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Gladstone Capital Corporation Reports Fiscal Year and 3 Months Ended September 30, 2005

·
Net Investment Income was $17.3 million or $1.49 per diluted common share,
an increase of 15.5% per diluted common share
·
Net Increase in Net Assets Resulting from Operations was $15.5 million or $1.33 per
diluted common share, an increase of 30.4% per diluted common share
 
 
 
McLean, VA, December 13, 2005: Gladstone Capital Corp. (NASDAQ: GLAD) (the “Company”) today announced earnings for the fiscal year and three months ended September 30, 2005. All share references are based on weighted average common shares outstanding, unless otherwise noted.
 
Net Investment Income for the fiscal year ended September 30, 2005 increased 30% to $17,286,145, or $1.53 per basic share and $1.49 per diluted share, as compared to $13,292,775, or $1.32 per basic share and $1.29 per diluted share for the fiscal year ended September 30, 2004. Net Investment Income for the three months ended September 30, 2005 increased 52% to $3,805,057, as compared to $2,501,949, for the three months ended September 30, 2004. Net Investment Income for the three months ended September 30, 2005 was $0.34 per basic share and $0.33 per diluted share, or $0.25 per basic share and $0.24 per diluted share for the three months ended September 30, 2004.
 
Net Increase in Net Assets Resulting from Operations for the fiscal year ended September 30, 2005 increased nearly 47% to $15,490,682, or $1.37 per basic share and $1.33 per diluted share, as compared to $10,570,290 or $1.05 per basic share and $1.02 per diluted share for the same period one year ago. For the three months ended September 30, 2005, Net Increase in Net Assets Resulting from Operations was $2,336,203 or $0.21 per basic share and $0.20 per diluted share, as compared to $750,739 or $0.07 per basic and diluted share for the same period one year ago.
 
The Company also recorded net unrealized depreciation on its investments of $1,785,725 for the twelve months ended September 30, 2005, as compared to net unrealized depreciation of $2,520,726 for the fiscal year ended September 30, 2004. For the three months ended September 30, 2005, the Company recorded net unrealized depreciation on its investments of $1,487,373, as compared to net unrealized depreciation on investments of $1,671,594 for the same period one year ago.
 
Total assets were $205,793,094 at September 30, 2005, as compared to $215,333,727 at September 30, 2004. Net asset value was $151,610,683 or $13.41 per actual common share outstanding, at September 30, 2005 as compared to $152,226,655, or $13.50 per actual common share outstanding, at September 30, 2004.
 
For the fiscal ended September 30, 2005, the Company recorded the following activity:
 
·
Nearly $144.0 million of new loans to 23 companies;
·
Sold two investments for a cumulative gain of approximately $30,000 and received principal repayments of $88.0 million, which included scheduled principal repayments;
·
Received $1.2 million of success fees in connection with the full repayment of one investment;
·
Received prepayment penalties of approximately $1.0 million.
 
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At September 30, 2005, the Company had investments in debt securities and loans to syndicated participants in 28 private companies having an aggregate cost basis of $205.4 million and a fair value of $200.8 million.

Subsequent to September 30, 2005, the Company:
 
·
Sold a senior subordinated term and first mortgage loan in Marcal Paper Mills, Inc. for a total aggregate loss of approximately $127,000
·
Sold its senior term loan in ARI Holdings, Inc. for a loss of approximately $1.1 million;
·
Purchased additional debt securities in syndicated participations of nearly $3.4 million;
·
Extended a loan for $10.0 million with proceeds from borrowing under its line of credit;
·
Repaid approximately $20.0 million of its outstanding borrowings on its line of credit.
 
“Fiscal year 2005 produced double digit growth, with a 30% increase in Net Investment Income and 11% growth in the annual dividend. Our year over year results reflect the dedication and hard work of our Gladstone team,” said Chip Stelljes, President and Chief Investment Officer. “We are proud of these accomplishments and will strive to produce even greater results in 2006.”
 
 The financial statements below are without footnotes. We have filed a Form 10-K today for the fiscal year ended September 30, 2005 with the Securities and Exchange Commission (the “SEC”), which can be retrieved from the SEC’s website at www.SEC.govor 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.
 
Gladstone Capitalwill host a conference call at 9:30 a.m. EST, December 14, 2005. Please call 877-407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions. The replay number will be available two hours after the call for approximately 30 days. To hear the replay, please dial 877-660-6853 and use Access Code 286 and ID code 181039.

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.

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 GLADSTONE CAPITAL CORPORATION
 CONSOLIDATED STATEMENTS OF ASSETS & LIABILITIES
 
   
September 30,
 
 
September 30,
 
 
 
 
2005
 
 
2004
  
ASSETS
              
Investments at fair value (Cost 9/30/2005: $205,375,554; 9/30/2004: $149,189,306)
  
$
200,846,763
  
$
146,446,240
  
Cash and cash equivalents
    
503,776
   
15,969,890
 
Cash and cash equivalents pledged to creditors
    
-
   
49,984,950
 
Interest receivable – investments in debt securities
    
1,406,212
   
837,336
 
Interest receivable – officers
    
27,067
   
112,960
 
Due from custodian
    
2,624,074
   
1,203,079
 
Due from affiliate
    
-
   
109,639
 
Deferred financing fees
    
70,000
   
350,737
 
Prepaid assets
    
177,848
   
191,676
 
Other assets
    
137,354
   
127,220
 
TOTAL ASSETS
  
$
205,793,094
  
$
215,333,727
  
               
LIABILITIES
              
Accounts payable
  
$
205,600
  
$
105,921
  
Fees due to affiliate
    
391,322
   
113,511
 
Borrowings under lines of credit
    
53,034,064
   
40,743,547
 
Accrued expenses and deferred liabilities
    
350,665
   
798,096
 
Funds held in escrow
    
200,760
   
-
 
Repurchase agreement
    
-
   
21,345,997
 
Total Liabilities
    
54,182,411
   
63,107,072
 
Net Assets
  
$
151,610,683
  
$
152,226,655
  
               
ANALYSIS OF NET ASSETS
              
Common stock, $0.001 par value, 50,000,000 shares authorized and 11,303,510 and
     11,278,510 shares issued and outstanding, respectively
  
$
11,304
  
$
11,279
  
Capital in excess of par value
    
164,610,873
   
164,294,781
 
Notes receivable – officers
    
(8,745,781
)
  
(9,432,678
)
Net unrealized depreciation on investments
    
(4,528,791
)
  
(2,743,066
)
Unrealized depreciation on derivative
    
(253,747
)
  
(214,259
)
Realized gain on sale of investments
    
42,250
   
12,500
 
Distributions less than net investment income
    
474,575
   
298,098
 
Total Net Assets
  
$
151,610,683
  
$
152,226,655
  
Net Assets Per Share
  
$
13.41
  
$
13.50
  
               
               

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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
 
 
  
 Year Ended September 30,
     
2005
    
2004
  
INVESTMENT INCOME
              
Interest income – investments
  
$
22,407,605
  
$
18,176,617
  
Interest income – cash and cash equivalents
    
32,807
   
84,273
 
Interest income – notes receivable from employees
    
444,170
   
443,658
 
Fee income
    
-
   
1,118,106
 
Prepayment fees and other income
    
1,065,177
   
573,314
 
Total investment income
    
23,949,759
   
20,395,968
 
               
EXPENSES
              
Loan servicing
    
2,549,728
   
501,670
 
Management fee
    
1,359,643
   
-
 
Professional fees
    
725,336
   
579,599
 
Amortization of deferred financing costs
    
385,737
   
1,373,415
 
Interest
    
1,774,629
   
741,621
 
Stockholder related costs
    
220,445
   
140,090
 
Directors fees
    
101,843
   
112,210
 
Insurance
    
178,214
   
258,358
 
Salaries and benefits
    
-
   
2,554,490
 
Rent
    
-
   
139,399
 
General and administrative
    
235,861
   
702,341
 
Expenses before credit from Gladstone Management
    
7,531,436
   
7,103,193
 
Credit to management fee for fees collected by Gladstone Management
    
(1,077,100
)
  
-
 
Total expenses net of credit to management fee
    
6,454,336
   
7,103,193
 
NET INVESTMENT INCOME BEFORE INCOME TAXES
    
17,495,423
   
13,292,775
 
Income tax expense
    
209,278
   
-
 
NET INVESTMENT INCOME
    
17,286,145
   
13,292,775
 
               
REALIZED AND UNREALIZED GAIN (LOSS) ON
              
INVESTMENTS:
              
Realized gain on sale of investment
    
29,750
   
12,500
 
Unrealized depreciation on derivative
    
(39,488
)
  
(214,259
)
Net unrealized depreciation on investments
    
(1,785,725
)
  
(2,520,726
)
Net loss on investments
    
(1,795,463
)
  
(2,722,485
)
               
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
  
$
15,490,682
  
$
10,570,290
  
               
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:
              
Basic
  
$
1.37
  
$
1.05
  
Diluted
  
$
1.33
  
$
1.02
  
               
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
              
Basic
    
11,292,466
    
10,101,341
  
Diluted
    
11,609,146
    
10,344,388
  
 
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GLADSTONE CAPITAL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
 
   
Three Months Ended
  
   
September 30,
  
September 30,
  
   
2005
  
2004
  
INVESTMENT INCOME
              
Interest income – investments
  
$
5,735,849
  
$
5,057,965
  
Interest income – cash and cash equivalents
    
3,706
   
3,050
 
Interest income – notes receivable from employees
    
107,788
   
112,960
 
Fee income
    
-
   
107,500
 
Other income
    
10,260
   
68,814
 
Total investment income
    
5,857,603
   
5,350,289
 
               
EXPENSES
              
Loan servicing
    
745,263
   
501,670
 
Management fee
    
283,703
   
-
 
Professional fees
    
196,726
   
119,007
 
Amortization of deferred financing fees
    
101,250
   
1,120,618
 
Interest
    
600,042
   
350,384
 
Stockholder related costs
    
27,660
   
9,467
 
Directors fees
    
24,219
   
27,000
 
Insurance
    
44,161
   
57,704
 
Salaries and benefits
    
-
   
490,941
 
Rent
    
-
   
32,802
 
General and administrative
    
58,922
   
138,747
 
Expenses before credit from Gladstone Management
    
2,081,946
   
2,848,340
 
Credit to management fee for fees collected by Gladstone Management
    
(100,000
)
  
-
 
Total expenses net of credit to management fee
    
1,981,946
   
2,848,340
 
               
NET INVESTMENT INCOME BEFORE INCOME TAXES
    
3,875,657
   
2,501,949
 
Income tax expense
    
70,600
   
-
 
NET INVESTMENT INCOME
    
3,805,057
   
2,501,949
 
               
REALIZED AND UNREALIZED GAIN (LOSS) ON INVESTMENTS:
              
Unrealized appreciation (depreciation) on derivative
    
18,519
   
(79,616
)
Net unrealized appreciation (depreciation) on investments
    
(1,487,373
)
  
(1,671,594
)
Net unrealized loss on investments
    
(1,468,854
)
  
(1,751,210
)
               
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS
  
$
2,336,203
  
$
750,739
  
               
NET INCREASE IN NET ASSETS RESULTING FROM OPERATIONS PER COMMON SHARE:
              
Basic
  
$
0.21
  
$
0.07
  
Diluted
  
$
0.20
  
$
0.07
  
               
WEIGHTED AVERAGE SHARES OF COMMON STOCK OUTSTANDING:
              
Basic
    
11,303,510
    
10,130,635
  
Diluted
    
11,628,555
    
10,397,151
  
 
 
-5-
 

GLADSTONE CAPITAL CORPORATION
FINANCIAL HIGHLIGHTS
(UNAUDITED)
 
   
Three Months Ended September 30,
   
2005
  
2004
  
Per Share Data (1)
              
Net asset value at beginning of period
  
$
13.61
  
$
12.91
  
Income from investment operations:
              
Net investment income (2)
    
0.34
   
0.25
 
Net unrealized gain/(loss) on investments (2)
    
(0.13
)
  
(0.17
)
Net unrealized (loss) on derivatives (2)
    
-
   
(0.01
)
Total from investment operations
    
0.21
   
0.07
 
Less distributions:
              
Distributions from net investment income
    
(0.41
)
  
(0.24
)
Tax return of capital distributions
    
-
   
(0.12
)
Total distributions
    
(0.41
)
  
(0.36
)
Issuance of common stock under shelf offering
    
-
   
1.04
 
Issuance of common stock under stock option plan
    
-
   
-
 
Offering costs and underwriting discount
    
-
   
(0.16
)
Repayment of principal on notes receivable
    
-
   
-
 
Dilutive effect of share issuance
    
-
   
-
 
Net asset value at end of period
  
$
13.41
  
$
13.50
  
               
Per share market value at beginning of period
  
$
23.40
  
$
20.15
  
Per share market value at end of period
    
22.55
   
22.71
 
Total Return (3)(4)
    
-1.99
%
  
14.54
%
Shares outstanding at end of period
    
11,303,510
   
11,278,510
 
               
Ratios/Supplemental Data
              
Net assets at end of period
  
$
151,610,683
  
$
152,226,655
  
Average net assets
  
$
151,387,098
  
$
136,731,528
  
Ratio of expenses to average net assets - annualized (5)
    
5.69
%
  
8.33
%
Ratio of net expenses to average net assets - annualized (6)
    
5.42
%
  
8.33
%
Ratio of net investment income to average net assets - annualized
    
10.05
%
  
7.32
%
 
 
 Year Ended September 30,
     
2005
    
2004
  
Per Share Data (1)
              
Net asset value at beginning of period
  
$
13.50
  
$
12.97
  
Income from investment operations:
              
Net investment income (2)
    
1.53
   
1.32
 
Realized gain on sale of investment (2)
    
-
   
-
 
Net unrealized gain/(loss) on investments (2)
    
(0.16
)
  
(0.25
)
Net unrealized (loss) on derivatives (2)
    
-
   
(0.02
)
Total from investment operations
    
1.37
   
1.05
 
Less distributions:
              
Distributions from net investment income
    
(1.52
)
  
(1.25
)
Tax return of capital distributions
    
-
   
(0.12
)
Total distributions
    
(1.52
)
  
(1.37
)
Issuance of common stock under shelf offering
    
-
   
0.99
 
Issuance of common stock under stock option plan
    
0.02
   
0.01
 
Offering costs and underwriting discount
    
(0.01
)
  
(0.16
)
Repayment of principal on notes receivable
    
0.07
   
0.01
 
Dilutive effect of share issuance
    
(0.02
)
  
-
 
Net asset value at end of period
  
$
13.41
  
$
13.50
  
               
Per share market value at beginning of period
  
$
22.71
  
$
19.45
  
Per share market value at end of period
    
22.55
   
22.71
 
Total Return (3)
    
5.93
%
  
24.40
%
Shares outstanding at end of period
    
11,303,510
   
11,278,510
 
               
Ratios/Supplemental Data
              
Net assets at end of period
  
$
151,610,683
  
$
152,226,655
  
Average net assets
  
$
151,897,549
  
$
130,385,129
  
Ratio of expenses to average net assets (5)
    
5.10
%
  
5.45
%
Ratio of net expenses to average net assets(6)
    
4.39
%
  
5.45
%
Ratio of net investment income to average net assets
   
11.38
%
  
10.20
%
               
 
(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.
 
 
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