Horizon Technology Finance Corporation
Horizon Technology Finance Corp (Form: 10-Q, Received: 05/05/2015 16:41:34)

 

 

 

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2015
     
    OR
     
¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    FOR THE TRANSITION PERIOD FROM                      TO     

 

COMMISSION FILE NUMBER: 814-00802

 

HORIZON TECHNOLOGY FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

   
DELAWARE 27-2114934
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
   
312 Farmington Avenue  
Farmington, CT 06032
(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code (860) 676-8654

     Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  þ  No  ¨ .

 

     Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ¨  No  ¨

 

     Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer” and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer ¨   Accelerated filer þ   Non-accelerated filer ¨   Smaller Reporting Company ¨
        (Do not check if a smaller reporting company)    

 

     Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  ¨  No  þ .

 

     As of May 5, 2015, the Registrant had 11,631,494 shares of common stock, $0.001 par value, outstanding.

 

 

 

 
 

 

HORIZON TECHNOLOGY FINANCE CORPORATION

 

FORM 10-Q

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2015 and December 31, 2014 (unaudited) 3
  Consolidated Statements of Operations for the three months ended March 31, 2015 and 2014 (unaudited) 4
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2015 and 2014 (unaudited) 5
  Consolidated Statements of Cash Flows for the three months ended March 31, 2015 and 2014 (unaudited) 6
  Consolidated Schedules of Investments as of March 31, 2015 and December 31, 2014 (unaudited) 7
  Notes to the Consolidated Financial Statements (unaudited) 17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 35
Item 3. Quantitative And Qualitative Disclosures About Market Risk 47
Item 4. Controls and Procedures 47
     
  PART II  
Item 1. Legal Proceedings 48
Item 1A.    Risk Factors 48
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 48
Item 3. Defaults Upon Senior Securities 48
Item 4. Mine Safety Disclosures 48
Item 5. Other Information 48
Item 6. Exhibits 48
  Signatures 49
EX-31.1    
EX-31.2    
EX-32.1    
EX-32.2    

 

2
 

 

PART I: FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Assets and Liabilities (Unaudited)

(In thousands, except share and per share data)

 

    March 31,
2015
    December 31,
2014
 
             
Assets                
Non-affiliate investments at fair value (cost of $207,905 and $209,838, respectively) (Note 4)   $ 204,300     $ 205,101  
Investment in money market funds     399       27  
Cash     29,828       8,417  
Restricted investments in money market funds     2,351       2,906  
Interest receivable     5,057       4,758  
Other assets     3,497       3,987  
Total assets   $ 245,432     $ 225,196  
                 
Liabilities                
Borrowings (Note 6)   $ 74,342     $ 81,753  
Distribution payable     3,783       3,322  
Base management fee payable (Note 3)     354       356  
Incentive fee payable (Note 3)     736       799  
Other accrued expenses     1,204       718  
Total liabilities     80,419       86,948  
                 
Commitments and Contingencies (Notes 7 and 8)                
                 
Net assets                
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2015 and December 31, 2014            
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,630,617 and 9,628,124 shares outstanding as of March 31, 2015 and December 31, 2014, respectively     12       10  
Paid-in capital in excess of par     180,970       155,240  
Distributions in excess of net investment income     (1,049 )     (1,102 )
Net unrealized depreciation on investments     (3,605 )     (4,737 )
Net realized loss on investments     (11,315 )     (11,163 )
Total net assets     165,013       138,248  
Total liabilities and net assets   $ 245,432     $ 225,196  
Net asset value per common share   $ 14.19     $ 14.36  

 

See Notes to Consolidated Financial Statements

 

3
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Operations (Unaudited)

(In thousands, except share and per share data)

 

    For the Three Months Ended  
    March 31,  
    2015     2014  
Investment income                
Interest income on non-affiliate investments   $ 6,562     $ 7,180  
Prepayment fee income on non-affiliate investments     520        
Fee income on non-affiliate investments     184       354  
Total investment income     7,266       7,534  
Expenses                
Interest expense     1,587       2,070  
Base management fee (Note 3)     1,031       1,312  
Performance based incentive fee (Note 3)     736       513  
Administrative fee (Note 3)     268       244  
Professional fees     431       835  
General and administrative     260       250  
Total expenses     4,313       5,224  
Management and performance based incentive fees waived (Note 3)           (214 )
Net expenses     4,313       5,010  
Net investment income before excise tax     2,953       2,524  
Provision for excise tax     (10 )     (40 )
Net investment income     2,943       2,484  
                 
Net realized and unrealized (loss) gain on investments                
Net realized loss on investments     (230 )     (5,884 )
Net unrealized appreciation on investments     1,132       8,530  
Net realized and unrealized gain on investments     902       2,646  
                 
Net increase in net assets resulting from operations   $ 3,845     $ 5,130  
Net investment income per common share   $ 0.30     $ 0.26  
Net increase in net assets per common share   $ 0.39     $ 0.53  
Distributions declared per share   $ 0.345     $ 0.345  
Weighted average shares outstanding     9,807,198       9,613,829  

 

See Notes to Consolidated Financial Statements

 

4
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Changes in Net Assets (Unaudited)

(In thousands, except share data)

 

    Common Stock     Paid-In
Capital in
Excess of
    Accumulated
Undistributed
(distributions
in excess of)
Net
Investment
    Net Unrealized
(Depreciation)
Appreciation
on
    Net Realized
Gain (Loss)
on
    Total Net  
    Shares     Amount     Par     Income     Investments     Investments     Assets  
Balance at December 31, 2013     9,608,949     $ 10     $ 154,975     $ 1,463     $ (13,026 )   $ (7,587 )   $ 135,835  
Net increase in net assets resulting from operations                       2,484       8,530       (5,884 )     5,130  
Issuance of common stock under dividend reinvestment plan     9,741             133                         133  
Distributions declared                       (3,318 )                 (3,318 )
Balance at March 31, 2014     9,618,690     $ 10     $ 155,108     $ 629     $ (4,496 )   $ (13,471 )   $ 137,780  
                                                         
Balance at December 31, 2014     9,628,124     $ 10     $ 155,240     $ (1,102 )   $ (4,737 )   $ (11,163 )   $ 138,248  
Issuance of common stock, net of offering costs     2,000,000       2       26,667                         26,669  
Net increase in net assets resulting from operations                       2,943       1,132       (230 )     3,845  
Issuance of common stock under dividend reinvestment plan     2,493             34                         34  
Distributions declared                       (3,783 )                 (3,783 )
Reclassification of permanent tax differences (Note 2)                 (971 )     893             78        
Balance at March 31, 2015     11,630,617     $ 12     $ 180,970     $ (1,049 )   $ (3,605 )   $ (11,315 )   $ 165,013  

 

See Notes to Consolidated Financial Statements

 

5
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

    For the Three Months Ended  
    March 31,  
    2015     2014  
Cash flows from operating activities:                
Net increase in net assets resulting from operations   $ 3,845     $ 5,130  
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:                
Amortization of debt issuance costs     278       492  
Net realized loss on investments     230       6,913  
Net unrealized appreciation on investments     (1,132 )     (8,530 )
Purchase of investments     (23,933 )     (17,926 )
Principal payments received on investments     25,790       11,773  
Proceeds from sale of investments           720  
Changes in assets and liabilities:                
Net increase in investments in money market funds     (372 )     (913 )
Net decrease in restricted investments in money market funds     555       221  
Decrease (increase) in interest receivable     71       (597 )
Increase in end-of-term payments     (370 )     (552 )
Decrease in unearned income     (154 )     (226 )
Decrease (increase) in other assets     212       (1,129 )
Increase (decrease) in other accrued expenses     486       (50 )
Decrease in base management fee payable     (2 )     (109 )
Decrease in incentive fee payable     (63 )     (446 )
Net cash provided by (used in) operating activities     5,441       (5,229 )
Cash flows from financing activities:                
Proceeds from issuance of common stock, net of offering costs     26,667        
Repayment of Asset-Backed Notes     (7,411 )     (2,938 )
Distributions paid     (3,286 )     (3,181 )
Net cash provided by (used in) financing activities     15,970       (6,119 )
Net increase (decrease) in cash     21,411       (11,348 )
Cash:                
Beginning of period     8,417       25,341  
End of period   $ 29,828     $ 13,993  
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 1,032     $ 1,582  
Supplemental non-cash investing and financing activities:                
Warrant investments received and recorded as unearned income   $ 156     $ 106  
Distribution payable   $ 3,783     $ 3,318  
End-of-term payments receivable   $ 4,155     $ 3,730  
Net assets received in settlement of debt investment   $     $ 985  

 

See Notes to Consolidated Financial Statements

 

6
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
Debt Investments — 119.8% (9)                                
Debt Investments — Life Science — 28.7% (9)                                
Argos Therapeutics, Inc. (2)(5)   Biotechnology   Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;   $ 5,000     $ 4,878     $ 4,878  
        Ceiling 10.75%), 5.00% ETP, Due 10/1/18)                        
New Haven Pharmaceuticals, Inc. (2)   Biotechnology   Term Loan (11.50% cash (Libor + 11.00%; Floor     1,301       1,293       1,293  
        11.50%), 6.50% ETP, Due 11/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     434       431       431  
        11.50%), 6.50% ETP, Due 11/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,000       1,969       1,969  
        10.50%), 4.00% ETP, Due 7/1/18)                        
Palatin Technologies, Inc. (2)(5)   Biotechnology   Term Loan (9.00% cash (Libor + 8.50%; Floor     5,000       4,924       4,924  
        9.00%), 5.00% ETP, Due 1/1/19)                        
Sample6, Inc. (2)   Biotechnology   Term Loan (9.50% cash (Libor + 9.00%; Floor     1,555       1,549       1,549  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
        Term Loan (9.50% cash (Libor + 9.00%; Floor     945       926       926  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
        Term Loan (9.50% cash (Libor + 9.00%; Floor     2,500       2,487       2,487  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
Sunesis Pharmaceuticals, Inc. (2)(5)   Biotechnology   Term Loan (8.95% cash, 4.65% ETP, Due 10/1/16)     545       543       543  
        Term Loan (9.00% cash, 4.65% ETP, Due 10/1/16)     818       810       810  
Xcovery Holding Company, LLC (2)   Biotechnology   Term Loan (12.50% cash, Due 8/1/15)     211       210       210  
        Term Loan (12.50% cash, Due 8/1/15)     266       266       266  
        Term Loan (12.50% cash, Due 10/1/15)     79       79       79  
Accuvein, Inc. (2)   Medical Device   Term Loan (10.40% cash (Libor + 9.90%; Floor     4,000       3,959       3,959  
        10.40%; Ceiling 11.90%), 5.00% ETP, Due 2/1/18)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor     1,000       982       982  
        10.00%; Ceiling 12.50%), 4.00% ETP, Due 7/1/18)                        
IntegenX Inc. (2)   Medical Device   Term Loan (10.75% cash (Libor + 10.25%; Floor     3,750       3,689       3,689  
        10.75%; Ceiling 12.75%), 3.50% ETP, Due 7/1/18)                        
Lantos Technologies, Inc. (2)   Medical Device   Term Loan (10.50% cash (Libor + 10.00%; Floor     3,500       3,453       3,453  
        10.50%; Ceiling 12.00%), 3.00% ETP, Due 2/1/18)                        
Mederi Therapeutics, Inc. (2)   Medical Device   Term Loan (10.75% cash (Libor + 10.25%; Floor     3,000       2,972       2,972  
        10.75%; Ceiling 12.75%), 4.00% ETP, Due 7/1/17)                        
        Term Loan (10.75% cash (Libor + 10.25%; Floor     3,000       2,972       2,972  
        10.75%; Ceiling 12.75%), 4.00% ETP, Due 7/1/17)                        
NinePoint Medical, Inc. (2)   Medical Device   Term Loan (9.25% cash (Libor + 8.75%; Floor     5,000       4,918       4,918  
        9.25%), 4.50% ETP, Due 3/1/19)                        
Tryton Medical, Inc. (2)   Medical Device   Term Loan (10.41% cash (Prime + 7.16%), 2.50% ETP,     2,625       2,605       2,605  
        Due 9/1/16)                        
ZetrOZ, Inc. (2)   Medical Device   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,500       1,429       1,429  
        11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18)                        
Total Debt Investments — Life Science                     47,344       47,344  
Debt Investments — Technology — 69.1% (9)                                
Ekahau, Inc. (2)   Communications   Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)     1,142       1,132       1,132  
        Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)     381       377       377  
mBlox, Inc. (2)   Communications   Term Loan (11.50% cash (Libor + 11.00%; Floor     5,000       4,970       4,970  
        11.50%; Ceiling 13.00%), 2.5% ETP, Due 7/1/18)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     5,000       4,970       4,970  
        11.50%; Ceiling 13.00%), 2.5% ETP, Due 7/1/18)                        
Overture Networks, Inc. (2)   Communications   Term Loan (10.75% cash, (Libor + 10.25%; Floor     4,104       4,073       4,073  
        10.75%), 5.75% ETP, Due 12/1/17)                        
        Term Loan (10.75% cash (Libor + 10.25%; Floor     2,052       2,039       2,039  
        10.75%), 5.75% ETP, Due 12/1/17)                        
Additech, Inc. (2)   Consumer-related Technologies   Term Loan (11.75% cash (Libor + 11.25%; Floor     2,500       2,420       2,420  
        11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18)                        
Gwynnie Bee, Inc. (2)   Consumer-related Technologies   Term Loan (11.00% cash (Libor + 10.50%; Floor     2,000       1,968       1,968  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 11/1/17)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     1,000       976       976  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 2/1/18)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     1,000       982       982  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 4/1/18)                        
Nanocomp Technologies, Inc. (2)   Networking   Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)     948       932       932  
Avalanche Technology, Inc. (2)   Semiconductors   Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     1,983       1,975       1,975  
        Ceiling 11.75%), 2.40% ETP, Due 4/1/17)                        

 

See Notes to Consolidated Financial Statements

 

7
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
        Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     2,246       2,238       2,238  
        Ceiling 11.75%) ,2.40% ETP, Due 10/1/18)                        
        Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     2,500       2,444       2,444  
        Ceiling 11.75%), 2.00% ETP, Due 2/1/19)                        
eASIC Corporation (2)   Semiconductors   Term Loan (11.00% cash, 2.50% ETP, Due 10/1/17)     2,000       1,984       1,984  
        Term Loan (10.75% cash, 2.50% ETP, Due 4/1/18)     2,000       1,985       1,985  
InVisage Technologies, Inc. (2)   Semiconductors   Term Loan (12.00% cash (Libor + 11.50%; Floor     2,550       2,483       2,483  
        12.00%; Ceiling 14.00%), 2.0% ETP, Due 4/1/18)                        
        Term Loan (12.00% cash (Libor + 11.50%; Floor     850       837       837  
        12.00%; Ceiling 14.00%), 2.0% ETP, Due 10/1/18)                        
Luxtera, Inc. (2)   Semiconductors   Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;     2,475       2,442       2,442  
        Ceiling 12.25%), 13.00% ETP, Due 7/1/17)                        
        Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;     1,381       1,376       1,376  
        Ceiling 12.25%), 13.00% ETP, Due 7/1/17)                        
        Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%),     833       820       820  
        4.50% ETP, Due 12/1/18)                        
NexPlanar Corporation (2)   Semiconductors   Term Loan (10.50% cash, 2.50% ETP, Due 12/1/16)     2,086       2,073       2,073  
        Term Loan (10.50% cash, 2.50% ETP, Due 12/1/16)     1,390       1,379       1,379  
Xtera Communications, Inc. (2)   Semiconductors   Term Loan (11.50% cash, 15.65% ETP, Due 12/31/16)     5,655       5,544       5,544  
        Term Loan (11.50% cash, 21.75% ETP, Due 12/31/16)     1,571       1,538       1,538  
Crowdstar, Inc. (2)   Software   Term Loan (10.75% cash (Libor + 10.25%; Floor     2,000       1,958       1,958  
        10.75%), 3.00% ETP, Due 9/1/18)                        
Decisyon, Inc. (2)   Software   Term Loan (11.65% cash, 5.00% ETP, Due 9/1/16)     2,538       2,523       2,523  
        Term Loan (11.65% cash, 5.00% ETP, Due 11/1/17)     1,000       988       988  
Education Elements, Inc. (2)   Software   Term Loan (10.50% cash (Libor + 10.00%; Floor     2,000       1,959       1,959  
        10.50%), 4.00% ETP, Due 1/1/19)                        
Lotame Solutions, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     3,410       3,392       3,392  
        11.50%), 5.25% ETP, Due 9/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     1,500       1,492       1,492  
        11.50%), 5.25% ETP, Due 9/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     2,100       2,072       2,072  
        11.50%), 3.00% ETP, Due 4/1/18)                        
Netuitive, Inc. (2)   Software   Term Loan (12.75% cash, Due 7/1/16)     1,590       1,582       1,582  
Raydiance, Inc. (2)   Software   Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16)     3,008       2,992       2,992  
        Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16)     602       594       594  
        Term Loan (11.50% cash (Libor + 11.00%; Floor     3,000       2,959       2,959  
        11.50%; Ceiling 13.50%), 2.75% ETP, Due 2/1/18)                        
Razorsight Corporation (2)   Software   Term Loan (11.75% cash, 3.00% ETP, Due 11/1/16)     1,000       993       993  
        Term Loan (11.75% cash, 3.00% ETP, Due 8/1/16)     854       847       847  
        Term Loan (11.75% cash, 3.00% ETP, Due 7/1/17)     913       903       903  
ScoreBig, Inc. (2)   Software   Term Loan (10.50% cash (Libor + 10.00%; Floor     3,500       3,438       3,438  
        10.50%), 4.00% ETP, Due 4/1/19)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     3,500       3,438       3,438  
        10.50%), 4.00% ETP, Due 4/1/19)                        
SIGNiX, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     3,000       2,907       2,907  
        11.50%), Due 7/1/18)                        
Social Intelligence Corp. (2)   Software   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,500       1,479       1,479  
        11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17)                        
SpringCM, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     4,500       4,432       4,432  
        11.50%; Ceiling 13.00%), 2.00% ETP, Due 1/1/18)                        
Sys-Tech Solutions, Inc. (2)   Software   Term Loan (11.65% cash (Libor + 11.15%; Floor     6,000       5,957       5,957  
        11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)                        
        Term Loan (11.65% cash (Libor + 11.15%; Floor     5,000       4,956       4,956  
        11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18)                        
VBrick Systems, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     2,800       2,781       2,781  
        11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17)                        
Vidsys, Inc. (2)   Software   Term Loan (13.00% cash, 7.58% ETP, Due 7/1/15)     3,000       2,998       2,998  
Visage Mobile, Inc. (2)   Software   Term Loan (12.00% cash, 3.50% ETP, Due 9/1/16)     556       552       552  
xTech Holdings, Inc. (2)   Software   Term Loan (11.00% cash (Libor + 10.50%; Floor     2,000       1,950       1,950  
        11.00%), 3.00% ETP, Due 4/1/19                        
Total Debt Investments — Technology                     114,099       114,099  

 

See Notes to Consolidated Financial Statements

 

8
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
Debt Investments — Cleantech — 6.7% (9)                                
Renmatix, Inc. (2)   Alternative Energy   Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)     913       911       911  
        Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)     913       911       911  
        Term Loan (10.25% cash, Due 10/1/16)     3,049       3,035       3,035  
Semprius, Inc. (2)(8)   Alternative Energy   Term Loan (10.25% cash, 5.00% ETP, Due 6/1/16)     2,069       2,049       2,049  
Aurora Algae, Inc. (2)   Consumer-related Technologies   Term Loan (10.50% cash, 2.00% ETP, Due 5/1/15)     161       161       161  
Rypos, Inc. (2)   Energy Efficiency   Term Loan (11.80% cash, Due 1/1/17)     2,550       2,529       2,529  
        Term Loan (11.80% cash, Due 9/1/17)     1,000       988       988  
Tigo Energy, Inc. (2)   Energy Efficiency   Term Loan (13.00% cash, 3.16% ETP, Due 6/1/15)     399       399       399  
Total Debt Investments — Cleantech                     10,983       10,983  
Debt Investments — Healthcare information and services — 15.3% (9)                                
Interleukin Genetics, Inc. (2)(5)   Diagnostics   Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%)     5,000       4,848       4,848  
        4.50% ETP, Due 10/1/18)                        
LifePrint Group, Inc. (2)   Diagnostics   Term Loan (11.00% cash (Libor + 10.50%; Floor     3,000       2,954       2,788  
        11.00%; Ceiling 12.50%), 3.00% ETP, Due 1/1/18)                        
Watermark Medical, Inc. (2)   Other Healthcare   Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;     3,500       3,492       3,492  
        Ceiling 11.00%); 4.00% ETP, Due 4/1/18)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;     3,500       3,492       3,492  
        Ceiling 11.00%); 4.00% ETP, Due 4/1/18)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;     1,250       1,247       1,247  
        Ceiling 11.00%); 4.00% ETP, Due 4/1/18)                        
Recondo Technology, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     1,384       1,379       1,379  
        11.50%), 6.60% ETP, Due 12/1/17)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     2,500       2,491       2,491  
        11.00%), 4.50% ETP, Due 12/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,500       2,491       2,491  
        10.50%), 2.75% ETP, Due 12/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     3,000       2,956       2,956  
        10.50%), 2.50% ETP, Due 1/1/19)                        
Total Debt Investments — Healthcare information and services                     25,350       25,184  
Total Debt Investments                     197,776       197,610  
Warrant Investments — 3.1% (9)                                
Warrants — Life Science — 0.7% (9)                                
ACT Biotech Corporation   Biotechnology   1,521,820 Preferred Stock Warrants           83        
Argos Therapeutics, Inc. (2)(5)   Biotechnology   16,556 Common Stock Warrants           33       20  
Celsion Corporation (5)   Biotechnology   5,708 Common Stock Warrants           15        
Inotek Pharmaceuticals Corporation (5)   Biotechnology   33,762 Preferred Stock Warrants           17       23  
New Haven Pharmaceuticals, Inc. (2)   Biotechnology   55,347 Preferred Stock Warrants           42       134  
Nivalis Theraputics, Inc., fka N30 Pharmaceuticals, Inc.   Biotechnology   53,550 Common Stock Warrants           122        
Palatin Technologies, Inc. (2)(5)   Biotechnology   333,333 Common Stock Warrants           31       103  
Revance Therapeutics, Inc. (5)   Biotechnology   34,377 Common Stock Warrants           68       226  
Sample6, Inc. (2)   Biotechnology   351,018 Preferred Stock Warrants           45       38  
Sunesis Pharmaceuticals, Inc. (5)   Biotechnology   12,302 Common Stock Warrants           6       6  
Supernus Pharmaceuticals, Inc. (2)(5)   Biotechnology   42,083 Preferred Stock Warrants           93       322  
Tranzyme, Inc. (2)(5)   Biotechnology   6,460 Common Stock Warrants           6        
Accuvein, Inc. (2)   Medical Device   75,769 Preferred Stock Warrants           24       28  
Direct Flow Medical, Inc.   Medical Device   176,922 Preferred Stock Warrants           144       39  
EnteroMedics, Inc. (5)   Medical Device   141,026 Common Stock Warrants           347        
IntegenX, Inc. (2)   Medical Device   158,006 Preferred Stock Warrants           33       31  
Lantos Technologies, Inc. (2)   Medical Device   858,545 Preferred Stock Warrants           24       23  
Mederi Therapeutics, Inc. (2)   Medical Device   248,736 Preferred Stock Warrants           26       39  
Mitralign, Inc. (2)   Medical Device   641,909 Preferred Stock Warrants           52       36  
NinePoint Medical, Inc. (2)   Medical Device   410,959 Preferred Stock Warrants           34       34  
OraMetrix, Inc. (2)   Medical Device   812,348 Preferred Stock Warrants           78        
Tryton Medical, Inc. (2)   Medical Device   122,362 Preferred Stock Warrants           15       13  
ViOptix, Inc.   Medical Device   375,763 Preferred Stock Warrants           13        
ZetrOZ, Inc. (2)   Medical Device   475,561 Preferred Stock Warrants           25       24  
Total Warrants — Life Science                     1,376       1,139  
Warrants — Technology — 1.9% (9)                                
Ekahau, Inc. (2)   Communications   978,261 Preferred Stock Warrants           33       19  
OpenPeak, Inc.   Communications   18,997 Common Stock Warrants           89        
Overture Networks, Inc.   Communications   385,617 Preferred Stock Warrants           55        

 

See Notes to Consolidated Financial Statements

 

9
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
Additech, Inc. (2)   Consumer-related Technologies   150,000 Preferred Stock Warrants           33       33  
Everyday Health, Inc. (5)   Consumer-related Technologies   43,783 Common Stock Warrants           69       110  
Gwynnie Bee, Inc. (2)   Consumer-related Technologies   268,591 Preferred Stock Warrants           68       436  
SnagAJob.com, Inc.   Consumer-related Technologies   365,396 Preferred Stock Warrants           23       303  
Tagged, Inc.   Consumer-related Technologies   190,868 Preferred Stock Warrants           26       63  
XIOtech, Inc.   Data Storage   2,217,979 Preferred Stock Warrants           23       18  
Cartera Commerce, Inc.   Internet and media   90,909 Preferred Stock Warrants           16       160  
SimpleTuition, Inc.   Internet and media   189,573 Preferred Stock Warrants           63       27  
IntelePeer, Inc.   Networking   141,549 Preferred Stock Warrants           39       4  
Nanocomp Technologies, Inc. (2)   Networking   272,728 Preferred Stock Warrants           25       23  
Aquion Energy, Inc.   Power Management   115,051 Preferred Stock Warrants           7       55  
Avalanche Technology, Inc. (2)   Semiconductors   352,828 Preferred Stock Warrants           101       84  
eASIC Corporation (2)   Semiconductors   40,445 Preferred Stock Warrants           25       26  
InVisage Technologies, Inc. (2)   Semiconductors   185,790 Preferred Stock Warrants           47       45  
Kaminario, Inc.   Semiconductors   1,087,203 Preferred Stock Warrants           59       62  
Luxtera, Inc.(2)   Semiconductors   2,304,667 Preferred Stock Warrants           47       108  
NexPlanar Corporation   Semiconductors   216,001 Preferred Stock Warrants           36       55  
Soraa, Inc. (2)   Semiconductors   180,000 Preferred Stock Warrants           80       77  
Xtera Communications, Inc.   Semiconductors   983,607 Preferred Stock Warrants           206        
Bolt Solutions, Inc. (2)   Software   202,892 Preferred Stock Warrants           113       113  
Clarabridge, Inc.   Software   53,486 Preferred Stock Warrants           14       104  
Crowdstar, Inc. (2)   Software   75,428 Preferred Stock Warrants           14       14  
Decisyon, Inc. (2)   Software   457,876 Preferred Stock Warrants           46       27  
DriveCam, Inc.   Software   71,639 Preferred Stock Warrants           20       120  
Education Elements, Inc. (2)   Software   136,070 Preferred Stock Warrants           16       16  
Lotame Solutions, Inc. (2)   Software   288,115 Preferred Stock Warrants           23       258  
Netuitive, Inc.   Software   41,569 Preferred Stock Warrants           48        
Raydiance, Inc. (2)   Software   1,051,120 Preferred Stock Warrants           71       65  
Razorsight Corporation (2)   Software   259,404 Preferred Stock Warrants           43       44  
Riv Data Corp. (2)   Software   237,361 Preferred Stock Warrants           13       12  
ScoreBig, Inc. (2)   Software   481,198 Preferred Stock Warrants           55       55  
SIGNiX, Inc. (2)   Software   63,365 Preferred Stock Warrants           48       47  
SpringCM, Inc. (2)   Software   2,385,686 Preferred Stock Warrants           55       52  
Sys-Tech Solutions, Inc.   Software   375,000 Preferred Stock Warrants           242       510  
Vidsys, Inc.   Software   37,346 Preferred Stock Warrants           23        
Visage Mobile, Inc.   Software   1,692,047 Preferred Stock Warrants           19       12  
xTech Holdings, Inc. (2)   Software   111,111 Preferred Stock Warrants           29       29  
Total Warrants — Technology                     2,062       3,186  
Warrants — Cleantech — 0.1% (9)                                
Renmatix, Inc.   Alternative Energy   52,296 Preferred Stock Warrants           68       65  
Semprius, Inc.   Alternative Energy   519,981 Preferred Stock Warrants           25        
Rypos, Inc. (2)   Energy Efficiency   5,627 Preferred Stock Warrants           44       36  
Tigo Energy, Inc. (2)   Energy Efficiency   804,604 Preferred Stock Warrants           99       111  
Total Warrants — Cleantech                     236       212  
Warrants — Healthcare information and services — 0.4% (9)                                
Accumetrics, Inc.   Diagnostics   100,928 Preferred Stock Warrants           106       63  
Candescent Health, Inc., fka Radisphere National Radiology Group, Inc (2)   Diagnostics   519,992 Preferred Stock Warrants           378        
BioScale, Inc. (2)   Diagnostics   315,618 Preferred Stock Warrants           55        
Helomics Corporation   Diagnostics   13,461 Preferred Stock Warrants           73        
Interleukin Genetics, Inc. (2)(5)   Diagnostics   2,492,523 Common Stock Warrants           112       112  
LifePrint Group, Inc. (2)   Diagnostics   49,000 Preferred Stock Warrants           29       27  
Singulex, Inc.   Other Healthcare   293,632 Preferred Stock Warrants           44       141  
Talyst, Inc.   Other Healthcare   300,360 Preferred Stock Warrants           100       35  
Watermark Medical, Inc. (2)   Other Healthcare   27,373 Preferred Stock Warrants           74       61  
Recondo Technology, Inc. (2)   Software   556,796 Preferred Stock Warrants           95       208  
Total Warrants — Healthcare information and services                     1,066         647  
Total Warrants                     4,740       5,184  
                                 
Other Investments — 0.2% (9)                                
Vette Technology, LLC   Data Storage   Royalty Agreement Due 4/18/2019           4,512       300  
Total Other Investments                     4,512       300  
Equity — 0.7% (9)                                
Insmed Incorporated (5)   Biotechnology   33,208 Common Stock           239       691  

 

See Notes to Consolidated Financial Statements

 

10
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
Revance Therapeutics, Inc.(5)   Biotechnology   4,861 Common Stock           73       101  
Sunesis Pharmaceuticals, Inc. (5)   Biotechnology   78,493 Common Stock           83       192  
Overture Networks Inc.   Communications   386,191 Common Stock           482       222  
Total Equity                     877       1,206  
Total Portfolio Investment Assets — 123.8%  (9)                   $ 207,905     $ 204,300  
                                 
Short Term Investments — Money Market Funds — 0.2% (9)                                
US Bank Money Market Deposit Account                   $ 399     $ 399  
Total Short Term Investments — Money Market Funds                    $ 399       $ 399  
Short Term Investments — Restricted Investments— 1.4% (9)                                
US Bank Money Market Deposit Account (2)                   $ 2,351     $ 2,351  
Total Short Term Investments — Restricted Investments                   $ 2,351     $ 2,351  

 

 

 

(1)   All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.
(2)   Has been pledged as collateral under the Key Facility or the 2013-1 Securitization.
(3)   All investments are less than 5% ownership of the class and ownership of the portfolio company.
(4)   All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”) and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. For each debt investment, the current interest rate in effect as of March 31, 2015 is provided.
(5)   Portfolio company is a public company.
(6)   For debt investments, represents principal balance less unearned income.
(7)   Preferred and common stock warrants, equity interests and other investments are non-income producing.
(8)   Debt investment is on non-accrual status at March 31, 2015, and interest payments received were recognized as income on a cash basis.
(9)   Value as a percent of net assets.
(10)   The Company did not have any non-qualifying assets under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.
(11)  

ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee will be based on income that the Company has not yet received in cash.

 

 

See Notes to Consolidated Financial Statements

 

11
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2014

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
Debt Investments — 144.1% (9)                                
Debt Investments — Life Science — 31.4% (9)                                
Argos Therapeutics, Inc. (2)(5)   Biotechnology   Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;   $ 5,000     $ 4,872     $ 4,872  
        Ceiling 10.75%), 5.00% ETP, Due 10/1/18)                        
Inotek Pharmaceuticals Corporation (2)   Biotechnology   Term Loan (11.00% cash, 3.00% ETP, Due 10/1/16)     2,795       2,777       2,777  
New Haven Pharmaceuticals, Inc. (2)   Biotechnology   Term Loan (11.50% cash (Libor + 11.00%; Floor     1,301       1,292       1,292  
        11.50%), 6.50% ETP, Due 11/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     434       431       431  
        11.50%), 6.50% ETP, Due 11/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,000       1,967       1,967  
        10.50%), 4.00% ETP, Due 7/1/18)                        
Palatin Technologies, Inc. (2)(5)   Biotechnology   Term Loan (9.00% cash (Libor + 8.50%; Floor     5,000       4,919       4,919  
        9.00%), 5.00% ETP, Due 1/1/19)                        
Sample6, Inc. (2)   Biotechnology   Term Loan (9.50% cash (Libor + 9.00%; Floor     1,555       1,548       1,548  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
        Term Loan (9.50% cash (Libor + 9.00%; Floor     945       912       912  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
Sunesis Pharmaceuticals, Inc. (2)(5)   Biotechnology   Term Loan (8.95% cash, 3.75% ETP, Due 10/1/15)     677       675       675  
        Term Loan (9.00% cash, 3.75% ETP, Due 10/1/15)     1,016       1,008       1,008  
Xcovery Holding Company, LLC (2)   Biotechnology   Term Loan (12.50% cash, Due 8/1/15)     292       292       292  
        Term Loan (12.50% cash, Due 8/1/15)     459       459       459  
        Term Loan (12.50% cash, Due 10/1/15)     101       101       101  
Accuvein, Inc. (2)   Medical Device   Term Loan (10.40% cash (Libor + 9.90%; Floor     4,000       3,956       3,956  
        10.40%; Ceiling 11.90%), 5.00% ETP, Due 2/1/18)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor     1,000       981       981  
        10.00%; Ceiling 12.50%), 4.00% ETP, Due 7/1/18)                        
IntegenX Inc. (2)   Medical Device   Term Loan (10.75% cash (Libor + 10.25%; Floor     3,750       3,685       3,685  
        10.75%; Ceiling 12.75%), 3.50% ETP, Due 7/1/18)                        
Lantos Technologies, Inc. (2)   Medical Device   Term Loan (10.50% cash (Libor + 10.00%; Floor     3,500       3,449       3,449  
        10.50%; Ceiling 12.00%), 3.00% ETP, Due 2/1/18)                        
Mederi Therapeutics, Inc. (2)   Medical Device   Term Loan (10.75% cash (Libor + 10.25%; Floor     3,000       2,969       2,969  
        10.75%; Ceiling 12.75%), 4.00% ETP, Due 7/1/17)                        
        Term Loan (10.75% cash (Libor + 10.25%; Floor     3,000       2,969       2,969  
        10.75%; Ceiling 12.75%), 4.00% ETP, Due 7/1/17)                        
Tryton Medical, Inc. (2)   Medical Device   Term Loan (10.41% cash (Prime + 7.16%), 2.50% ETP,     2,813       2,789       2,789  
        Due 9/1/16)                        
ZetrOZ, Inc. (2)   Medical Device   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,500       1,427       1,427  
        11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18)                        
Total Debt Investments — Life Science                     43,478       43,478  
Debt Investments — Technology — 78.9% (9)                                
Ekahau, Inc. (2)   Communications   Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)     1,279       1,267       1,267  
        Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)     426       422       422  
mBlox, Inc. (2)   Communications   Term Loan (11.50% cash (Libor + 11.00%; Floor     5,000       4,967       4,967  
        11.50%; Ceiling 13.00%), 2.5% ETP, Due 7/1/18)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     5,000       4,967       4,967  
        11.50%; Ceiling 13.00%), 2.5% ETP, Due 7/1/18)                        
Overture Networks, Inc. (2)   Communications   Term Loan (10.75% cash, (Libor + 10.25%; Floor     4,104       4,071       4,071  
        10.75%), 5.75% ETP, Due 12/1/17)                        
        Term Loan (10.75% cash (Libor + 10.25%; Floor     2,052       2,038       2,038  
        10.75%), 5.75% ETP, Due 12/1/17)                        
Additech, Inc. (2)   Consumer-related Technologies   Term Loan (11.75% cash (Libor + 11.25%; Floor     2,500       2,417       2,417  
        11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18)                        
Gwynnie Bee, Inc. (2)   Consumer-related Technologies   Term Loan (11.00% cash (Libor + 10.50%; Floor     2,000       1,966       1,966  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 11/1/17)                        
 
 
 
      Term Loan (11.00% cash (Libor + 10.50%; Floor     1,000       974       974  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 2/1/18)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     1,000       980       980  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 4/1/18)                        
Nanocomp Technologies, Inc. (2)   Networking   Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)     1,000       981       981  

 

12
 

  

Avalanche Technology, Inc. (2)   Semiconductors   Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     1,983       1,972       1,972  
        Ceiling 11.75%), 2.40% ETP, Due 4/1/17)                        
        Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     2,246       2,179       2,179  

 

See Notes to Consolidated Financial Statements

 

13
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2014

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
        Ceiling 11.75%) ,2.40% ETP, Due 10/1/18)                        
eASIC Corporation (2)   Semiconductors   Term Loan (11.00% cash, 2.50% ETP, Due 4/1/17)     2,000       1,982       1,982  
        Term Loan (10.75% cash, 2.50% ETP, Due 4/1/18)     2,000       1,983       1,983  
InVisage Technologies, Inc. (2)   Semiconductors   Term Loan (12.00% cash (Libor + 11.50%; Floor     2,550       2,469       2,469  
        12.00%; Ceiling 14.00%), 2.0% ETP, Due 4/1/18)                        
Kaminario, Inc. (2)   Semiconductors   Term Loan (10.50% cash, 2.50% ETP, Due 11/1/16)     2,275       2,255       2,255  
        Term Loan (10.50% cash, 2.50% ETP, Due 11/1/16)     2,275       2,255       2,255  
Luxtera, Inc. (2)   Semiconductors   Term Loan (10.25% cash, 13.00% ETP, Due 7/1/17)     2,632       2,590       2,590  
        Term Loan (10.25% cash, 13.00% ETP, Due 7/1/17)     1,469       1,462       1,462  
NexPlanar Corporation (2)   Semiconductors   Term Loan (10.50% cash, 2.50% ETP, Due 12/1/16)     2,368       2,352       2,352  
        Term Loan (10.50% cash, 2.50% ETP, Due 12/1/16)     1,579       1,564       1,564  
Xtera Communications, Inc. (2)   Semiconductors   Term Loan (11.50% cash, 15.65% ETP, Due 1/1/17)     5,846       5,708       5,708  
        Term Loan (11.50% cash, 21.75% ETP, Due 1/1/17)     1,624       1,584       1,584  
Courion Corporation (2)   Software   Term Loan (11.45% cash, Due 10/1/15)     1,279       1,277       1,277  
        Term Loan (11.45% cash, Due 10/1/15)     1,279       1,277       1,277  
Crowdstar, Inc. (2)   Software   Term Loan (10.75% cash (Libor + 10.25%; Floor     2,000       1,956       1,956  
        10.75%), 3.00% ETP, Due 9/1/18)                        
Decisyon, Inc. (2)   Software   Term Loan (11.65% cash, 5.00% ETP, Due 9/1/16)     2,919       2,899       2,899  
        Term Loan (11.65% cash, 5.00% ETP, Due 11/1/17)     1,000       986       986  
Lotame Solutions, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     3,410       3,390       3,390  
        11.50%), 5.25% ETP, Due 9/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     1,500       1,491       1,491  
        11.50%), 5.25% ETP, Due 9/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     2,100       2,070       2,070  
        11.50%), 3.00% ETP, Due 4/1/18)                        
Netuitive, Inc. (2)   Software   Term Loan (12.75% cash, Due 7/1/16)     1,717       1,707       1,707  
Raydiance, Inc. (2)   Software   Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16)     3,490       3,468       3,468  
        Term Loan (11.50% cash, 2.75% ETP, Due 9/1/16)     698       688       688  
        Term Loan (11.50% cash (Libor + 11.00%; Floor     3,000       2,955       2,955  
        11.50%; Ceiling 13.50%), 2.75% ETP, Due 2/1/18)                        
Razorsight Corporation (2)   Software   Term Loan (11.75% cash, 3.00% ETP, Due 11/1/16)     1,142       1,132       1,132  
        Term Loan (11.75% cash, 3.00% ETP, Due 8/1/16)     1,000       990       990  
        Term Loan (11.75% cash, 3.00% ETP, Due 7/1/17)     1,000       988       988  
SIGNiX, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     3,000       2,902       2,902  
        11.50%), Due 7/1/18)                        
Social Intelligence Corp. (2)   Software   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,500       1,477       1,477  
        11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17)                        
SpringCM, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     4,500       4,412       4,412  
        11.50%; Ceiling 13.00%), 2.00% ETP, Due 1/1/18)                        
Sys-Tech Solutions, Inc. (2)   Software   Term Loan (11.65% cash (Libor + 11.15%; Floor     6,000       5,954       5,954  
        11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)                        
        Term Loan (11.65% cash (Libor + 11.15%; Floor     5,000       4,952       4,952  
        11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18)                        
VBrick Systems, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     3,000       2,979       2,979  
        11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17)                        
Vidsys, Inc. (2)   Software   Term Loan (11.00% cash, 7.58% ETP, Due 4/1/15)     3,000       2,993       2,993  
Visage Mobile, Inc. (2)   Software   Term Loan (12.00% cash, 3.50% ETP, Due 9/1/16)     645       640       640  
Total Debt Investments — Technology                     108,988       108,988  
Debt Investments — Cleantech — 9.3% (9)                                
Renmatix, Inc. (2)   Alternative Energy   Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)     1,148       1,145       1,145  
        Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)     1,148       1,145       1,145  
        Term Loan (10.25% cash, Due 10/1/16)     3,488       3,469       3,469  
Semprius, Inc. (2)(8)   Alternative Energy   Term Loan (10.25% cash, 2.50% ETP, Due 6/1/16)     2,432       2,432       2,250  
Aurora Algae, Inc. (2)   Consumer-related Technologies   Term Loan (10.50% cash, 2.00% ETP, Due 5/1/15)     397       396       396  
Rypos, Inc. (2)   Energy Efficiency   Term Loan (11.80% cash, Due 1/1/17)     2,670       2,643       2,643  
        Term Loan (11.80% cash, Due 9/1/17)     1,000       986       986  
Tigo Energy, Inc. (2)   Energy Efficiency   Term Loan (13.00% cash, 3.16% ETP, Due 6/1/15)     786       785       785  
Total Debt Investments — Cleantech                     13,001       12,819  
Debt Investments — Healthcare information and services — 24.5% (9)                                
Interleukin Genetics, Inc. (2)(5)   Diagnostics   Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%)     5,000       4,837       4,837  
        4.50% ETP, Due 10/1/18)                        
LifePrint Group, Inc. (2)   Diagnostics   Term Loan (11.00% cash (Libor + 10.50%; Floor     3,000       2,949       2,747  

 

See Notes to Consolidated Financial Statements

 

14
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2014

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
        11.00%; Ceiling 12.50%), 3.00% ETP, Due 1/1/18)                        
Radisphere National Radiology Group, Inc. (2)   Diagnostics   Revolver (11.25% cash (Prime + 8.00%), Due 10/1/15)     10,092       10,053       10,053  
Watermark Medical, Inc. (2)   Other Healthcare   Term Loan (12.00% cash, 4.00% ETP, Due 4/1/17)     3,500       3,473       3,473  
        Term Loan (12.00% cash, 4.00% ETP, Due 4/1/17)     3,500       3,473       3,473  
Recondo Technology, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     1,384       1,379       1,379  
        11.50%), 6.60% ETP, Due 12/1/17)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     2,500       2,490       2,490  
        11.00%), 4.50% ETP, Due 12/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,500       2,490       2,490  
        10.50%), 2.75% ETP, Due 12/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     3,000       2,953       2,953  
        10.50%), 2.50% ETP, Due 1/1/19)                        
Total Debt Investments — Healthcare information and services                     34,097       33,895  
Total Debt Investments                     199,564       199,180  
Warrant Investments — 3.4% (9)                                
Warrants — Life Science — 0.6% (9)                                
ACT Biotech Corporation   Biotechnology   1,521,820 Preferred Stock Warrants           83        
Argos Therapeutics, Inc. (2)(5)   Biotechnology   16,556 Common Stock Warrants           33       31  
Celsion Corporation (5)   Biotechnology   5,708 Common Stock Warrants           15        
Inotek Pharmaceuticals Corporation   Biotechnology   33,762 Preferred Stock Warrants           17       15  
N30 Pharmaceuticals, Inc.   Biotechnology   53,550 Common Stock Warrants           122        
New Haven Pharmaceuticals, Inc. (2)   Biotechnology   55,347 Preferred Stock Warrants           42       136  
Palatin Technologies, Inc. (2)(5)   Biotechnology   333,333 Common Stock Warrants           31       31  
Revance Therapeutics, Inc. (5)   Biotechnology   34,377 Common Stock Warrants           68       120  
Sample6, Inc. (2)   Biotechnology   351,018 Preferred Stock Warrants           45       39  
Supernus Pharmaceuticals, Inc. (2)(5)   Biotechnology   42,083 Preferred Stock Warrants           93       165  
Tranzyme, Inc. (2)(5)   Biotechnology   6,460 Common Stock Warrants           6        
Accuvein, Inc. (2)   Medical Device   75,769 Preferred Stock Warrants           24       29  
Direct Flow Medical, Inc.   Medical Device   176,922 Preferred Stock Warrants           144       40  
EnteroMedics, Inc. (5)   Medical Device   141,026 Common Stock Warrants           347        
IntegenX, Inc. (2)   Medical Device   158,006 Preferred Stock Warrants           33       31  
Lantos Technologies, Inc. (2)   Medical Device   858,545 Preferred Stock Warrants           24       23  
Mederi Therapeutics, Inc. (2)   Medical Device   248,736 Preferred Stock Warrants           26       40  
Mitralign, Inc. (2)   Medical Device   641,909 Preferred Stock Warrants           52       37  
OraMetrix, Inc. (2)   Medical Device   812,348 Preferred Stock Warrants           78        
Tengion, Inc. (2)(5)   Medical Device   1,864,876 Common Stock Warrants           123        
Tryton Medical, Inc. (2)   Medical Device   122,362 Preferred Stock Warrants           15       13  
ViOptix, Inc.   Medical Device   375,763 Preferred Stock Warrants           13        
ZetrOZ, Inc. (2)   Medical Device   475,561 Preferred Stock Warrants           25       24  
Total Warrants — Life Science                     1,459       774  
Warrants — Technology — 2.2% (9)                                
Ekahau, Inc. (2)   Communications   978,261 Preferred Stock Warrants           33       19  
OpenPeak, Inc.   Communications   18,997 Common Stock Warrants           89        
Overture Networks, Inc.   Communications   385,617 Preferred Stock Warrants           56        
Additech, Inc. (2)   Consumer-related Technologies   150,000 Preferred Stock Warrants           33       33  
Everyday Health, Inc. (5)   Consumer-related Technologies   43,783 Common Stock Warrants           69       179  
Gwynnie Bee, Inc. (2)   Consumer-related Technologies   268,591 Preferred Stock Warrants           68       312  
SnagAJob.com, Inc.   Consumer-related Technologies   365,396 Preferred Stock Warrants           23       305  
Tagged, Inc.   Consumer-related Technologies   190,868 Preferred Stock Warrants           26       62  
XIOtech, Inc.   Data Storage   2,217,979 Preferred Stock Warrants           22       18  
Cartera Commerce, Inc.   Internet and media   90,909 Preferred Stock Warrants           16       159  
SimpleTuition, Inc.   Internet and media   189,573 Preferred Stock Warrants           63       29  
IntelePeer, Inc.   Networking   141,549 Preferred Stock Warrants           39       33  
Nanocomp Technologies, Inc. (2)   Networking   272,728 Preferred Stock Warrants           25       24  
Aquion Energy, Inc.   Power Management   115,051 Preferred Stock Warrants           7       56  
Avalanche Technology, Inc. (2)   Semiconductors   352,828 Preferred Stock Warrants           101       98  
eASIC Corporation (2)   Semiconductors   40,445 Preferred Stock Warrants           25       28  
InVisage Technologies, Inc. (2)   Semiconductors   165,147 Preferred Stock Warrants           43       41  
Kaminario, Inc.   Semiconductors   1,087,203 Preferred Stock Warrants           59       64  
Luxtera, Inc.   Semiconductors   2,087,766 Preferred Stock Warrants           43       105  

 

See Notes to Consolidated Financial Statements

 

15
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2014

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(10)(11)   Amount     Investments (6)     Value  
NexPlanar Corporation   Semiconductors   216,001 Preferred Stock Warrants           36       56  
Soraa, Inc. (2)   Semiconductors   180,000 Preferred Stock Warrants           80       77  
Xtera Communications, Inc.   Semiconductors   983,607 Preferred Stock Warrants           206        
Bolt Solutions, Inc. (2)   Software   202,892 Preferred Stock Warrants           113       118  
Clarabridge, Inc.   Software   53,486 Preferred Stock Warrants           14       104  
Courion Corporation   Software   772,543 Preferred Stock Warrants           107        
Crowdstar, Inc. (2)   Software   75,428 Preferred Stock Warrants           14       14  
Decisyon, Inc. (2)   Software   457,876 Preferred Stock Warrants           46       28  
DriveCam, Inc.   Software   71,639 Preferred Stock Warrants           20       121  
Lotame Solutions, Inc. (2)   Software   288,115 Preferred Stock Warrants           23       160  
Netuitive, Inc.   Software   41,569 Preferred Stock Warrants           48        
Raydiance, Inc. (2)   Software   1,051,120 Preferred Stock Warrants           71       67  
Razorsight Corporation (2)   Software   259,404 Preferred Stock Warrants           43       44  
SIGNiX, Inc. (2)   Software   63,365 Preferred Stock Warrants           48       48  
Riv Data Corp. (2)   Software   237,361 Preferred Stock Warrants           13       12  
SpringCM, Inc. (2)   Software   2,385,686 Preferred Stock Warrants           55       53  
Sys-Tech Solutions, Inc.   Software   375,000 Preferred Stock Warrants           242       536  
Vidsys, Inc.   Software   37,346 Preferred Stock Warrants           23        
Visage Mobile, Inc.   Software   1,692,047 Preferred Stock Warrants           19       17  
Total Warrants — Technology                     2,061       3,020  
Warrants — Cleantech — 0.1% (9)                                
Renmatix, Inc.   Alternative Energy   52,296 Preferred Stock Warrants           67       67  
Semprius, Inc.   Alternative Energy   519,981 Preferred Stock Warrants           25        
Rypos, Inc. (2)   Energy Efficiency   5,627 Preferred Stock Warrants           44       40  
Tigo Energy, Inc. (2)   Energy Efficiency   804,604 Preferred Stock Warrants           99       33  
Total Warrants — Cleantech                     235       140  
Warrants — Healthcare information and services — 0.5% (9)                                
Accumetrics, Inc.   Diagnostics   100,928 Preferred Stock Warrants           107       63  
BioScale, Inc. (2)   Diagnostics   315,618 Preferred Stock Warrants           55        
LifePrint Group, Inc. (2)   Diagnostics   49,000 Preferred Stock Warrants           29       29  
Interleukin Genetics, Inc. (2)(5)   Diagnostics   2,492,523 Common Stock Warrants           112       112  
Helomics Corporation, fka Precision Therapeutics, Inc.   Diagnostics   13,461 Preferred Stock Warrants           73        
Radisphere National Radiology Group, Inc. (2)   Diagnostics   519,992 Preferred Stock Warrants           378        
Singulex, Inc.   Other Healthcare   293,632 Preferred Stock Warrants           44       141  
Talyst, Inc.   Other Healthcare   300,360 Preferred Stock Warrants           100       52  
Watermark Medical, Inc.   Other Healthcare   12,216 Preferred Stock Warrants           67       62  
Recondo Technology, Inc. (2)   Software   556,796 Preferred Stock Warrants           95       210  
Total Warrants — Healthcare information and services                     1,060         669  
Total Warrants                     4,815       4,603  
                                 
Other Investments — 0.2% (9)                                
Vette Technology, LLC   Data Storage   Royalty Agreement Due 4/18/2019           4,582       300  
Total Other Investments                     4,582       300  
Equity — 0.7% (9)                                
Insmed Incorporated (5)   Biotechnology   33,208 Common Stock           239       514  
Revance Therapeutics, Inc.(5)   Biotechnology   4,861 Common Stock           73       82  
Sunesis Pharmaceuticals, Inc. (5)   Biotechnology   78,493 Common Stock           83       200  
Overture Networks Inc.   Communications   386,191 Common Stock           482       222  
Total Equity                     877       1,018  
Total Portfolio Investment Assets — 148.4%  (9)                   $ 209,838     $ 205,101  
                                 
Short Term Investments — Money Market Funds — 0.0% (9)                                
US Bank Money Market Deposit Account                   $ 27     $ 27  
Total Short Term Investments — Money Market Funds                     27     27  
Short Term Investments — Restricted Investments— 2.1% (9)                                
US Bank Money Market Deposit Account (2)                   $ 2,906     $ 2,906  
Total Short Term Investments — Restricted Investments                   $ 2,906     $ 2,906  

 

See Notes to Consolidated Financial Statements

 

16
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2014

(In thousands)

 

 

(1)   All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.
(2)   Has been pledged as collateral under the Key Facility or 2013-1 Securitization.
(3)   All investments are less than 5% ownership of the class and ownership of the portfolio company.
(4)   All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include ETP and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. For each debt investment, the current interest rate in effect as of December 31, 2014 is provided.
(5)   Portfolio company is a public company.
(6)   For debt investments, represents principal balance less unearned income.
(7)   Preferred and common stock warrants, equity interests and other investments are non-income producing.
(8)   Debt investment is on non-accrual status at December 31, 2014, and interest payments received were recognized as income on a cash basis.
(9)   Value as a percent of net assets.
(10)   The Company did not have any non-qualifying assets under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.
(11)   ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee will be based on income that the Company has not yet received in cash.

 

See Notes to Consolidated Financial Statements

 

17
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Note 1.  Organization

  

Horizon Technology Finance Corporation (the “Company”) was organized as a Delaware corporation on March 16, 2010 and is an externally managed, non-diversified, closed-end investment company. The Company has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Company generally is not subject to corporate-level federal income tax on the portion of its taxable income and capital gains the Company distributes to its stockholders. The Company primarily makes secured debt investments to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. All of the Company’s debt investments consist of loans secured by all of, or a portion of, the applicable debtor company’s tangible and intangible assets.

  

On October 28, 2010, the Company completed an initial public offering (“IPO”) and its common stock trades on the NASDAQ Global Select Market under the symbol “HRZN”. The Company was formed to continue and expand the business of Compass Horizon Funding Company LLC (“CHF”), a Delaware limited liability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary upon the completion of the Company’s IPO.

  

Horizon Credit I LLC (“Credit I”) was formed as a Delaware limited liability company on January 23, 2008, with CHF as its sole equity member. Credit I is a separate legal entity from the Company and CHF. There has been no activity at Credit I during the three months ended March 31, 2015.

  

Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as its sole equity member. Credit II is a special purpose bankruptcy remote entity and is a separate legal entity from the Company. Any assets conveyed to Credit II are not available to creditors of the Company or any other entity other than Credit II’s lenders.

  

Horizon Credit III LLC (“Credit III”) was formed as a Delaware limited liability company on May 30, 2012, with the Company as the sole equity member. Credit III is a separate legal entity from the Company. There has been no activity at Credit III during the three months ended March 31, 2015.

  

Longview SBIC GP LLC and Longview SBIC LP (collectively, “Horizon SBIC”) were formed as a Delaware limited liability company and Delaware limited partnership, respectively, on February 11, 2011. Horizon SBIC are wholly owned subsidiaries of the Company and were formed in anticipation of obtaining a license to operate a small business investment company from the U. S. Small Business Administration. There has been no activity in Horizon SBIC since its inception.

 

The Company formed Horizon Funding 2013-1 LLC (“2013-1 LLC”) as a Delaware limited liability company on June 7, 2013 and Horizon Funding Trust 2013-1 (“2013-1 Trust” and, together with 2013-1 LLC, the “2013-1 Entities”) as a Delaware trust on June 18, 2013. The 2013-1 Entities are special purpose bankruptcy remote entities and are separate legal entities from the Company. The Company formed the 2013-1 Entities for purposes of securitizing $189.3 million of secured loans (the “2013-1 Securitization”) and issuing fixed-rate asset-backed notes in an aggregate principal amount of $90 million (the “Asset-Backed Notes”).

  

The Company has also established additional wholly owned subsidiaries, each of which is structured as a Delaware limited liability company, to hold the assets of portfolio companies acquired in connection with foreclosure or bankruptcy. Each is a separate legal entity from the Company.

  

The Company’s investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments the Company makes and capital appreciation from the warrants the Company receives when making such debt investments. The Company has entered into an amended and restated investment management agreement (the “Investment Management Agreement”) with Horizon Technology Finance Management LLC (the “Advisor”), under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company.

 

18
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

On March 24, 2015, the Company completed a follow-on public offering of 2,000,000 shares of its common stock at a public offering price of $13.95 per share, for total net proceeds to the Company of $26.7 million, after deducting underwriting commission and discounts and other offering expenses.

 

Note 2.  Basis of presentation and significant accounting policies

 

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Article 6 or 10 of Regulation S-X (“Regulation S-X”) under the Securities Act of 1933, as amended (the “Securities Act”). In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. Certain prior period amounts have been reclassified to conform to the current period presentation. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2014.

 

Principles of consolidation

 

As required under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s subsidiaries in its consolidated financial statements.

 

Use of estimates

 

In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of investments.

 

Fair value

 

The Company records all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. The Company has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as more fully described in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.

 

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

 

See Note 5 for additional information regarding fair value.

 

Segments

 

The Company has determined that it has a single reporting segment and operating unit structure. The Company lends to and invests in portfolio companies in various technology, life science, healthcare information and services and cleantech industries. The Company separately evaluates the performance of each of its lending and investment relationships. However, because each of these debt investments and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.

 

19
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Investments

 

Investments are recorded at fair value. The Company’s board of directors (the “Board”) determines the fair value of the Company’s portfolio investments. The Company has the intent to hold its debt investments for the foreseeable future or until maturity or payoff.

 

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of March 31, 2015, there was one investment on non-accrual status with a cost of $2.0 million and a fair value of $2.0 million. For the three months ended March 31, 2015, the Company recognized as interest income payments of $0.1 million received from one portfolio company whose debt investment was on non-accrual status. As of December 31, 2014, there was one investment on non-accrual status with a cost of $2.4 million and a fair value of $2.3 million.

 

The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, the Company may also receive a non-refundable deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment. All other income is recognized when earned. Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.

 

Certain debt investment agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay all principal and interest due. The proportion of the Company’s income consisting of interest and fee income that resulted from the portion of ETPs not received in cash for the three months ended March 31, 2015 and 2014 was 7.4% and 9.7%, respectively.

 

In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are also recorded as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with the Company’s income recognition policy. Subsequent to debt investment origination, the fair value of the warrants is determined using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized appreciation or depreciation on investments. Gains and losses from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.

 

Realized gains or losses on the sale of investments, or upon the determination that an investment balance or portion thereof is not recoverable, are calculated using the specific identification method. The Company measures realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair values of the Company’s portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

 

Debt issuance costs

 

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. Debt issuance costs are recognized as assets and are amortized as interest expense over the term of the related debt financing. The unamortized balance of debt issuance costs as of March 31, 2015 and December 31, 2014, included in other assets, was $2.1 million and $2.4 million, respectively. The accumulated amortization balances as of March 31, 2015 and December 31, 2014 were $3.3 million and $3.0 million, respectively. The amortization expense for the three months ended March 31, 2015 and 2014 was $0.3 million and $0.5 million, respectively.

 

20
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Income taxes

 

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute to its stockholders at least 90% of investment company taxable income, as defined by the Code, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which will generally relieve the Company from corporate-level U.S. federal income taxes. Accordingly, no provision for federal income tax has been recorded in the financial statements. Taxable income differs from net increase in net assets resulting from operations which can be temporary, meaning they will reverse in the future or be permanent. In accordance with Accounting Standards Codification 946-205-45-3, permanent tax differences, such as non-deductible excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments to paid-in-capital. These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character but have no impact on total net assets. For the three months ended March 31, 2015 the Company reclassified $1.0 million to paid-in capital from distributions in excess of net investment income of $0.9 million and net realized loss on investments of $0.1 million, which related to excise taxes paid in prior years.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended March 31, 2015 and 2014, $0.01 million and $0.04 million, respectively, was recorded for U.S. federal excise tax.

 

The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with Topic 740, as modified by Topic 946, of the Financial Accounting Standards Board’s (“FASB”), Accounting Standards Codification, as amended. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had no material uncertain tax positions at March 31, 2015 and December 31, 2014. The 2013, 2012 and 2011 tax years remain subject to examination by U.S. federal and state tax authorities.

 

Distributions

 

Distributions to common stockholders are recorded on the declaration date. The amount to be paid out as distributions is determined by the Board. Net realized long-term capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions and other distributions on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board authorizes, and the Company declares, a cash distribution, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company may use newly issued shares to implement the plan (especially if the Company’s shares are trading at a premium to net asset value), or the Company may purchase shares in the open market to fulfill its obligations under the plan.

  

21
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Transfers of financial assets

 

Assets related to transactions that do not meet Accounting Standards Codification Topic 860 — Transfers and Servicing requirements for accounting sale treatment are reflected in the Company’s consolidated statements of assets and liabilities as investments. Those assets are owned by special purpose entities that are consolidated in the Company’s financial statements. The creditors of the special purpose entities have received security interests in such assets, and such assets are not intended to be available to the creditors of the Company (or any other affiliate of the Company).

 

Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company — put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.

 

New accounting pronouncements

 

In June 2013, the FASB issued Accounting Standards Update 2013-08, Financial Services — Investment Companies (Topic 946): Amendments to the Scope, Measurement and Disclosure Requirements , or ASU 2013-08, containing new guidance on assessing whether an entity is an investment company, requiring non-controlling ownership interest in investment companies to be measured at fair value and requiring certain additional disclosures. This guidance is effective for annual and interim periods beginning on or after December 15, 2013. ASU 2013-08 did not have a material impact on the Company’s consolidated financial position or disclosures.

 

In April 2015, the FASB issued Accounting Standards Update 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs , or ASU 2015-03, containing new guidance that will require debt issuance costs related to a recognized debt liability to be presented in the balance sheet as a direct deduction from the carrying amount of that debt liability. This guidance will be effective for annual and interim periods beginning on or after December 15, 2015. The Company is evaluating the impact ASU 2015-03 will have on the consolidated financial position and disclosures.

 

Note 3.  Related party transactions

 

Investment Management Agreement

 

The Investment Management Agreement with the Advisor, which was amended and restated effective July 1, 2014, under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company was reapproved by the Board in August 2014. Under the terms of the Investment Management Agreement, the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes; identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

 

The Advisor’s services under the Investment Management Agreement are not exclusive to the Company, and the Advisor is free to furnish similar services to other entities so long as its services to the Company are not impaired. The Advisor is a registered investment adviser with the U.S. Securities and Exchange Commission. The Advisor receives fees for providing services to the Company under the Investment Management Agreement, consisting of two components, a base management fee and an incentive fee.

 

The base management fee under the Investment Management Agreement through and including June 30, 2014 was calculated at an annual rate of 2.00% of the Company’s gross assets, payable monthly in arrears. As a result of an amendment and restatement of the Investment Management Agreement, the base management fee on and after July 1, 2014 is calculated at an annual rate of 2.00% of (i) the Company’s gross assets, less (ii) assets consisting of cash and cash equivalents, and is payable monthly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage. In addition, the Advisor has agreed to waive its base management fee relating to the proceeds raised in the public offering of the Company’s common stock that closed on March 24, 2015, to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised, until the earlier to occur of (i) March 31, 2016 or (ii) the last day of the second consecutive calendar quarter in which the Company’s net investment income exceeds distributions declared on its shares of common stock for the applicable quarter. During the three months ended March 31, 2015, the Advisor did not waive base management fees.

 

22
 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

During the three months ended March 31, 2014, the Advisor waived base management fees of $0.1 million, which the Advisor would have otherwise earned on cash held by the Company at the time of calculation. The base management fee payable at March 31, 2015 and December 31, 2014 was $0.4 million. After giving effect of the waiver for the three months ended March 31, 2014, the base management fee expense was $1.0 million and $1.2 million for the three months ended March 31, 2015 and 2014, respectively.

 

The incentive fee has two parts, as follows:

 

The first part, which is subject to the Incentive Fee Cap and Deferral Mechanism, as defined below, is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income the Company has not yet received in cash. The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of the amount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter exceeds a 1.75% (which is 7.00% annualized) hurdle rate and a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, the Advisor receives no incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of 1.75%, but then receives, as a “catch-up,” 100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875%. The effect of this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive 20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply.

 

Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the 2.00% base management fee. These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.