Gladstone Capital Corporation Reports Results for the Fourth Quarter and Fiscal Year Ended September 30, 2008

Net Investment Income for the quarter ended September 30, 2008 was $6.1 million or $0.29 per common share Net Investment Income for the fiscal year ended September 30, 2008 was $26.6 million or $1.35 per common share

MCLEAN, Va.--(BUSINESS WIRE)-- Gladstone Capital Corp. (NASDAQ:GLAD) (the "Company") today announced earnings for the quarter and fiscal year ended September 30, 2008. All per share references are per basic and diluted weighted average common shares outstanding, unless otherwise noted.

Net Investment Income for the quarter ended September 30, 2008 was $6.1 million, or $0.29 per share, as compared to $5.7 million, or $0.39 per share, for the quarter ended September 30, 2007, an increase in Net Investment Income of 7.0% but a decrease of 25.6% per share. The per share results were adversely impacted by the issuance of new shares in public offerings subsequent to September 30, 2007, while the proceeds of the offerings were not fully invested in income producing investments for the entire quarter ended September 30, 2008.

Net Investment Income for the fiscal year ended September 30, 2008 was $26.6 million, or $1.35 per share, as compared to $22.3 million, or $1.69 per share, for the fiscal year ended September 30, 2007, an increase in Net Investment Income of 19.3% but a decrease of 20.1% per share. The per share results were impacted by the issuance of new shares in public offerings subsequent to September 30, 2007, while the proceeds of the offerings were not fully invested in income producing investments for the entire fiscal year ended September 30, 2008.

Net Decrease in Net Assets Resulting from Operations for the quarter ended September 30, 2008 was ($14.1) million, or ($0.67) per share, as compared to a Net Increase in Net Assets Resulting from Operations of $0.7 million, or $0.05 per share, for the quarter ended September 30, 2007. Net Decrease in Net Assets Resulting from Operations for the fiscal year ended September 30, 2008 was ($21.3) million, or ($1.08) per share, as compared to a Net Increase in Net Assets Resulting from Operations for the fiscal year ended September 30, 2007 of $15.0 million, or $1.13 per share.

The primary difference between the current and prior year periods is the increase in net unrealized depreciation on the Company's investment portfolio as well as the increase in weighted average shares as a result of public offerings completed after September 30, 2007. The Company recorded net unrealized depreciation of $19.5 million and $47.0 million for the quarter and fiscal year ended September 30, 2008, respectively, compared to net unrealized depreciation of $4.9 million and $7.4 million for the quarter and fiscal year ended September 30, 2007, respectively. The Company's investment portfolio was valued as of September 30, 2008 at a depreciated value due primarily to the general instability of the loan markets and, to a lesser extent, the use of a modified valuation procedure for the Company's non-control/non-affiliate investments. The change in valuation procedure accounted for $2.9 million, or 6.1%, of the net unrealized depreciation for the fiscal year ended September 30, 2008. The value of the Company's portfolio is determined quarterly by its board of directors based in part on opinions of value provided by Standard and Poor's Securities Evaluations, Inc. ("SPSE"). The aggregate investment portfolio had a slight decrease in fair value of approximately 4.0% for the quarter ended September 30, 2008. Although the investment portfolio has depreciated, the entire portfolio was fair valued at 89% of cost as of September 30, 2008. Despite this devaluation, of the 63 investments held by the Company, all except three are paying as agreed. These three loans had a cost basis of approximately $13.1 million at September 30, 2008, or less than 2.8% of the cost basis of all loans in our portfolio. The unrealized depreciation of the Company's investments does not have an impact on its current ability to pay distributions to stockholders, although it may be an indication of future realized losses, which could ultimately reduce the Company's income available for distribution.

Total assets were $425.7 million at September 30, 2008, as compared to $367.7 million at September 30, 2007. Net asset value was $12.89 per actual common share outstanding at September 30, 2008, as compared to $14.97 per actual common share outstanding at September 30, 2007.

The annualized weighted average yield on the Company's portfolio, excluding cash and cash equivalents, was 9.7% and 10.2% for the quarter and fiscal year ended September 30, 2008, respectively, as compared to 11.0% and 12.0% for the quarter and fiscal year ended September 30, 2007, respectively. The weighted average yield varies from period to period based on the current stated interest rate on interest-bearing investments and the amounts of loans for which interest is not accruing. Recent reductions in interest rates in the U.S. financial markets (LIBOR rates) have reduced the Company's income, negatively impacting financial results. Specifically, the Company experienced a decrease in LIBOR on approximately $66.3 million in syndicated loans that have their rate based on LIBOR without a rate floor. The effect of the decrease in LIBOR has been mitigated by the presence of a rate floor on most of the other loans held in the Company's portfolio that it has originated.

For the fiscal year ended September 30, 2008, the Company reported the following activity:

    --  Funded approximately $176.6 million of new investments to new and
        existing portfolio companies;
    --  Received principal repayments of approximately $69.2 million, which
        included scheduled principal payments and full repayments;
    --  Received investment sale proceeds of approximately $1.3 million;
    --  Received approximately $1.0 million of success fees in connection with
        two investment refinancings and one investment payoff;
    --  Expanded its revolving credit facility from $220 million to $300 million
        with the addition of a new lender;
    --  Renewed its revolving credit facility, which matures on May 21, 2009;
    --  Converted three non-performing loans of approximately $11.3 million into
        control investments;
    --  Issued 6,325,000 shares of common stock for aggregate net proceeds of
        approximately $106.2 million, all of which were used to repay
        outstanding borrowings on the Company's line of credit;
    --  Renewed the investment advisory and management agreement with Gladstone
        Management Corporation and the administration agreement with Gladstone
        Administration, LLC through August 31, 2009; and
    --  Paid monthly cash distributions of $0.14 per share for each of the
        months of fiscal year 2008, for annual distributions of $1.68 per share.

At September 30, 2008, the Company had investments in debt and equity securities and syndicated loan participations in 63 private companies with an aggregate cost basis of $460.9 million and a fair value of $407.9 million.

"While we believe the longer term prospects and our pipeline remain strong, the instability of the financial and lending markets continue to make closing of investments more difficult and time consuming," said Chip Stelljes, President and Chief Investment Officer. "We were disappointed by the $47.0 million devaluation of the portfolio during the year given the portfolio's strong performance, but remain confident that the devaluation is primarily reflective of the broader market for loans rather than any substantial change in our portfolio. We expect the portfolio to generally continue paying as agreed with few problems, although we are watching carefully the underlying portfolio company revenues and backlogs as we move through this economic and financial cycle."

Subsequent to September 30, 2008, the Company:

    --  Funded approximately $8.1 million of new investments to new and existing
        portfolio companies;
    --  Received approximately $11.8 million of repayments, including scheduled
        amortizations and repayments;
    --  Declared monthly cash dividends of $0.14 per common share for each of
        the months of October, November, and December 2008.

The financial statements below are without footnotes. The Company has filed a Form 10-K today for the fiscal year ended September 30, 2008 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, December 3, 2008 at 8:30 am EST. Please call (877) 407-8031 to enter the conference. An operator will monitor the call and set a queue for the questions. A replay of the conference call will be available through January 3, 2009. To hear the replay, please dial (877) 660-6853, access playback account 286 and use ID code 299199. The replay will be available approximately two hours after the call concludes.

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 through March 4, 2009.

For further information contact Investor Relations at 703-287-5893.

This press release may include statements that may constitute "forward-looking statements," including statements with regard to the future performance of the Company. Words such as "should," "believes," "feel," "expects," "confident," "projects," "strive," "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, 2008, as filed on December 2, 2008. The risk factors set forth in the Form 10-K under the caption "Risk Factors" are specifically incorporated by reference into this press release. 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

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

                                                   September 30,  September 30,

                                                     2008           2007

ASSETS

Non-Control/Non-Affiliate investments (Cost        $ 407,153      $ 348,921
9/30/08: $448,356; 9/30/07: $354,835)

Control investments (Cost 9/30/08: $12,514;          780            924
9/30/07: $924)

Total investments at fair value (Cost 9/30/08:       407,933        349,845
$460,870; 9/30/07 $355,759)

Cash and cash equivalents                            6,493          8,839

U.S. Treasury bill                                   -              2,484

Interest receivable - investments in debt            3,588          2,426
securities

Interest receivable - employees                      91             21

Due from custodian                                   4,544          3,230

Deferred financing fees                              1,905          186

Prepaid assets                                       306            337

Other assets                                         838            361

TOTAL ASSETS                                       $ 425,698      $ 367,729

LIABILITIES

Accounts payable                                   $ 8            $ 6

Interest payable                                     646            588

Fee due to Administrator                             247            237

Fees due to Adviser                                  457            708

Borrowings under line of credit                      151,030        144,440

Accrued expenses and deferred liabilities            1,328          791

Funds held in escrow                                 234            -

TOTAL LIABILITIES                                    153,950        146,770

NET ASSETS                                         $ 271,748      $ 220,959

ANALYSIS OF NET ASSETS

Common stock, $0.001 par value, 50,000,000 shares
authorized and 21,087,574 and 14,762,574 shares    $ 21           $ 15
issued and outstanding at September 30, 2008 and
September 30, 2007, respectively

Capital in excess of par value                       334,143        235,907

Notes receivable - employees                         (9,175  )      (9,230  )

Net unrealized depreciation on investments           (52,937 )      (5,915  )

Unrealized depreciation on derivative                (304    )      (292    )

Accumulated undistributed net investment income      -              474

TOTAL NET ASSETS                                   $ 271,748      $ 220,959

NET ASSETS PER SHARE                               $ 12.89        $ 14.97




GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

                                              Three months ending September 30,

                                                2008            2007

INVESTMENT INCOME

Interest income - investments                 $ 11,298        $ 10,348

Interest income - cash and cash equivalents     50              78

Interest income - notes receivable from         117             122
employees

Prepayment fees and other income                88              60

Total investment income                       $ 11,553        $ 10,608

EXPENSES

Interest expense                                2,302           2,532

Loan servicing fee                              1,576           1,247

Base management fee                             548             596

Incentive fee                                   1,222           1,134

Administration fee                              248             237

Professional fees                               205             154

Amortization of deferred financing fees         704             68

Stockholder related costs                       151             27

Directors fees                                  57              67

Insurance expense                               57              58

Other expenses                                  62              108

Expenses before credit from Adviser             7,132           6,228

Credit to base management and incentive fees    (1,689     )    (1,289     )
from Adviser

Total expenses net of credit to base            5,443           4,939
management and incentive fees

NET INVESTMENT INCOME                           6,110           5,669

REALIZED AND UNREALIZED GAIN (LOSS) ON
INVESTMENTS:

Realized loss on sale of investments            (701       )    (38        )

Realized gain on settlement of derivative       1               8

Unrealized depreciation on derivative           -               (12        )

Net unrealized depreciation on investments      (19,478    )    (4,888     )

Net loss on investments                         (20,178    )    (4,930     )

NET (DECREASE) INCREASE IN NET ASSETS         $ (14,068    )  $ 739
RESULTING FROM OPERATIONS

NET (DECREASE) INCREASE IN NET ASSETS
RESULTING FROM OPERATIONS PER COMMON SHARE:

Basic and Diluted                             $ (0.67      )  $ 0.05

WEIGHTED AVERAGE SHARES OF COMMON STOCK
OUTSTANDING:

Basic and Diluted                               21,087,574      14,589,754




GLADSTONE CAPITAL CORPORATION

CONSOLIDATED STATEMENTS OF OPERATIONS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)

(UNAUDITED)

                                  Year Ending September 30,

                                    2008            2007            2006

INVESTMENT INCOME

Interest income - non
control/non affiliate             $ 44,733        $ 35,413        $ 25,647
investments

Interest income - control           64              -               -
investments

Interest income - cash and cash     335             256             39
equivalents

Interest income - notes             471             526             441
receivable from employees

Prepayment fees and other income    122             492             773

Total investment income             45,725          36,687          26,900

EXPENSES

Interest expense                    8,284           7,226           3,239

Loan servicing fee                  6,117           3,624           2,908

Base management fee                 2,212           2,402           1,284

Incentive fee                       5,311           4,608           -

Administration fee                  985             719             -

Professional fees                   911             523             548

Amortization of deferred            1,534           267             140
financing fees

Stockholder related costs           443             217             304

Directors fees                      220             234             116

Insurance expense                   227             249             207

Stock option compensation           -               -               285

Other expenses                      325             328             485

Expenses before credit from         26,569          20,397          9,516
Adviser

Credit to base management and       (7,397     )    (5,971     )    (2,069     )
incentive fees from Adviser

Total expenses net of credit to
base management and incentive       19,172          14,426          7,447
fees

NET INVESTMENT INCOME BEFORE        26,553          22,261          19,453
INCOME TAXES

Income tax expense                  -               -               102

NET INVESTMENT INCOME               26,553          22,261          19,351

REALIZED AND UNREALIZED GAIN
(LOSS) ON INVESTMENTS:

Realized (loss) gain on sale of     (787       )    44              (904       )
investments

Realized gain on settlement of      7               39              15
derivative

Unrealized depreciation on          (12        )    (38        )    -
derivative

Net unrealized (depreciation)       (47,023    )    (7,354     )    5,968
appreciation on investments

Net (loss) gain on investments      (47,815    )    (7,309     )    5,079

NET (DECREASE) INCREASE IN NET    $ (21,262    )  $ 14,952        $ 24,430
ASSETS RESULTING FROM OPERATIONS

NET (DECREASE) INCREASE IN NET
ASSETS RESULTING FROM OPERATIONS
PER COMMON SHARE:

Basic                             $ (1.08      )  $ 1.13          $ 2.15

Diluted                           $ (1.08      )  $ 1.13          $ 2.10

WEIGHTED AVERAGE SHARES OF
COMMON STOCK OUTSTANDING:

Basic                               19,699,796      13,173,822      11,381,378

Diluted                             19,699,796      13,173,822      11,615,922




GLADSTONE CAPITAL CORPORATION

FINANCIAL HIGHLIGHTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)

(UNAUDITED)

                                               Three months ended September 30,

                                                 2008            2007

Per Share Data (1)

Net asset value at beginning of period         $ 13.97         $ 15.11

Income from investment operations(2)

Net investment income                            0.29            0.39

Net realized loss on the sale of investments     (0.03      )    -

Net unrealized depreciation on investments       (0.93      )    (0.34      )

Total from investment operations                 (0.67      )    0.05

Distributions to stockholders(2)(3)              (0.42      )    (0.42      )

Capital share transactions:

Issuance of common stock under shelf offering    0.01            0.21

Offering costs                                   -               (0.02      )

Repayment of principal on notes receivable       -               0.04

Total from capital share transactions            0.01            0.23

Net asset value at end of period               $ 12.89         $ 14.97

Per share market value at beginning of period  $ 15.24         $ 21.46

Per share market value at end of period        $ 15.24         $ 19.52

Total return (4)                                 2.68       %    (7.11      )%

Shares outstanding at end of period              21,087,574      14,762,574

Statement of Assets and Liabilities Data:

Net assets at end of period                    $ 271,748       $ 220,959

Average net assets(5)                          $ 283,291       $ 221,546

Senior Securities Data:

Borrowing under line of credit                 $ 151,030       $ 144,440

Asset coverage ratio (6)(7)                      286        %    259        %

Average coverage per unit (7)                  $ 2,860         $ 2,594

Ratios/Supplemental Data:

Ratio of expenses to average net assets (8)      9.66       %    11.24      %

Ratio of net expenses to average net assets      7.37       %    8.92       %
(9)

Ratio of net investment income to average net    8.27       %    10.23      %
assets




(1)  Based on actual shares outstanding at the end of the corresponding period.

(2)  Based on weighted average basic per share data.

     Distributions are determined based on taxable income calculated in
(3)  accordance with income tax regulations which may differ from amounts
     determined under accounting principles generally accepted in the United
     States of America.

     Total return equals the change in the ending market value of the Company's
     common stock from the beginning of the period taking into account dividends
(4)  reinvested in accordance with the terms of its dividend reinvestment plan.
     Total return does not take into account dividends that may be characterized
     as a return of capital.

(5)  Average net assets are computed using the average of the balance of net
     assets at the end of each month of the reporting period.

     As a business development company, the Company is generally required to
(6)  maintain a ratio of at least 200% of total assets, less all liabilities and
     indebtedness not represented by senior securities, to total borrowings.

     Asset coverage ratio is the ratio of the carrying value of the Company's
     total consolidated assets, less all liabilities and indebtedness not
(7)  represented by senior securities, to the aggregate amount of senior
     securities representing indebtedness. Asset coverage per unit is the asset
     coverage ratio expressed in terms of dollar amounts per $1,000 of
     indebtedness.

     Ratio of expenses to average net assets is computed using expenses before
(8)  credits from Adviser to the base management and incentive fees and
     including income tax expense.

     Ratio of net expenses to average net assets is computed using total
(9)  expenses net of credits from Adviser to the base management and incentive
     fees and including income tax expense.




GLADSTONE CAPITAL CORPORATION

FINANCIAL HIGHLIGHTS

(DOLLAR AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER UNIT DATA)

(UNAUDITED)

                                Year ending September 30,

                                  2008             2007             2006

Per Share Data (1)

Net asset value at beginning    $ 14.97          $ 14.02          $ 13.41
of period

Income from investment
operations(2)

Net investment income             1.35             1.69             1.70

Net realized loss on the sale     (0.04      )     -                (0.08      )
of investments

Net unrealized (depreciation)     (2.39      )     (0.56      )     0.53
appreciation on investments

Total from investment             (1.08      )     1.13             2.15
operations

Distributions to stockholders
from(2)(3)

Net investment income             (1.31      )     (1.48      )     (1.58      )

Gains                             (0.01      )     (0.20      )     (0.06      )

Tax return on capital             (0.36      )     -                -

Total distributions               (1.68      )     (1.68      )     (1.64      )

Capital share transactions:

Issuance of common stock under    0.72             1.55             -
shelf offering

Issuance of common stock under    -                -                0.06
stock option plan

Offering costs                    (0.04      )     (0.05      )     -

Stock compensation expense        -                -                0.02

Repayment of principal on         -                0.06             0.02
notes receivable

Stock surrendered to settle       -                (0.06      )     -
withholding tax obligation

Total from capital share          0.68             1.50             0.10
transactions

Net asset value at end of       $ 12.89          $ 14.97          $ 14.02
period

Per share market value at       $ 19.52          $ 22.01          $ 22.55
beginning of period

Per share market value at end   $ 15.24          $ 19.52          $ 22.01
of period

Total return (4)                  (13.90     )%    (4.40      )%    5.21       %

Shares outstanding at end of      21,087,574       14,762,574       12,305,008
period

Statement of Assets and
Liabilities Data:

Net assets at end of period     $ 271,748        $ 220,959        $ 172,570

Average net assets(5)           $ 284,304        $ 189,732        $ 155,868

Senior Securities Data:

Borrowing under line of credit  $ 151,030        $ 144,440        $ 49,993

Asset coverage ratio (6)(7)       286        %     259        %     466        %

Average coverage per unit (7)   $ 2,860          $ 2,594          $ 4,657

Ratios/Supplemental Data:

Ratio of expenses to average      9.34       %     10.75      %     6.16       %
net assets (8)

Ratio of net expenses to          6.74       %     7.60       %     4.84       %
average net assets (9)

Ratio of net investment income    9.34       %     11.73      %     12.42      %
to average net assets




(1)  Based on actual shares outstanding at the end of the corresponding period.

(2)  Based on weighted average basic per share data.

     Distributions are determined based on taxable income calculated in
(3)  accordance with income tax regulations which may differ from amounts
     determined under accounting principles generally accepted in the United
     States of America.

     Total return equals the change in the ending market value of the Company's
     common stock from the beginning of the period taking into account dividends
(4)  reinvested in accordance with the terms of its dividend reinvestment plan.
     Total return does not take into account dividends that may be characterized
     as a return of capital.

(5)  Average net assets are computed using the average of the balance of net
     assets at the end of each month of the reporting period.

     As a business development company, the Company is generally required to
(6)  maintain a ratio of at least 200% of total assets, less all liabilities and
     indebtedness not represented by senior securities, to total borrowings.

     Asset coverage ratio is the ratio of the carrying value of the Company's
     total consolidated assets, less all liabilities and indebtedness not
(7)  represented by senior securities, to the aggregate amount of senior
     securities representing indebtedness. Asset coverage per unit is the asset
     coverage ratio expressed in terms of dollar amounts per $1,000 of
     indebtedness.

     Ratio of expenses to average net assets is computed using expenses before
(8)  credits from Adviser to the base management and incentive fees and
     including income tax expense.

     Ratio of net expenses to average net assets is computed using total
(9)  expenses net of credits from Adviser to the base management and incentive
     fees and including income tax expense.




    Source: Gladstone Capital Corp.