Good day, ladies and gentlemen, and welcome to the Gladstone Capital Corporation's Second Quarter Ended March 31, 2014 Earnings Conference Call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session and instructions will follow at that time. (Operator Instructions). As a reminder, this conference call may be recorded. I would now like to introduce your host for today's conference, David Gladstone. Please go ahead.

All right. Thank you, Charlotte, for that nice introduction and hello everyone out there and thank you for calling in. This is David Gladstone, Chairman. This is the quarterly earnings conference call for shareholders and analysts of Gladstone Capital. Common stock traded under the symbol GLAD and the preferred stock traded under the symbol GLAD-P for preferred. Again, thank you all for calling in. We're always happy to talk to our loyal shareholders and potential shareholders. I'd like to give an update on the company and our portfolio and our business environment. I do wish we could do this more often. An invitation is always open to all of you that if you're in the Washington D.C. area, we're here in McLean, Virginia, outside Washington D.C. and please stop by and say hello. You'll see a number of the team members here and I think they're the finest team in the business. Please take the opportunity to visit our website at www.gladstonecapital.com and sign up for our e-mail notification service. We don't send out any junk mail, just timely news about the company. You can also find us on Facebook, keyword, The Gladstone Companies, and you can follow us on Twitter under Gladstone Comps. Now, our Internal Counsel and Secretary, Michael LiCalsi, will make a statement with our forward-looking statements.

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 Securities Exchange Act of 1934, including statements with regard to the future performance of the company. These forward-looking statements 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 the 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 filing and our registration statement as filed with the Securities and Exchange Commission, all of which can be found on our website at www.gladstonecapital.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 date of this conference call, except as required by law. Please also note that the past performance or market information is not a guarantee of future results. Now, we will begin the presentation today by hearing from Gladstone Capital's President, Bob Marcotte.

Good morning, everyone. I will start off by reviewing Gladstone Capital's business and investment activity for the quarter, the portfolio in general and then conclude with an update on the investment climate and marketplace in which we operate. As many of you know, we provide loans to the U.S.-based businesses targeting companies in the low end of the middle-market with $20 million to $100 million of revenue and $3 million to $15 million of earnings before interest, taxes and depreciation. Providing capital to these companies allows them to grow, make acquisitions of other companies and may be used to refinance existing debt that is coming due. We invest in private companies with profitable operations, sustainable competitive positions and experienced management teams. Typical using a combination of senior and subordinated loans and sometimes we buy a small amount of equity in the business. The investment activity on the quarter for our second fiscal quarter ended March 31, 2014, we invested a total of $29.4 million in three new proprietary companies. We invested 11.1 million of debt and equity financing in Edge Adhesives Holdings, a leading developer and manufacturer of innovative adhesives, sealants, tapes and related solutions, which was a co-investment with Gladstone Investment, an affiliated BDC which invested an additional $16.7 million under the same terms as Glad. We invested $11.3 million of debt and equity financing in WadeCo which is a chemical distributor servicing independent oral operators with production chemicals used for corrosion prevention, separation of oil, gas and water once extracted, bacteria growth management and other services. Lastly, we invested $7 million of debt and equity financing in Lignetics which is a manufacturer and national distributor of branded wood pellets, which are used as a renewable fuel source for home, industrial heating, animal bedding, moisture and other products. In…

Thanks, Bob. Good morning. I will review Glad's financial results and overall portfolio for the quarter. Starting with the statement of operations for our second fiscal quarter of 2014 ended March 31 as compared to our first fiscal quarter ended December 31, 2013, net investment income was 4.5 million or $0.21 per share, slightly up when compared to the prior quarter of 4.4 million or $0.21 per share. Investment income increased by 11.2% from the three months ended March 31 as compared to the prior quarter primarily due to $1 million increase in other income from increased success and prepayment fees as well as dividend income in the current quarter, mostly received from Francis Drilling Fluids which was recapitalized during the quarter. Interest income and debt investments was consistent quarter-over-quarter as we had two exits during the quarter in addition to the new originations that Bob mentioned earlier. Offsetting the increase in investment income for the quarter was an increase in operating expenses of 22% as compared to the prior quarter primarily due to the decline and we now have incentive fees payable to our investment advisor, which were credited in the prior quarter. The credit last quarter was needed to ensure distributions to stockholders were covered entirely by net investment income and no incentives and credit was necessary this quarter. Over the last three years, 100% of common and preferred stock distributions paid were covered by net investment income. This highlights our continued commitment to prudent growth. The low net investment income on our statement of operations realized and unrealized changes in the fair value of our portfolio. Realized gains and losses come from actual sale or disposal transactions of our investment. When we mark investments to fair value on our statements of assets and liabilities, the change in…

All right, Melissa. Thank you. Michael and Bob, thank you all for those great reports. I hope our listeners will read our press releases, the one we issued yesterday was also combined with our Form 10-Q for the March 2014 quarter end. We filed those yesterday with the SEC. You can access the press release and the 10-Q on our website at www.gladstonecapital.com and you can also find on the SEC website information about our company. For the second fiscal quarter ending March 2014, I think Gladstone Capital continues to focus on the main thing and that is building the list of possible new investments for us to invest in. But during that quarter we also added three new companies to the portfolio, almost $30 million worth. We have about $14.5 million of early exists, so we did build the portfolio based on growth in assets. We also maintain a strong portfolio yield of about 11.6% quarter-over-quarter, so receiving about $1.2 million in other income was a big plus to our earnings and we continue to be a consistent dividend payer to all of our shareholders. The biggest challenge for this company like many in our industry is finding new investments that we believe will survive another possible recession or possible forthcoming inflation – strong inflation that's coming. We continue to [onboard] (ph) industries in housing, also banking, high technology venture capital. Commodities, we're not much in that area, and industries that are highly cyclical. Availability of capital will also be a concern from the near future as we utilize our current credit facility and look to raising additional long-term debt and equity over time. Although recent economic indicators, especially this last quarter that just ended, have been going down rather than being more positive, the economic recovery has been…

(Operator Instructions). Our first question will be coming from the line of Ryan Lynch from KBW Capital Markets. Your line is open.

Good morning, everyone. I'd first like to start off with your investment in Midwest Metal. While that investment is still paying interest income, if the weakness in aluminum prices persists or if they weaken further, can you give us some color on what is that company's ability to continue paying interest?

The company with the current state of the metals, the company has continued to perform. The fact that the metal price has come down, has been somewhat compressed on their margins, they currently have adequate liquidity and they have a fairly strong asset backed loan that supports the typical metal inventories. So, the two are generally in line, so it is generating positive cash flow, has working capital support. It is possible it is just not something that is on an upward trend and certainly it's something that we're watching very closely.

Okay. And then one other investment. Your investment in RBC, it looks like you guys had a pretty big write-down in the common equity. You guys invested some additional capital into the preferred equity tranche which was also written down. Can you just give us some color on that, the operation for that business and that company's ability to continue to pay interest?

Certainly. Reliable is kind of a unique company. It produces active ingredients. They go under pharmaceutical, so it is a very regulated production type of facility, very exact in standards. And what they essentially do is they work with generic drug manufacturers and make the key ingredients that form the basis of those generic drugs. So, as you can imagine with FDA approval processes, with production processes, there has been – continue to be some disruptions and some scheduling issues that come out of the natural processes of approving those drugs. Several of their manufacturers had issues with their facilities, had to suspend or delay or make certain corrections. The result was the active ingredients that Reliable produces were pushed to the right. We don't believe that the company is fundamentally impaired. Its ability to continue to produce to the quality standards and the compliance with all FDA regulations and production is undisputed at this point. So, our view is that the drugs they are supporting will continue to move into production. The company has as a result of that from near-term softness in revenues, we are expecting significant update on a couple of these material drugs over the course over the next quarter or two and we believe they have a much clearer outlook as we go into 2015 as a result. At this point, the company is fully – we've good ample liquidity today and we expect a very near-term resolution into that company's matters. It typically takes anywhere between 12 and 18 months for some of these drugs to be approved and we are in the approval cycle on a couple of major drugs today that I think will resolve this or at least provide greater clarity in the next quarter or two.

Other questions, Ryan?

Yes. You guys exited from your syndicated loans in the quarter. Given the run-up syndicated loan market is at, are you guys going to be actively pursuing exiting more syndicated loans in the future?

I don't think we actually actively exited. I think we had $2 million or so of prepayments given the natural turnover in companies and the refinancing activities. I think we are very selective. As you know, probably more than half of the current syndicated market has no covenants. Those facilities are not in keeping with our investment parameters and quality expectations. So the vast majority of the syndicated market is not something that we're pursuing. I don't think we're actively looking to reduce our exposures. I think if you look at our existing portfolio, it is reasonably seasoned which means that it's got a slightly lower leverage than what the average that probably has been originated then in the last year. It also has slightly higher average yields. So most of those investments would trade at a fairly favorable rate, but at this point are accretive to our overall returns and there's no reason given those positive investment characteristics for us to exit them. Obviously that is a potential source should we find incremental accretive opportunities in our direct origination, but at this point given our availability under our line, there is no reason to consider liquidating or taking a more proactive action in reducing that portion of our portfolio.

Other questions, Ryan?

That's all for me. Thanks, guys.

Okay. Next question, please.

Thank you. Our next question will be coming from the line of Vernon Plack from BB&T Capital Markets. Your line is open.

Thank you. I was hoping to get a better understanding of what's going on with two of your portfolio companies that have passed their maturity date? The first one is Legend Communications. I believe that was due in January 2014.

Yes. This is Melissa Morrison, the CFO. Yes, in Legend we are actually looking at possibly refinancing with the FDA and very similar to what we did with BAS Broadcasting, so more to come on that one in the next quarter.

Vernon, it's just been expended while we work with the FDA.

Okay. Can I assume that that's also the case, just a couple more, one Precision Acquisition as well as Saunders has been due for quite some time?

Yes. So Precision we are looking at expending that. We're working with the lender on that one. The other lender, there's more to come next quarter. We should have an update on that one. And in Saunders we still are in negotiations with the participating lender and the sponsor, so we're negotiating with two other parties and looking at potentially expending that one as well. But all three of those; Legend, Precision and Saunders are paying as agreed in our current.

Okay. And the last one is International Junior Golf that's due this month. Do you expect that to pay off?

We're already in process of working with someone that wants to buy them. I just don't know if it's going to happen or not. If not, the sponsor is relatively strong there and we would expect to continue to get paid.

Okay. Thank you.

Thank you. (Operator Instructions). I'm showing we have a question from the line of J.T. Rogers from Janney Capital Markets. Your line is open.

Thank you. Good morning. My only question is that you guys have plenty of availability under your line and cash on hand right now, but what is your view if you continue to de-stock trading below book value, what are your views on raising capital below book?

Well, we've not done that much in the past for any of our companies. I think we used it once only. And so I don't like to do that. As you know, I'm a very large shareholder. I don't like the dilution and so I'd say we'll do it when we need to and right now we don't need to, so we're not doing it.

Okay. That's all I had. Thank you.

Thank you, J.T. Anybody else have a question?

At this time, I'm not showing any further questions. I would now like to turn the call back over to David Gladstone for any closing remarks.

Okay. Thank you, Charlotte. You did a good job for us and we thank you all for calling in and we look forward to talking to you again next quarter, and that's the end of this call. Thank you all.

Ladies and gentlemen, thank you for participating in today's conference. This does conclude the program and you may all disconnect. Everyone, have a great day.