question is from Mr. J.T. Rogers with Janney Capital Markets. Go ahead, please.

Good morning, David. Just had a question on what kind of leverage doubles you are comfortable with at a company level. It seems like you have adequate availability under the line of credit. Just wondering, how levered you’d be comfortable. What kind of leverage you’d be willing to take Gladstone Capital to?

Yeah, that’s always one we debate every day. And I think you’ll see us put a few more deals on the books. And then we’ll have to look at the marketplace to see what we want to do. We’re getting a lot of leverage going these days. I don’t know. How much more room David Watson do we have on the line, he just mentioned it before?

$49 million.

So we’ve got $49 million for use that in co-investments with Gladstone Investments. You can probably do around $100 million worth of transaction. So unless Chip gets really busy, that’s probably going to last us for two or three quarters and pretty new deals on the book. So we’ll just have to see how it works out as time goes on. The market place may change certainly. Interest rates have come down dramatically. And we’re hoping that we can qualify for some lower interest rate loans and maybe even some additional preferred stock. We just have to look at the numbers before we make any of those judgments.

Great. And then when you get to that in the next two or three quarters and sort of hit -- looking at points that were plenty of times debt equity. What -- what is your thought process there. Would you consider raising equity of these prices or would you slow down your origination effort?

Well, there are two things going on. First of all, as you know, we can lever to one to one. So for every equity dollar we have, we can either borrow or have preferred stocks. By the way, there is a bill in Congress to eliminate preferred stock in that competition. I have no idea whether those guys will approve it or not. But the point, the second point that I want to make is that some of our lower interest rate loans had been paying off. And those loans as that money comes back in are put into high-yielding loans. So while we only have $49 million under the line of credit, we may see payoffs in the next six months at a very high rate and as a result be able to put that money to work at a better price. So there is two things going on. There is a transition in the portfolio as well as a change in what’s going on in the marketplace.

Okay. Thanks a lot.

Our next question is from Casey Alexander with Gilford Securities. Go ahead, please.

Yeah. Good morning. This is a follow-up to Troy’s last question. I mean, the last eight quarters have seen close to a $3 decline in NAV and that is subsequent to the so called Deutsche Bank event. At the same point in time, that investors have experienced a $3 decline in NAV through the nine months, you guys have taken $3.5 million in incentive fees while you are marking down book value eight straight quarters in a row. Are you sure that for the benefit of investors since you’ve almost entirely missed an underwriting cycle here from the origination standpoint, virtually the vast majority of the money that you have put to work have been in syndicated loans that you’ve purchased, shouldn’t you really be seriously considering reevaluating this business model?

Well, first of all, let’s go back in and rewind and take a look at that. The $3 in NAV that you’re marking to is the loans that were left over after we sold off the really good loans. So we were left with, less desirable loans. That’s the first point. The second point is, I think, the loans that we’re putting on the books are really good ones and we’re going slow because we do have workouts. And second of all we’ve given back a lot of the incentive fee. And so I don’t know if I have asked this question to several people that have seen company’s performance and incentive fee give back that we’ve done over the years has been unusual. I know -- only know of two BTCs that have ever given back any of their incentive fee and that’s been our two BTCs. So yes, we are not excited about the fact that we’ve had some problems over the last three years but I wouldn’t ascribe it all to mismanagement or the business model. The deals that we put on the books with the money that you talk about in syndicated loans has been there as a marker because we were doing workouts. And we didn’t want to take that money and try to do two things at once. So at this point in time, the goal is to fix the deals that we’ve got and continue to add to the portfolio and continue to pay $0.07 and hopefully, this year, we’ll have a little extra. And next year, maybe, we’ll get a little extra beyond that. So just have to work with us during this period of time. I’m sorry you’re unhappy with it.

Let me ask a question to Chip. I mean, the portfolios marked at $298 million versus a $394 million cost. But what would you calculate real realizable par value of the portfolio is now. It’s certainly not cost. What do you think a realizable par value is at this point in time based upon your judgment of the portfolio?

As you know, we have our portfolio mostly valued by third party, and it’s -- you may not always agree with what we think that individual portfolio company is valued at. However, in general, I don’t think we have enough data to doubt independent third party of their statured value. So I wouldn’t steer from the value that we -- what we value the portfolio today. One of our efforts is always to try to work on these companies to do better than they are currently valued if we end up in negative situations. So that changes day-to-day with the ability for us to maneuver within these companies and improve them operationally, find acquirers who are interested in the business. And so those are the efforts that we are working over the next several quarters to improve those numbers.

Yeah. The valuation model that we use, I would say, is conservative. That may be not what everybody would like to see but it’s the number that we have to put in the perspective and trying to guess or give you any other number would be illegal. The SEC would -- if we’re saying one thing in our financial statements and another thing to the market place through calls like this, I think they would probably lock us up.

Okay. Thank you.

Are there questions?

There are no further questions in the queue. I would like to turn the conference back over to Mr. Gladstone for any closing remarks.

All right. Well, we thank you very much and we’re looking forward to the year ahead. We feel comfortable with our dividend strategy that we have today. We’re certainly earning the dividend. We have cash coming in that amount. And I think you will see that the next year will be a lot brighter than the past three years. And hopefully, all of us have a good meeting in late November, early December on the end of the year. That’s the end of this conference call.

The conference has now concluded. Thank you for attending today’s presentation. Please disconnect your lines.