Exhibit 99.1 Gladstone Capital Reports Results for the Third Quarter Ended June 30, 2006 MCLEAN, Va.--(BUSINESS WIRE)--Aug. 1, 2006--Gladstone Capital Corp. (NASDAQ:GLAD): -- Net Investment Income was $4.79 million or $0.41 per diluted common share -- Net Increase in Net Assets was $5.54 million or $0.48 per diluted common share Gladstone Capital Corp. (NASDAQ:GLAD) (the "Company") today announced earnings for the third quarter and nine months ended June 30, 2006. All per share references are based on fully diluted weighted average common shares outstanding, unless otherwise noted. Net Investment Income for the third quarter ended June 30, 2006 was $4,788,082 or $0.41 per share, as compared to $4,372,426 or $0.38 per share for the third quarter ended June 30, 2005, an increase of 7.9% per share. Net Investment Income for the nine months ended June 30, 2006 was $14,434,312 or $1.25 per share, as compared to $13,481,088 or $1.16 per share for the nine months ended June 30, 2005, an increase of 7.8% per share. Net Increase in Net Assets Resulting from Operations for the third quarter ended June 30, 2006 was $5,543,076, or $0.48 per share, as compared to $3,934,153 or $0.34 per share for the same period one year ago, an increase of 41.2% per share. Net Increase in Net Assets Resulting from Operations for the nine months ended June 30, 2006 was $19,366,806, or $1.68 per share, as compared to $13,154,479 or $1.13 per share for the same period one year ago, an increase of 48.7% per share. The Company also recorded net unrealized appreciation on its investments of $812,991 for the third quarter ended June 30, 2006, as compared to net unrealized depreciation of $389,229 for the third quarter ended September 30, 2005. For the nine months ended June 30, 2006, the Company recorded net unrealized appreciation on its investments of $5,769,820 as compared to net unrealized depreciation of $298,352 for the nine months ended June 30, 2005. Total assets were $207.5 million at June 30, 2006, as compared to $205.8 million at September 30, 2005. Net asset value was $13.95 per actual common share outstanding at June 30, 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 June 30, 2006 was 11.7%; there was no paid in kind interest during the three months. The annualized weighted average yield on the portfolio for the three months ended June 30, 2005 was 11.4% (without giving effect to paid in kind interest) and 11.8% (after giving effect to paid in kind interest). 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. 123(R) Share-Based Payment. Accordingly, the Company recorded $202,296 in stock option expense for the quarter ended June 30, 2006 and $279,618 for the nine months ending June 30, 2006. Third quarter highlights: -- Closed approximately $39.9 million of new investments; -- Received principal repayments of $44.4 million, which included scheduled principal repayments; and -- Received prepayment penalties and other income of $630,000. At June 30, 2006, the Company had 29 private company investments in debt and equity securities with an aggregate cost balance of $201.5 million and a fair value of $202.7 million. "Our strong third quarter earnings results included a 7.9 % per share increase in net investment income and an increase of 41.2% per share for net increase in net assets. Our results were driven by the continued portfolio strength and our ability to post positive results, despite additional loan prepayments," said Chip Stelljes, President and Chief Investment Officer. "We continue to see a steady flow of investment opportunities and expect to post positive results for our September 30, 2006 fiscal year end." Subsequent event highlights: -- Purchased two syndicated loans for $6.5 million; -- Extended one loan origination for $5.7 million; -- Received one full investment repayment for $7.5 million; and -- Declared monthly cash dividends of $0.14 per common share for each of the months of July, August and September 2006. The financial statements below are without footnotes. We have filed a Form 10-Q today for the third quarter ended June 30, 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 Wednesday, August 2, 2006 at 9:30 am ET to discuss third 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 two hours after the call and will be available through September 2, 2006. To hear the replay, please dial (877) 660-6853, access playback account 286 and use conference ID code 209587. 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 June 30, 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) June 30, September 30, 2006 2005 ------------- ------------- ASSETS Investments at fair value (Cost 6/30/2006: $201,465,621; 9/30/2005: $205,375,554) $202,706,650 $200,846,763 Cash and cash equivalents 456,314 503,776 Interest receivable - investments in debt securities 1,132,213 1,406,212 Interest receivable - officers 24,836 27,067 Due from custodian 2,493,924 2,624,074 Due from Adviser 207,960 - Deferred financing fees 148,762 70,000 Prepaid assets 71,946 177,848 Other assets 230,450 137,354 ------------- ------------- TOTAL ASSETS $207,473,055 $205,793,094 ============= ============= LIABILITIES Accounts payable $ 45,342 $ 21,893 Interest payable 188,392 183,707 Fees due to Adviser 181,398 391,322 Borrowings under lines of credit 47,846,000 53,034,064 Accrued expenses and deferred liabilities 225,367 350,665 Funds held in escrow 200,800 200,760 ------------- ------------- TOTAL LIABILITIES 48,687,299 54,182,411 ------------- ------------- NET ASSETS $158,785,756 $151,610,683 ============= ============= ANALYSIS OF NET ASSETS Common stock, $0.001 par value, 50,000,000 shares authorized and 11,384,363 and 11,303,510 shares issued and outstanding, respectively $ 11,385 $ 11,304 Capital in excess of par value 166,240,635 164,610,873 Notes receivable - employees (8,815,818) (8,745,781) Net unrealized appreciation/(depreciation) on investments 1,241,029 (4,528,791) Unrealized depreciation on derivative (188,495) (253,747) Realized (loss)/gain on sale of investments (861,695) 42,250 Distributions less than net investment income 1,158,715 474,575 ------------- ------------- TOTAL NET ASSETS $158,785,756 $151,610,683 ============= ============= NET ASSETS PER SHARE $ 13.95 $ 13.41 ============= ============= GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Three Months Three Months Ended Ended June 30, June 30, 2006 2005 ------------ ------------ INVESTMENT INCOME Interest income - investments $ 5,775,522 $ 5,766,233 Interest income - cash and cash equivalents 8,178 7,631 Interest income - notes receivable from employees 108,877 108,065 Prepayment fees and other income 630,239 245,297 ------------ ------------ Total investment income 6,522,816 6,127,226 ------------ ------------ EXPENSES Loan servicing 693,965 687,971 Management fee 331,040 358,631 Professional fees 166,405 133,505 Amortization of deferred financing fees 36,036 100,663 Interest expense 702,449 563,336 Stockholder related costs 28,371 16,475 Directors fees 27,500 26,624 Insurance expense 50,589 43,891 Stock option compensation 202,296 - Other expenses 35,083 64,304 ------------ ------------ Expenses before credit from Gladstone Management 2,273,734 1,995,400 ------------ ------------ Credit to management fee for fees collected by Gladstone Management (539,000) (240,600) ------------ ------------ Total expenses net of credit to management fee 1,734,734 1,754,800 ------------ ------------ NET INVESTMENT INCOME BEFORE INCOME TAXES 4,788,082 4,372,426 ------------ ------------ Income tax expense - - ------------ ------------ NET INVESTMENT INCOME 4,788,082 4,372,426 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Realized loss on sale of investments (100,850) - Realized gain on settlement of derivative 1,367 - Unrealized appreciation (depreciation) on derivative 41,486 (49,044) Net unrealized appreciation (depreciation) on investments 812,991 (389,229) ------------ ------------ Net gain (loss) on investments 754,994 (438,273) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $ 5,543,076 $ 3,934,153 ============ ============ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE: Basic $ 0.49 $ 0.35 ============ ============ Diluted $ 0.48 $ 0.34 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 11,337,291 11,299,010 Diluted 11,570,425 11,578,637 GLADSTONE CAPITAL CORPORATION CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) Nine Months Nine Months Ended Ended June 30, June 30, 2006 2005 ------------ ------------ INVESTMENT INCOME Interest income - investments $18,497,893 $16,671,756 Interest income - cash and cash equivalents 21,714 29,101 Interest income - notes receivable from employees 323,003 336,382 Prepayment fees and other income 711,225 1,054,917 ------------ ------------ Total investment income 19,553,835 18,092,156 ------------ ------------ EXPENSES Loan servicing 2,144,024 1,804,465 Management fee 952,120 1,075,940 Professional fees 399,758 528,610 Amortization of deferred financing fees 94,572 284,487 Interest expense 2,302,693 1,174,587 Stockholder related costs 273,170 192,785 Directors fees 81,712 77,624 Insurance expense 151,956 134,053 Stock option compensation 279,618 - Other expenses 151,663 176,939 ------------ ------------ Expenses before credit from Gladstone Management 6,831,286 5,449,490 ------------ ------------ Credit to management fee for fees collected by Gladstone Management (1,762,000) (977,100) ------------ ------------ Total expenses net of credit to management fee 5,069,286 4,472,390 ------------ ------------ NET INVESTMENT INCOME BEFORE INCOME TAXES 14,484,549 13,619,766 ------------ ------------ Income tax expense 50,237 138,678 ------------ ------------ NET INVESTMENT INCOME 14,434,312 13,481,088 ------------ ------------ REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS: Net realized (loss) gain on sale of investments (903,945) 29,750 Realized gain on settlement of derivative 1,367 - Unrealized appreciation (depreciation) on derivative 65,252 (58,007) Net unrealized appreciation (depreciation) on investments 5,769,820 (298,352) ------------ ------------ Net gain (loss) on investments 4,932,494 (326,609) NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS $19,366,806 $13,154,479 ============ ============ NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE: Basic $ 1.71 $ 1.17 ============ ============ Diluted $ 1.68 $ 1.13 ============ ============ WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING: Basic 11,317,437 11,288,784 Diluted 11,549,054 11,602,986 GLADSTONE CAPITAL CORPORATION FINANCIAL HIGHLIGHTS (Unaudited) Three Months Ended June 30, 2006 2005 ------------- ------------- Per Share Data (1) - ------------------ Net asset value at beginning of period $ 13.84 $ 13.64 ------------- ------------- Income from investment operations: Net investment income (2) 0.42 0.39 Realized (loss) gain on sale of investments (2) (0.01) - Realized gain on settlement of derivative (2) - - Net unrealized gain (loss) on investments (2) 0.07 (0.03) Net unrealized gain on derivatives (2) 0.01 - ------------- ------------- Total from investment operations 0.49 0.36 ------------- ------------- Less distributions: Distributions from net investment income (0.41) (0.39) ------------- ------------- Total distributions (0.41) (0.39) ------------- ------------- Issuance of common stock under stock option plan 0.10 - Repayment of principal on notes receivable 0.01 - Dilutive effect of share issuance (0.08) - ------------- ------------- Net asset value at end of period $ 13.95 $ 13.61 ============= ============= Per share market value at beginning of period $ 21.55 $ 21.22 Per share market value at end of period 21.39 23.40 Total return (3)(4) 1.11% 12.19% Shares outstanding at end of period 11,384,363 11,303,510 Ratios/Supplemental Data ------------------------ Net assets at end of period $158,785,756 $153,805,834 Average net assets (5) $156,053,816 $152,484,868 Ratio of expenses to average net assets - annualized (6) 5.83% 5.23% Ratio of net expenses to average net assets - annualized (7) 4.45% 4.60% Ratio of net investment income to average net assets - annualized 12.27% 11.47% Nine Months Ended June 30, 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) 1.28 1.19 Realized (loss) gain on sale of investments (2) (0.08) - Realized gain on settlement of derivative (2) - - Net unrealized gain (loss) on investments (2) 0.51 (0.03) Net unrealized gain (loss) on derivatives (2) - (0.01) ------------- ------------- Total from investment operations 1.71 1.15 ------------- ------------- Less distributions: Distributions from net investment income (1.22) (1.11) ------------- ------------- Total distributions (1.22) (1.11) ------------- ------------- Issuance of common stock under stock option plan 0.10 0.02 Repayment of principal on notes receivable 0.01 0.07 Offering costs - (0.01) Dilutive effect of share issuance (0.06) (0.01) ------------- ------------- Net asset value at end of period $ 13.95 $ 13.61 ============= ============= Per share market value at beginning of period $ 22.55 $ 22.71 Per share market value at end of period 21.39 23.40 Total return (3)(4) 0.35% 8.08% Shares outstanding at end of period 11,384,363 11,303,510 Ratios/Supplemental Data ------------------------ Net assets at end of period $158,785,756 $153,805,834 Average net assets (5) $153,804,303 $152,067,700 Ratio of expenses to average net assets - annualized (6) 5.97% 4.90% Ratio of net expenses to average net assets - annualized (7) 4.44% 4.04% Ratio of net investment income to average net assets - annualized 12.51% 11.82% (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) Average net assets are computed by taking the average balance of net assets at the end of each month of the reporting period. (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 from Gladstone Management and including income tax expense. CONTACT: Gladstone Capital Corp. Kelly Sargent, 703-287-5835