Exhibit 99.1 Gladstone Capital Corporation Reports First Quarter Results for 2006 MCLEAN, Va.--(BUSINESS WIRE)--Feb. 7, 2006--Gladstone Capital Corp. (NASDAQ:GLAD): -- Net Investment Income was $4.4 million or $0.38 per diluted common share -- Net Increase in Net Assets was $8.2 million or $0.71 per diluted common share Gladstone Capital Corp. (NASDAQ:GLAD) (the "Company") today announced earnings for the first quarter ended December 31, 2005. All share references are based on weighted average common shares outstanding, unless otherwise noted. Net Investment Income for the first quarter ended December 31, 2005 was $4,442,414, or $0.39 per basic share and $0.38 per diluted share, as compared to $4,677,404, or $0.41 per basic share and $0.40 per diluted share for the first quarter ended December 31, 2004. Net Increase in Net Assets Resulting from Operations for the first quarter ended December 31, 2005 was $8,233,349, or $0.73 per basic share and $0.71 per diluted share, as compared to $4,944,948 or $0.44 per basic share and $0.43 per diluted share for the same period one year ago. The Company also recorded net unrealized appreciation on its investments of $4,972,422 for the first quarter ended December 31, 2005, as compared to net unrealized appreciation of $282,605 for the first quarter ended December 31, 2004. Total assets were $212,106,143 at December 31, 2005, as compared to $205,793,094 at September 30, 2005. Net asset value was $13.74 per actual common share outstanding, at December 31, 2005 as compared to $13.41 per actual common share outstanding, at September 30, 2005. The annualized weighted average yield on the Company's portfolio for the three months ended December 31, 2005 was 12.6% (without giving effect to paid in kind interest) and 12.6% (after giving effect to PIK interest) as compared to 14.7% and 15.0% respectively for the same quarter one year ago. On October 1, 2005 the Company began recording stock option expense for stock-based awards, in accordance with Statement of Financial Accounting Standards No. 123(R) Share-Based Payment. Accordingly, the Company recorded $43,257 in stock option expense for the quarter ended December 31, 2005. For the quarter ended December 31, 2005, the Company: -- Recorded loans of nearly $26.7 million to four companies; -- Received principal repayments of $38.7 million, which included scheduled principal repayments; -- Sold loan investments at a loss of approximately $1.2 million; and -- Received prepayment penalties of approximately $67 thousand. At December 31, 2005, the Company had investments in debt securities in 27 private companies having an aggregate cost balance of $192.2 million and a fair value of $192.6 million. "First quarter 2006 was mixed as we expected. Repayments and prepayments exceeded new originations; however, by removing several companies from our portfolio, including two which resulted in a loss, we were able to greatly improve the portfolio's value quality as is reflected in the portfolio's appreciation during the quarter. We continue to believe that we are making conservative decisions as we build and prune the portfolio, decisions that we anticipate will reward shareholders over the long term," said Chip Stelljes, President and Chief Investment Officer. Subsequent to December 31, 2005, the Company: -- Extended $30.0 million of loans to four companies; and -- The Board of Directors declared on January 10, 2006, its monthly cash dividends of $0.135 per common share for each of the months of January, February and March of 2006. The financial statements below are without footnotes. We have filed a Form 10-Q today for the first quarter ended December 31, 2005 with the Securities and Exchange Commission (the "SEC"), which can be retrieved from the SEC's website at www.SEC.gov or from the Company's web site at www.GladstoneCapital.com. A paper copy can be obtained free of charge by writing to us at 1521 Westbranch Drive, Suite 200, McLean, VA 22102. The Company will hold a conference call Wednesday, February 8, 2006 at 9:30 am EDT to discuss first quarter earnings. Please call (877) 407-8214 to enter the conference. An operator will monitor the call and set a queue for the questions. The conference call replay will be available two hours after the call and will be available through March 8, 2006. To hear the replay, please dial (877) 660-6853 and access playback account 286 and ID code 190141. The live audio broadcast of Gladstone Capital's quarterly conference call will be available online at www.GladstoneCapital.com and www.investorcalendar.com. The online replay will follow shortly after the call. For further information contact our Investor Relations Manager, Kelly Sargent at 703-287-5835. This press release may include statements that may constitute "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements with regard to the future performance of the Company. Words such as "should," "believes," "feel," "expects," "projects," "goals," and "future" or similar expressions are intended to identify forward-looking statements. These forward-looking statements inherently involve certain risks and uncertainties, although they are based on the Company's current plans that are believed to be reasonable as of the date of this press release. Factors that may cause the Company's actual results, levels of activity, performance or achievements to be materially different from any future results, levels of activity, performance or achievements expressed or implied by such forward-looking statements include, among others, those factors listed under the caption "Risk factors" of the Company's Form 10-K for the fiscal year ended September 30, 2005, as filed with the Securities and Exchange Commission on December 13, 2005. 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. GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended Ended December 31, December 31, 2005 2004 ------------ ------------ INVESTMENT INCOME Interest income - investments $ 5,847,107 $ 5,707,343 Interest income - cash and cash equivalents 8,912 16,340 Interest income - notes receivable from employees 107,093 114,718 Prepayment fees and other income 67,207 240,000 ------------ ------------ Total investment income 6,030,319 6,078,401 ------------ ------------ EXPENSES Loan servicing 715,415 530,952 Management fee 268,701 327,302 Professional fees 122,466 238,722 Amortization of deferred financing fees 26,250 91,912 Interest expense 652,078 171,730 Stockholder related costs 128,935 71,769 Directors fees 24,000 27,000 Insurance expense 50,777 46,272 Stock option compensation 43,257 - General and administrative expenses 55,789 43,160 ------------ ------------ Expenses before credit from Gladstone Management 2,087,668 1,548,819 ------------ ------------ Credit to management fee for fees collected by Gladstone Management (550,000) (286,500) ------------ ------------ Total expenses net of credit to management fee 1,537,668 1,262,319 ------------ ------------ NET INVESTMENT INCOME BEFORE INCOME TAXES 4,492,651 4,816,082 ------------ ------------ Income tax expense 50,237 138,678 ------------ ------------ NET INVESTMENT INCOME 4,442,414 4,677,404 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized (loss) gain on sale of investments (1,180,595) 9,750 Unrealized depreciation on derivative (892) (24,811) Net unrealized appreciation on investments 4,972,422 282,605 ------------ ------------ Net unrealized gain on investments 3,790,935 267,544 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 8,233,349 $ 4,944,948 ============ ============ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE: Basic $ 0.73 $ 0.44 ============ ============ Diluted $ 0.71 $ 0.43 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 11,306,510 11,278,510 Diluted 11,573,620 11,615,796 GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF ASSETS & LIABILITIES (Unaudited) December 31, September 30, 2005 2005 ------------- ------------- ASSETS Investments at fair value (Cost 12/31/2005:$192,181,728; 9/30/2005: $205,375,554) $192,625,362 $200,846,763 Cash and cash equivalents 15,393,252 503,776 Interest receivable - investments in debt securities 958,365 1,406,212 Interest receivable - officers 17,150 27,067 Due from custodian 2,413,120 2,624,074 Due from affiliate 300,638 - Deferred financing fees 43,750 70,000 Prepaid assets 197,125 177,848 Other assets 157,381 137,354 ------------- ------------- TOTAL ASSETS $212,106,143 $205,793,094 ============= ============= LIABILITIES Accounts payable $ 10,784 $ 21,893 Interest payable 189,390 183,707 Fees due to affiliate 210,109 391,322 Borrowings under lines of credit 55,723,723 53,034,064 Accrued expenses and deferred liabilities 352,962 350,665 Funds held in escrow 202,164 200,760 ------------- ------------- Total Liabilities 56,689,132 54,182,411 ------------- ------------- Net Assets $155,417,011 $151,610,683 ============= ============= ANALYSIS OF NET ASSETS Common stock, $0.001 par value, 50,000,000 shares authorized and 11,308,510 and 11,303,510 shares issued and outstanding, respectively $ 11,309 $ 11,304 Capital in excess of par value 164,740,025 164,610,873 Notes receivable - officers (8,722,687) (8,745,781) Net unrealized appreciation/(depreciation) on investments 443,631 (4,528,791) Unrealized depreciation on derivative (254,639) (253,747) Realized (loss)/gain on sale of investments (1,138,345) 42,250 Distributions less than net investment income 337,717 474,575 ------------- ------------- Total Net Assets $155,417,011 $151,610,683 ============= ============= Net Assets Per Share $ 13.74 $ 13.41 ============= ============= GLADSTONE CAPITAL CORPORATION FINANCIAL HIGHLIGHTS (UNAUDITED) Three Months Ended December 31, 2005 2004 --------------- --------------- Per Share Data (1) - ------------------ Net asset value at beginning of period $ 13.41 $ 13.50 --------------- --------------- Income from investment operations: Net investment income (2) 0.39 0.41 Realized (loss)/gain on sale of investments (2) (0.10) - Net unrealized gain on investments (2) 0.44 0.03 Net unrealized (loss) on derivatives (2) - - --------------- --------------- Total from investment operations 0.73 0.44 --------------- --------------- Less distributions: Distributions from net investment income (0.41) (0.36) --------------- --------------- Total distributions (0.41) (0.36) --------------- --------------- Issuance of common stock under stock option plan 0.01 - Offering costs - (0.01) Repayment of principal on notes receivable - 0.01 --------------- --------------- Net asset value at end of period $ 13.74 $ 13.58 =============== =============== Per share market value at beginning of period $ 22.55 $ 22.71 Per share market value at end of period 21.38 23.70 Total Return (3)(4) -3.44% 5.94% Shares outstanding at end of period 11,308,510 11,278,510 Ratios/Supplemental Data ------------------------ Net assets at end of period $ 155,417,011 $ 153,150,107 Average net assets $ 150,961,590 $ 151,429,917 Ratio of expenses to average net assets - annualized (5) 5.66% 4.46% Ratio of net expenses to average net assets - annualized (6) 4.21% 3.70% Ratio of net investment income to average net assets - annualized 11.77% 12.36% (1) Basic per share data. (2) Based on weighted average basic per share data. (3) Total return equals the increase of the ending market value over the beginning market value plus monthly dividends divided by the monthly beginning market value, assuming monthly dividend reinvestment. (4) Amounts were not annualized. (5) Ratio of expenses to average net assets is computed using expenses before credit from Gladstone Management and including income tax expense. (6) Ratio of net expenses to average net assets is computed using total expenses net of credits to management fee and including income tax expense. CONTACT: Gladstone Capital Corporation Kelly Sargent, 703-287-5835