Exhibit 99.1 Gladstone Capital Corp. Reports Results for the Second Quarter Ended March 31, 2006 MCLEAN, Va.--(BUSINESS WIRE)--May 3, 2006--Gladstone Capital Corp. (NASDAQ:GLAD): -- Net Investment Income was $5.2 million or $0.45 per diluted common share -- Net Increase in Net Assets was $5.6 million or $0.48 per diluted common share Gladstone Capital Corp. (NASDAQ:GLAD) (the "Company") today announced earnings for the second quarter and six months ended March 31, 2006. All per share references are based on fully diluted weighted average common shares outstanding, unless otherwise noted. Net Investment Income for the second quarter ended March 31, 2006 was $5,203,816, or $0.45 per share, as compared to $4,431,258 or $0.38 per share for the second quarter ended March 31, 2005, an increase of 18% per share. Net Investment Income for the six months ended March 31, 2006 was $9,646,230, or $0.83 per share, as compared to $9,108,662 or $0.78 per share for the six months ended March 31, 2005, an increase of 6% per share. Net Increase in Net Assets Resulting from Operations for the second quarter ended March 31, 2006 was $5,590,381, or $0.48 per share, as compared to $4,275,378 or $0.37 per share for the same period one year ago, an increase of 30% per share. Net Increase in Net Assets Resulting from Operations for the six months ended March 31, 2006 was $13,823,730, or $1.20 per share, as compared to $9,220,326 or $0.79 per share for the same period one year ago, an increase of 52% per share. The Company also recorded net unrealized depreciation on its investments of $15,593 for the second quarter ended March 31, 2006, as compared to net unrealized depreciation of $191,728 for the second quarter ended March 31, 2005. For the six months ended March 31, 2006, the Company recorded net unrealized appreciation on its investments of $4,956,829 as compared to net unrealized appreciation of $90,877 for the six months ended March 31, 2005. Total assets were $217,725,319 at March 31, 2006, as compared to $205,793,094 at September 30, 2005. Net asset value was $13.84 per actual common share outstanding, at March 31, 2006, 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 March 31, 2006 was 12.7% (without giving effect to paid in kind interest) and 12.7% (after giving effect to paid in kind interest) as compared to 11.6% and 13.5%, respectively, for the same quarter one year ago. Beginning April 1, 2006 the Company has no investments with paid in kind interest. On October 1, 2005 the Company began recording stock option expense for stock-based awards, in accordance with Statement of Financial Accounting Standards No. 123R Share-Based Payment. Accordingly, the Company recorded $34,065 in stock option expense for the quarter ended March 31, 2006 and $77,322 for the six months ending March 31, 2006. Second quarter highlights: -- New investments of approximately $38.5 million; -- Principal repayments of $24.8 million, which included scheduled principal repayments; -- Success fee of approximately $556,000; -- Gain of approximately $378,000 on the sale of a loan investment; and -- Prepayment penalties of approximately $14,000. At March 31, 2006, the Company had 28 private company investments in debt and equity securities with an aggregate cost balance of $206.0 million and a fair value of $206.5 million. "Our strong second quarter earnings results included reporting an 18% increase in net investment income, partially driven by a success fee of nearly $556,000. During the quarter we placed several new loans into the portfolio, although we continue to experience additional loan prepayments," said Chip Stelljes, President and Chief Investment Officer. "We are seeing a steady flow of investment opportunities and expect to post positive results for the second half of 2006." Subsequent event highlights: -- Purchase of three syndication loans for $10.0 million; -- Receipt of three full investment repayments for $24.9 million; and -- Declared monthly cash dividends of $0.135 per common share for each of the months of April, May and June 2006. Also subsequent to March 31, 2006, the Board of Directors approved an offer to the executive officers and directors of the Company and the employees of the Company's external investment adviser, Gladstone Management Corporation, who hold stock options (the "Optionees"), to amend the terms of all stock options currently outstanding (the "Options") under the Company's Amended and Restated 2001 Equity Incentive Plan, as amended, to accelerate the expiration date of the Options to September 30, 2006. The offer is conditioned upon its acceptance by all of the Optionees, so that if the offer is accepted 100% of the outstanding Options will be amended to expire on September 30, 2006. The offer to amend the Options is currently scheduled to expire at 5:00 p.m., Eastern Time, on May 31, 2006. The Company filed a Schedule TO and related documentation regarding the offer with the Securities and Exchange Commission on April 12, 2006. The financial statements below are without footnotes. We have filed a Form 10-Q today for the second quarter ended March 31, 2006 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 Thursday, May 4, 2006 at 9:30 am EDT to discuss second quarter earnings. Please call (877) 407-9205 to enter the conference. An operator will monitor the call and set a queue for the questions. The conference call replay will be available approximately two hours after the call and will be available through June 3, 2006. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 199307. The live audio broadcast of Gladstone Capital's quarterly conference call will be available online at www.GladstoneCapital.com and www.investorcalendar.com. The event will be archived and available for replay on the Company's website. 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 ("SEC") on December 13, 2005 and as listed in the Form 10-Q for the quarter ended March 31, 2006, as filed with the SEC today. 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 ASSETS & LIABILITIES (Unaudited) March 31, September 30, 2006 2005 ------------- ------------- ASSETS Investments at fair value (Cost 3/31/2006: $206,033,242; 9/30/2005: $205,375,554) $206,461,282 $200,846,763 Cash and cash equivalents 311,090 503,776 Interest receivable - investments in debt securities 1,063,698 1,406,212 Interest receivable - officers 13,015 27,067 Due from custodian 9,251,975 2,624,074 Due from Adviser 320,621 - Deferred financing fees 23,536 70,000 Prepaid assets 145,036 177,848 Other assets 135,066 137,354 ------------- ------------- TOTAL ASSETS $217,725,319 $205,793,094 ============= ============= LIABILITIES Accounts payable $ 4,589 $ 21,893 Interest payable 278,951 183,707 Fees due to Adviser 230,182 391,322 Borrowings under lines of credit 60,300,000 53,034,064 Accrued expenses and deferred liabilities 249,286 350,665 Funds held in escrow 200,800 200,760 ------------- ------------- Total Liabilities 61,263,808 54,182,411 ------------- ------------- Net Assets $156,461,511 $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 164,774,090 164,610,873 Notes receivable - employees (8,722,687) (8,745,781) Net unrealized appreciation/(depreciation) on investments 428,038 (4,528,791) Unrealized depreciation on derivative (229,981) (253,747) Realized (loss)/gain on sale of investments (760,845) 42,250 Distributions less than net investment income 961,587 474,575 ------------- ------------- Total Net Assets $156,461,511 $151,610,683 ============= ============= Net Assets Per Share $ 13.84 $ 13.41 ============= ============= GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended Ended March 31, March 31, 2006 2005 ------------ ------------ INVESTMENT INCOME Interest income - investments $ 6,875,264 $ 5,198,180 Interest income - cash and cash equivalents 4,624 5,130 Interest income - notes receivable from employees 107,033 113,599 Prepayment fees and other income 13,779 569,620 ------------ ------------ Total investment income 7,000,700 5,886,529 ------------ ------------ EXPENSES Loan servicing 734,644 585,542 Management fee 352,379 390,007 Professional fees 110,887 156,383 Amortization of deferred financing fees 32,286 91,912 Interest expense 948,166 439,521 Stockholder related costs 115,864 104,541 Directors fees 30,212 24,000 Insurance expense 50,590 43,890 Stock option compensation 34,065 - General and administrative expenses 60,791 69,475 ------------ ------------ Expenses before credit from Gladstone Management 2,469,884 1,905,271 ------------ ------------ Credit to management fee for fees collected by Gladstone Management (673,000) (450,000) ------------ ------------ Total expenses net of credit to management fee 1,796,884 1,455,271 ------------ ------------ NET INVESTMENT INCOME BEFORE INCOME TAXES 5,203,816 4,431,258 ------------ ------------ Income tax expense - - ------------ ------------ NET INVESTMENT INCOME 5,203,816 4,431,258 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized gain on sale of investments 377,500 20,000 Unrealized appreciation on derivative 24,658 15,848 Net unrealized depreciation on investments (15,593) (191,728) ------------ ------------ Net unrealized gain (loss) on investments 386,565 (155,880) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,590,381 $ 4,275,378 ============ ============ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE: Basic $ 0.49 $ 0.38 ============ ============ Diluted $ 0.48 $ 0.37 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 11,308,510 11,288,833 Diluted 11,536,360 11,620,603 GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Six Months Six Months Ended Ended March 31, March 31, 2006 2005 ------------ ------------ INVESTMENT INCOME Interest income - investments $12,722,371 $10,905,523 Interest income - cash and cash equivalents 13,536 21,470 Interest income - notes receivable from employees 214,126 228,317 Prepayment fees and other income 80,986 809,620 ------------ ------------ Total investment income 13,031,019 11,964,930 ------------ ------------ EXPENSES Loan servicing 1,450,059 1,116,494 Management fee 621,080 717,309 Professional fees 233,353 395,105 Amortization of deferred financing fees 58,536 183,824 Interest expense 1,600,244 611,251 Stockholder related costs 244,799 176,310 Directors fees 54,212 51,000 Insurance expense 101,367 90,162 Stock option compensation 77,322 - General and administrative expenses 116,580 112,635 ------------ ------------ Expenses before credit from Gladstone Management 4,557,552 3,454,090 ------------ ------------ Credit to management fee for fees collected by Gladstone Management (1,223,000) (736,500) ------------ ------------ Total expenses net of credit to management fee 3,334,552 2,717,590 ------------ ------------ NET INVESTMENT INCOME BEFORE INCOME TAXES 9,696,467 9,247,340 ------------ ------------ Income tax expense 50,237 138,678 ------------ ------------ NET INVESTMENT INCOME 9,646,230 9,108,662 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized (loss) gain on sale of investments (803,095) 29,750 Unrealized appreciation (depreciation) on derivative 23,766 (8,963) Net unrealized appreciation on investments 4,956,829 90,877 ------------ ------------ Net unrealized gain on investments 4,177,500 111,664 NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $13,823,730 $ 9,220,326 ============ ============ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE: Basic $ 1.22 $ 0.82 ============ ============ Diluted $ 1.20 $ 0.79 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 11,307,510 11,283,671 Diluted 11,555,479 11,614,219 GLADSTONE CAPITAL CORPORATION FINANCIAL HIGHLIGHTS (Unaudited) Three Months Ended March 31, 2006 2005 -------------- -------------- Per Share Data (1) - ------------------ Net asset value at beginning of period $13.74 $13.58 -------------- -------------- Income from investment operations: Net investment income (2) 0.46 0.39 Realized gain (loss) on sale of investments (2) 0.03 - Net unrealized gain (loss) on investments (2) - (0.02) Net unrealized gain on derivatives (2) - - -------------- -------------- Total from investment operations 0.49 0.37 -------------- -------------- 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 Repayment of principal on notes receivable - 0.06 Dilutive effect of share issuance - (0.02) Effect of antidilution(3) 0.02 - -------------- -------------- Net asset value at end of period $13.84 $13.64 ============== ============== Per share market value at beginning of period $21.38 $23.70 Per share market value at end of period 21.55 21.22 Total return (4)(5) 2.78% -9.07% Shares outstanding at end of period 11,308,510 11,298,510 Ratios/Supplemental Data - ------------------------ Net assets at end of period $156,461,511 $154,141,310 Average net assets $154,397,504 $152,288,314 Ratio of expenses to average net assets - annualized (6) 6.40% 5.00% Ratio of net expenses to average net assets - annualized (7) 4.66% 3.82% Ratio of net investment income to average net assets - annualized 13.48% 11.64% Six Months Ended March 31, 2006 2005 -------------- -------------- Per Share Data (1) - ------------------ Net asset value at beginning of period $ 13.41 $ 13.50 -------------- -------------- Income from investment operations: Net investment income (2) 0.85 0.81 Realized (loss) gain on sale of investments (2) (0.07) - Net unrealized gain on investments (2) 0.44 0.01 Net unrealized gain (loss) on derivatives (2) - - -------------- -------------- Total from investment operations 1.22 0.82 -------------- -------------- Less distributions: Distributions from net investment income (0.81) (0.72) -------------- -------------- Total distributions (0.81) (0.72) -------------- -------------- Issuance of common stock under stock option plan 0.01 0.01 Offering costs - (0.01) Repayment of principal on notes receivable - 0.07 Dilutive effect of share issuance - (0.03) Effect of antidilution(3) 0.01 - -------------- -------------- Net asset value at end of period $ 13.84 $ 13.64 ============== ============== Per share market value at beginning of period $ 22.55 $ 22.71 Per share market value at end of period 21.55 21.22 Total return (4)(5) -0.75% -3.66% Shares outstanding at end of period 11,308,510 11,298,510 Ratios/Supplemental Data - ------------------------ Net assets at end of period $156,461,511 $154,141,310 Average net assets $152,679,547 $151,859,115 Ratio of expenses to average net assets - annualized (6) 6.04% 4.73% Ratio of net expenses to average net assets - annualized (7) 4.43% 3.76% Ratio of net investment income to average net assets - annualized 12.64% 12.00% (1) Basic per share data. (2) Based on weighted average basic per share data. (3) Represents the antidilutive impact of other components in changes in net assets and the different share amounts used in calculating per share data as a result of calculating certain per share data based upon the weighted average basic shares outstanding during the period and certain per share data based on the shares outstanding as of a period end. (4) 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. (5) Amounts were not annualized. (6) Ratio of expenses to average net assets is computed using expenses before credit from Gladstone Management and including income tax expense. (7) 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 Corp. Kelly Sargent, 703-287-5835