Horizon Technology Finance Corporation
Horizon Technology Finance Corp (Form: 10-Q, Received: 11/03/2015 16:35:07)

 

 

 

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 SEPTEMBER 30, 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 o No o

 

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 o No þ .

 

As of November 3, 2015, the Registrant had 11,644,940 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 September 30, 2015 and December 31, 2014 (unaudited)   3
  Consolidated Statements of Operations for the three and nine months ended September 30, 2015 and 2014 (unaudited)   4
  Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2015 and 2014 (unaudited)   5
  Consolidated Statements of Cash Flows for the nine months ended September 30, 2015 and 2014 (unaudited)   6
  Consolidated Schedules of Investments as of September 30, 2015 and December 31, 2014 (unaudited)   7
  Notes to the Consolidated Financial Statements (unaudited)   18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations   38
Item 3. Quantitative And Qualitative Disclosures About Market Risk   52
Item 4. Controls and Procedures   52
       
  PART II    
Item 1. Legal Proceedings   53
Item 1A. Risk Factors   53
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds   53
Item 3. Defaults Upon Senior Securities   53
Item 4. Mine Safety Disclosures   53
Item 5. Other Information   53
Item 6. Exhibits   53
  Signatures   54
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)

 

    September 30,
2015
    December 31,
2014
 
             
Assets                
Non-affiliate investments at fair value (cost of $252,812 and $209,838, respectively) (Note 4)   $ 249,033     $ 205,101  
Investments in money market funds     275       27  
Cash     12,559       8,417  
Restricted investments in money market funds     1,448       2,906  
Interest receivable     5,984       4,758  
Other assets     3,360       3,987  
Total assets   $ 272,659     $ 225,196  
                 
Liabilities                
Borrowings (Note 6)   $ 104,302     $ 81,753  
Distributions payable     4,017       3,322  
Base management fee payable (Note 3)     385       356  
Incentive fee payable (Note 3)     1,015       799  
Other accrued expenses     693       718  
Total liabilities     110,412       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 September 30, 2015 and December 31, 2014            
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,642,522 and 9,628,124 shares outstanding as of September 30, 2015 and December 31, 2014, respectively     12       10  
Paid-in capital in excess of par     180,954       155,240  
Distributions in excess of net investment income     (2,132 )     (1,102 )
Net unrealized depreciation on investments     (3,779 )     (4,737 )
Net realized loss on investments     (12,808 )     (11,163 )
Total net assets     162,247       138,248  
Total liabilities and net assets   $ 272,659     $ 225,196  
Net asset value per common share   $ 13.94     $ 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     For the Nine Months Ended  
    September 30,     September 30,  
    2015     2014     2015     2014  
Investment income                                
Interest income on non-affiliate investments   $ 7,705     $ 6,786     $ 20,865     $ 21,714  
Prepayment fee income on non-affiliate investments     373       410       1,101       945  
Fee income on non-affiliate investments     349       543       583       1,312  
Total investment income     8,427       7,739       22,549       23,971  
Expenses                                
Interest expense     1,441       1,495       4,291       7,326  
Base management fee (Note 3)     1,279       1,038       3,456       3,618  
Performance based incentive fee (Note 3)     1,015       800       2,473       1,314  
Administrative fee (Note 3)     300       335       877       872  
Professional fees     273       607       991       2,721  
General and administrative     218       223       776       823  
Total expenses     4,526       4,498       12,864       16,674  
Management and performance based incentive fees waived (Note 3)     (140 )           (207 )     (345 )
Net expenses     4,386       4,498       12,657       16,329  
Net investment income before excise tax     4,041       3,241       9,892       7,642  
(Credit) provision for excise tax     (20 )     40             120  
Net investment income     4,061       3,201       9,892       7,522  
Net realized and unrealized (loss) gain on investments                                
Net realized (loss) gain on investments     (1,463 )     2,325       (1,723 )     (4,190 )
Net unrealized appreciation (depreciation) on investments     940       (766 )     958       8,993  
Net realized and unrealized (loss) gain on investments     (523 )     1,559       (765 )     4,803  
Net increase in net assets resulting from operations   $ 3,538     $ 4,760     $ 9,127     $ 12,325  
Net investment income per common share   $ 0.35     $ 0.33     $ 0.90     $ 0.78  
Net increase in net assets per common share   $ 0.30     $ 0.50     $ 0.83     $ 1.28  
Distributions declared per share   $ 0.345     $ 0.345     $ 1.035     $ 1.035  
Weighted average shares outstanding     11,638,925       9,623,468       11,032,992       9,619,133  

 

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

on

   

Net Realized

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                       7,522       8,993       (4,190 )     12,325  
Issuance of common stock under dividend reinvestment plan     16,325             227                         227  
Distributions declared                       (9,960 )                 (9,960 )
Balance at September 30, 2014     9,625,274     $ 10     $ 155,202       (975 )   $ (4,033 )   $ (11,777 )   $ 138,427  
                                                         
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       26,504                         26,506  
Net increase in net assets resulting from operations                       9,892       958       (1,723 )     9,127  
Issuance of common stock under dividend reinvestment plan     14,398             181                         181  
Distributions declared                       (11,815 )                 (11,815 )
Reclassification of permanent tax differences (Note 2)                 (971 )     893             78        
Balance at September 30, 2015     11,642,522     $ 12     $ 180,954     $ (2,132 )   $ (3,779 )   $ (12,808 )   $ 162,247  

 

See Notes to Consolidated Financial Statements

 

5

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

(In thousands)

 

    For the Nine Months Ended  
    September 30,  
    2015     2014  
Cash flows from operating activities:                
Net increase in net assets resulting from operations   $ 9,127     $ 12,325  
Adjustments to reconcile net increase in net assets resulting from operations to net cash (used in) provided by operating activities:                
Amortization of debt issuance costs     733       2,370  
Net realized loss on investments     1,723       4,190  
Net unrealized appreciation on investments     (958 )     (8,993 )
Purchase of investments     (104,781 )     (66,836 )
Principal payments received on investments     58,593       83,906  
Proceeds from sale of investments     1,078       5,119  
Changes in assets and liabilities:                
Net (increase) decrease in investments in money market funds     (248 )     388  
Net decrease in restricted investments in money market funds     1,458       2,583  
Increase in interest receivable     (399 )     (168 )
Increase in end-of-term payments     (827 )     (497 )
Decrease in unearned income     (56 )     (796 )
Decrease (increase) in other assets     773       (259 )
(Decrease) increase in other accrued expenses     (15 )     825  
Increase (decrease) in base management fee payable     29       (84 )
Increase (decrease) in incentive fee payable     216       (52 )
Net cash (used in) provided by operating activities     (33,554 )     34,021  
Cash flows from financing activities:                
Proceeds from issuance of common stock, net of offering costs     26,506        
Repayment of Asset-Backed Notes     (19,451 )     (34,441 )
Advances on credit facilities     42,000        
Debt issuance costs     (420 )      
Distributions paid     (10,939 )     (9,727 )
Net cash provided by (used in) financing activities     37,696       (44,168 )
Net increase (decrease) in cash     4,142       (10,147 )
Cash:                
Beginning of period     8,417       25,341  
End of period   $ 12,559     $ 15,194  
Supplemental disclosure of cash flow information:                
Cash paid for interest   $ 3,474     $ 4,968  
Supplemental non-cash investing and financing activities:                
Warrant investments received and recorded as unearned income   $ 778     $ 501  
Distributions payable   $ 4,017     $ 3,321  
End-of-term payments receivable   $ 4,611     $ 3,675  
Receivable resulting from sale of investment   $ 499     $  

 

See Notes to Consolidated Financial Statements

 

6

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(9)(10)   Amount     Investments (6)     Value  
Debt Investments — 149.0 % (8)                        
Debt Investments — Life Science — 36.1% (8)                        
Argos Therapeutics, Inc. (2)(5)   Biotechnology   Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;   $ 5,000     $ 4,938     $ 4,938  
        Ceiling 10.75%), 5.00% ETP, Due 10/1/18)                        
        Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;     5,000       4,951       4,951  
        Ceiling 10.75%), 5.00% ETP, Due 3/1/19)                        
New Haven Pharmaceuticals, Inc. (2)   Biotechnology   Term Loan (11.50% cash (Libor + 11.00%; Floor     1,301       1,292       1,292  
        11.50%), 11.42% ETP, Due 3/1/19)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     434       430       430  
        11.50%), 11.42% ETP, Due 3/1/19)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,000       1,986       1,986  
        10.50%), 6.10% ETP, Due 3/1/19)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor     6,265       6,184       6,184  
        10.00%), 4.00% ETP, Due 4/1/19)                        
Palatin Technologies, Inc. (2)(5)   Biotechnology   Term Loan (9.00% cash (Libor + 8.50%; Floor     5,000       4,934       4,934  
        9.00%), 5.00% ETP, Due 1/1/19)                        
        Term Loan (9.00% cash (Libor + 8.50%; Floor     5,000       4,933       4,933  
        9.00%), 5.00% ETP, Due 8/1/19)                        
Sample6, Inc. (2)   Biotechnology   Term Loan (9.50% cash (Libor + 9.00%; Floor     1,555       1,550       1,550  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
        Term Loan (9.50% cash (Libor + 9.00%; Floor     945       939       939  
        9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)                        
        Term Loan (9.50% cash (Libor + 9.00%; Floor     2,500       2,479       2,479  
        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       544       544  
        Term Loan (9.00% cash, 4.65% ETP, Due 10/1/16)     818       814       814  
IntegenX Inc. (2)   Medical Device   Term Loan (10.75% cash (Libor + 10.25%; Floor     3,750       3,699       3,699  
        10.75%; Ceiling 12.75%), 3.50% ETP, Due 7/1/18)                        
Lantos Technologies, Inc. (2)   Medical Device   Term Loan (11.50% cash (Libor + 10.50%; Floor     3,500       3,448       3,388  
        11.50%), 5.00% ETP, Due 2/1/18)                        
Mederi Therapeutics, Inc. (2)   Medical Device   Term Loan (12.02% cash (Libor + 11.82), 4.00% ETP,     2,925       2,897       2,801  
        Due 7/1/17)                        
        Term Loan (12.02% cash (Libor + 11.82%), 4.00% ETP,     2,925       2,897       2,801  
        Due 7/1/17)                        
NinePoint Medical, Inc. (2)   Medical Device   Term Loan (9.25% cash (Libor + 8.75%; Floor     5,000       4,928       4,928  
        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,     2,250       2,237       2,237  
        Due 9/1/16)                        
ZetrOZ, Inc. (2)   Medical Device   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,500       1,480       1,406  
        11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     1,500       1,476       1,406  
        11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18)                        
Total Debt Investments — Life Science             59,036       58,640  
Debt Investments — Technology — 80.4% (8)                        
Ekahau, Inc. (2)   Communications   Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)     854       849       849  
        Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)     285       283       283  
mBlox, Inc. (2)   Communications   Term Loan (11.50% cash (Libor + 11.00%; Floor     5,000       4,974       4,974  
        11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     5,000       4,974       4,974  
        11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)                        
        Term Loan (12.00% cash, 100.0% ETP, Due 7/1/16)     1,000       1,000       1,000  
        Term Loan (12.00% cash, 100.0% ETP, Due 7/1/16)     500       500       500  
Overture Networks, Inc. (2)   Communications   Term Loan (10.75% cash, (Libor + 10.25%; Floor     4,104       4,087       4,087  
        10.75%), 5.75% ETP, Due 12/1/17)                        
        Term Loan (10.75% cash (Libor + 10.25%; Floor     2,052       2,042       2,042  
        10.75%), 5.75% ETP, Due 12/1/17)                        
        Term Loan (10.75% cash (Libor + 10.25%; Floor     1,000       991       991  
        10.75%), 5.00% ETP, Due 11/1/18)                        
Additech, Inc. (2)   Consumer-related Technologies   Term Loan (11.75% cash (Libor + 11.25%; Floor     2,500       2,467       2,467  
        11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18)                        
        Term Loan (11.75% cash (Libor + 11.25%; Floor     2,500       2,461       2,461  
        11.75%; Ceiling 13.25%), 4.00% ETP, Due 1/1/19)                        
Gwynnie Bee, Inc. (2)   Consumer-related Technologies   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,667       1,642       1,642  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 11/1/17)                        

 

See Notes to Consolidated Financial Statements

 

7

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(9)(10)   Amount     Investments (6)     Value  
        Term Loan (11.00% cash (Libor + 10.50%; Floor     933       913       913  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 2/1/18)                        
        Term Loan (11.00% cash (Libor + 10.50%; Floor     1,000       985       985  
        11.00%; Ceiling 12.50%), 2.0% ETP, Due 4/1/18)                        
Rhapsody International, Inc. (2)   Consumer-related Technologies   Term Loan (11.00% cash (Libor + 10.50%; Floor     7,500       7,261       7,261  
        11.00%), 3.0% ETP, Due 10/1/19)                        
SavingStar, Inc. (2)   Consumer-related Technologies   Term Loan (10.90% cash (Libor + 10.40%; Floor     3,000       2,907       2,907  
        10.90%), 3.0% ETP, Due 6/1/19)                        
IT Professional Solutions, Inc.   Internet and Media   Term Loan (11.45% cash (Libor + 11.25%), Due 1/1/16)     1,750       1,740       1,740  
The NanoSteel Company, Inc. (2)   Materials   Term Loan (10.00% cash (Libor + 9.50%; Floor     5,000       4,861       4,861  
        10.00%), 5.0% ETP, Due 7/1/19)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor     2,500       2,455       2,455  
        10.00%), 5.0% ETP, Due 7/1/19)                        
Nanocomp Technologies, Inc. (2)   Networking   Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)     813       803       803  
Powerhouse Dynamics, Inc. (2)   Power Management   Term Loan (11.20% cash (Libor + 10.70%; Floor     2,500       2,452       2,452  
        11.20%), 3.0% ETP, Due 3/1/19)                        
Avalanche Technology, Inc. (2)   Semiconductors   Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     1,878       1,872       1,872  
        Ceiling 11.75%), 2.40% ETP, Due 4/1/17)                        
        Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     2,185       2,178       2,178  
        Ceiling 11.75%) ,2.40% ETP, Due 10/1/18)                        
        Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;     2,381       2,332       2,332  
        Ceiling 11.75%), 2.00% ETP, Due 2/1/19)                        
InVisage Technologies, Inc. (2)   Semiconductors   Term Loan (12.00% cash (Libor + 11.50%; Floor     2,550       2,496       2,496  
        12.00%; Ceiling 14.00%), 2.00% ETP, Due 4/1/18)                        
        Term Loan (12.00% cash (Libor + 11.50%; Floor     850       833       833  
        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%;     1,930       1,905       1,905  
        Ceiling 12.25%), 13.00% ETP, Due 7/1/17)                        
        Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;     1,077       1,073       1,073  
        Ceiling 12.25%), 13.00% ETP, Due 7/1/17)                        
        Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%),     833       828       828  
        4.50% ETP, Due 12/1/18)                        
        Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%),     833       827       827  
        4.50% ETP, Due 12/1/18)                        
Xtera Communications, Inc. (2)   Semiconductors   Term Loan (12.50% cash, 15.65% ETP, Due 12/31/16)     4,796       4,733       4,733  
        Term Loan (12.50% cash, 21.75% ETP, Due 12/31/16)     1,333       1,314       1,314  
Bridge2 Solutions, Inc.   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     4,000       3,959       3,959  
        11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)                        
Crowdstar, Inc. (2)   Software   Term Loan (10.75% cash (Libor + 10.25%; Floor     2,000       1,973       1,973  
        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)     1,740       1,734       1,699  
        Term Loan (11.65% cash, 5.00% ETP, Due 11/1/17)     883       875       858  
Education Elements, Inc. (2)   Software   Term Loan (10.50% cash (Libor + 10.00%; Floor     2,000       1,965       1,965  
        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       3,396       3,396  
        11.50%), 5.25% ETP, Due 9/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     1,500       1,494       1,494  
        11.50%), 5.25% ETP, Due 9/1/17)                        
        Term Loan (11.50% cash (Libor + 11.00%; Floor     2,100       2,077       2,077  
        11.50%), 3.00% ETP, Due 4/1/18)                        
Netuitive, Inc. (2)   Software   Term Loan (12.75% cash, Due 7/1/16)     1,233       1,230       1,230  
ScoreBig, Inc. (2)   Software   Term Loan (10.50% cash (Libor + 10.00%; Floor     3,500       3,445       3,445  
        10.50%), 4.00% ETP, Due 4/1/19)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     3,500       3,445       3,445  
        10.50%), 4.00% ETP, Due 4/1/19)                        
SIGNiX, Inc. (2)   Software   Term Loan (11.50% cash (Libor + 11.00%; Floor     3,000       2,948       2,948  
        11.50%), Due 7/1/18)                        
SilkRoad Technology, Inc. (2)   Software   Term Loan (10.85% cash (Libor + 10.35%; Floor     7,500       7,431       7,431  
        10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19)                        
Social Intelligence Corp. (2)   Software   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,227       1,210       1,196  
        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       4,444       4,444  
        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     5,800       5,765       5,765  

 

See Notes to Consolidated Financial Statements

 

8

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(9)(10)   Amount     Investments (6)     Value  
        11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)                        
        Term Loan (11.65% cash (Libor + 11.15%; Floor     5,000       4,963       4,963  
        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     2,200       2,185       2,185  
        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 12/1/17)     2,910       2,909       2,896  
xTech Holdings, Inc. (2)   Software   Term Loan (11.00% cash (Libor + 10.50%; Floor     2,000       1,954       1,954  
        11.00%), 3.00% ETP, Due 4/1/19)                        
Total Debt Investments — Technology             130,440       130,361  
Debt Investments — Cleantech — 8.3% (8)                        
Renmatix, Inc. (2)   Alternative Energy   Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)     426       426       426  
        Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)     426       426       426  
        Term Loan (10.25% cash, Due 10/1/16)     2,141       2,134       2,134  
Semprius, Inc. (2)   Alternative Energy   Term Loan (10.25% cash, 5.00% ETP, Due 6/1/16)     1,274       1,254       1,254  
Rypos, Inc. (2)   Energy Efficiency   Term Loan (11.80% cash, 4.25% ETP, Due 6/1/17)     2,430       2,400       2,400  
        Term Loan (11.80% cash, 4.25% ETP, Due 1/1/18)     947       931       931  
Lehigh Technologies, Inc. (2)   Waste Recycling   Term Loan (9.91% cash (Libor + 9.72%), 6.75% ETP,     3,000       2,959       2,959  
        Due 8/1/19)                        
        Term Loan (9.91% cash (Libor + 9.72%), 6.75% ETP,     3,000       2,973       2,973  
        Due 8/1/19)                        
Total Debt Investments — Cleantech             13,503       13,503  
Debt Investments — Healthcare information and services — 24.2% (8)                        
Interleukin Genetics, Inc. (2)(5)   Diagnostics   Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%)     5,000       4,870       4,870  
        4.50% ETP, Due 10/1/18)                        
LifePrint Group, Inc. (2)   Diagnostics   Term Loan (11.00% cash (Libor + 10.50%; Floor     2,800       2,762       2,627  
        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       3,493       3,493  
        Ceiling 11.00%); 4.00% ETP, Due 4/1/18)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;     3,500       3,493       3,493  
        Ceiling 11.00%); 4.00% ETP, Due 4/1/18)                        
        Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;     1,250       1,248       1,248  
        Ceiling 11.00%); 4.00% ETP, Due 4/1/18)                        
Innovatient Solutions, Inc. (2)   Software   Term Loan (11.00% cash (Libor + 10.50%; Floor     1,000       947       947  
        11.00%, Ceiling 13.00%); 4.00% ETP, Due 7/1/18)                        
MedAvante, Inc. (2)   Software   Term Loan (9.75% cash (Libor + 9.25%; Floor     3,000       2,887       2,887  
        9.75%), 4.00% ETP, Due 1/1/19)                        
        Term Loan (9.75% cash (Libor + 9.25%; Floor     3,000       2,954       2,954  
        9.75%), 4.00% ETP, Due 1/1/19)                        
Medsphere Systems Corporation (2)   Software   Term Loan (10.50% cash (Libor + 10.00%; Floor     5,000       4,916       4,916  
        10.50%), 7.00% ETP, Due 7/1/19)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,500       2,458       2,458  
        10.50%), 7.00% ETP, Due 7/1/19)                        
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       2,493       2,493  
        11.00%), 4.50% ETP, Due 12/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     2,500       2,494       2,494  
        10.50%), 2.75% ETP, Due 12/1/17)                        
        Term Loan (10.50% cash (Libor + 10.00%; Floor     3,000       2,962       2,962  
        10.50%), 2.50% ETP, Due 1/1/19)                        
Total Debt Investments — Healthcare information and services             39,356       39,221  
Total Debt Investments             242,335       241,725  
Warrant Investments — 3.7% (8)                        
Warrants — Life Science — 0.8% (8)                        
ACT Biotech Corporation   Biotechnology   1,521,820 Preferred Stock Warrants           83        
Argos Therapeutics, Inc. (2)(5)   Biotechnology   16,556 Common Stock Warrants           33       1  
Celsion Corporation (5)   Biotechnology   5,708 Common Stock Warrants           15        
Inotek Pharmaceuticals Corporation (5)   Biotechnology   33,762 Preferred Stock Warrants           17       145  
New Haven Pharmaceuticals, Inc. (2)   Biotechnology   103,982 Preferred Stock Warrants           87       173  
Nivalis Theraputics, Inc. (5)   Biotechnology   18,534 Common Stock Warrants           122       5  
Palatin Technologies, Inc. (2)(5)   Biotechnology   608,058 Common Stock Warrants           51       67  
Revance Therapeutics, Inc. (5)   Biotechnology   34,377 Common Stock Warrants           68       526  
Sample6, Inc. (2)   Biotechnology   351,018 Preferred Stock Warrants           45       38  

 

See Notes to Consolidated Financial Statements

 

9

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(9)(10)   Amount     Investments (6)     Value  
Sunesis Pharmaceuticals, Inc. (5)   Biotechnology   12,302 Common Stock Warrants           5        
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       24  
Lantos Technologies, Inc. (2)   Medical Device   1,287,817 Preferred Stock Warrants           37       41  
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           33       33  
OraMetrix, Inc. (2)   Medical Device   812,348 Preferred Stock Warrants           78        
Tryton Medical, Inc. (2)   Medical Device   122,362 Preferred Stock Warrants           15       10  
ViOptix, Inc.    Medical Device   375,763 Preferred Stock Warrants           13        
ZetrOZ, Inc. (2)   Medical Device   475,561 Preferred Stock Warrants           25       20  
Total Warrants — Life Science             1,359       1,225  
Warrants — Technology — 2.3% (8)                        
Ekahau, Inc. (2)   Communications   978,261 Preferred Stock Warrants           33       20  
OpenPeak, Inc.    Communications   18,997 Common Stock Warrants           89        
Overture Networks, Inc.   Communications   385,617 Preferred Stock Warrants           55        
Additech, Inc. (2)   Consumer-related Technologies   150,000 Preferred Stock Warrants           33       27  
Everyday Health, Inc. (5)   Consumer-related Technologies   43,783 Common Stock Warrants           69       22  
Gwynnie Bee, Inc. (2)   Consumer-related Technologies   268,591 Preferred Stock Warrants           68       636  
Rhapsody International Inc. (2)   Consumer-related Technologies   852,273 Common Stock Warrants           164       164  
SavingStar, Inc. (2)   Consumer-related Technologies   79,088 Preferred Stock Warrants           48       47  
SnagAJob.com, Inc.    Consumer-related Technologies   365,396 Preferred Stock Warrants           23       303  
Tagged, Inc.    Consumer-related Technologies   190,868 Preferred Stock Warrants           27       65  
XIOtech, Inc.    Data Storage   2,217,979 Preferred Stock Warrants           22       18  
Cartera Commerce, Inc.    Internet and media   90,909 Preferred Stock Warrants           16        
SimpleTuition, Inc.   Internet and media   189,573 Preferred Stock Warrants           63       66  
The NanoSteel Company, Inc. (2)   Materials   147,424 Preferred Stock Warrants           93       91  
IntelePeer, Inc.    Networking   141,549 Preferred Stock Warrants           39       33  
Nanocomp Technologies, Inc. (2)   Networking   272,728 Preferred Stock Warrants           25       19  
Aquion Energy, Inc.   Power Management   115,051 Preferred Stock Warrants           7       55  
Powerhouse Dynamics, Inc. (2)   Power Management   290,698 Preferred Stock Warrants           28       27  
Avalanche Technology, Inc. (2)   Semiconductors   607,435 Preferred Stock Warrants           101       41  
eASIC Corporation (2)   Semiconductors   40,445 Preferred Stock Warrants           25       27  
InVisage Technologies, Inc. (2)   Semiconductors   185,790 Preferred Stock Warrants           48       45  
Kaminario, Inc.   Semiconductors   1,087,203 Preferred Stock Warrants           59       63  
Luxtera, Inc.(2)   Semiconductors   2,304,667 Preferred Stock Warrants           48       108  
NexPlanar Corporation   Semiconductors   216,001 Preferred Stock Warrants           36       126  
Soraa, Inc. (2)   Semiconductors   180,000 Preferred Stock Warrants           80       98  
Xtera Communications, Inc.   Semiconductors   983,607 Preferred Stock Warrants           206        
Bolt Solutions Inc. (2)   Software   202,892 Preferred Stock Warrants           113       114  
Bridge2 Solutions, Inc. (11)   Software   1,218 Preferred Stock Warrants           18       322  
Clarabridge, Inc.    Software   53,486 Preferred Stock Warrants           14       82  
Crowdstar, Inc. (2)   Software   75,428 Preferred Stock Warrants           14       14  
Decisyon, Inc. (2)   Software   457,876 Preferred Stock Warrants           45        
DriveCam, Inc.    Software   71,639 Preferred Stock Warrants           20       121  
Education Elements, Inc. (2)   Software   136,070 Preferred Stock Warrants           16       16  
Lotame Solutions, Inc. (2)   Software   288,115 Preferred Stock Warrants           22       267  
Netuitive, Inc.    Software   41,569 Preferred Stock Warrants           48        
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       512  
Vidsys, Inc.   Software   37,346 Preferred Stock Warrants           23        
Visage Mobile, Inc.   Software   1,692,047 Preferred Stock Warrants           19        
xTech Holdings, Inc. (2)   Software   111,111 Preferred Stock Warrants           30       30  
Total Warrants — Technology             2,300       3,745  
Warrants — Cleantech — 0.1% (8)                        
Renmatix, Inc.   Alternative Energy   53,022 Preferred Stock Warrants           67       64  
Semprius, Inc.   Alternative Energy   519,981 Preferred Stock Warrants           25        

 

See Notes to Consolidated Financial Statements

 

10

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

(In thousands)

 

            Principal     Cost of     Fair  
Portfolio Company (1)   Sector   Type of Investment (3)(4)(7)(9)(10)   Amount     Investments (6)     Value  
Rypos, Inc. (2)   Energy Efficiency   5,627 Preferred Stock Warrants           44       31  
Tigo Energy, Inc. (2)   Energy Efficiency   804,604 Preferred Stock Warrants           100       109  
Lehigh Technologies, Inc. (2)   Waste Recycling   272,727 Preferred Stock Warrants           33       33  
Total Warrants — Cleantech             269       237  
Warrants — Healthcare information and services — 0.5% (8)                        
Accumetrics, Inc.   Diagnostics   100,928 Preferred Stock Warrants           107       63  
BioScale, Inc. (2)   Diagnostics   315,618 Preferred Stock Warrants           54        
Candescent Health, Inc. (2)    Diagnostics   519,992 Preferred Stock Warrants           378        
Helomics Corporation   Diagnostics   13,461 Preferred Stock Warrants           73        
Interleukin Genetics, Inc. (2)(5)   Diagnostics   2,492,523 Common Stock Warrants           112       50  
LifePrint Group, Inc. (2)   Diagnostics   49,000 Preferred Stock Warrants           29       27  
Singulex, Inc.    Other Healthcare   293,632 Preferred Stock Warrants           44       165  
Talyst, Inc.    Other Healthcare   300,360 Preferred Stock Warrants           100       35  
Watermark Medical, Inc. (2)   Other Healthcare   27,373 Preferred Stock Warrants           74       62  
Innovatient Solutions, Inc. (2)   Software   157,895 Preferred Stock Warrants           35       35  
MedAvante, Inc. (2)   Software   114,285 Preferred Stock Warrants           66       65  
Medsphere Systems Corporation (2)   Software   7,097,791 Preferred Stock Warrants           60       59  
Recondo Technology, Inc. (2)    Software   556,796 Preferred Stock Warrants           95       193  
Total Warrants — Healthcare information and services             1,227       754  
Total Warrants             5,155       5,961  
                                 
Other Investments — 0.2% (8)                        
Vette Technology, LLC   Data Storage   Royalty Agreement Due 4/18/2019           4,445       300  
Total Other Investments             4,445       300  
Equity — 0.9% (8)                                
Insmed Incorporated (5)   Biotechnology   33,208 Common Stock           239       617  
Revance Therapeutics, Inc.(5)   Biotechnology   4,861 Common Stock           73       145  
Sunesis Pharmaceuticals, Inc. (5)   Biotechnology   78,493 Common Stock           83       63  
Overture Networks Inc.    Communications   386,191 Common Stock           482       222  
Total Equity             877       1,047  
Total Portfolio Investment Assets — 153.5%  (8)           $ 252,812     $ 249,033  
                                 
Short Term Investments — Money Market Funds — 0.2% (8)                        
US Bank Money Market Deposit Account           $ 275     $ 275  
Total Short Term Investments — Money Market Funds           $ 275     $ 275  
Short Term Investments — Restricted Investments— 0.9% (8)                        
US Bank Money Market Deposit Account (2)           $ 1,448     $ 1,448  
Total Short Term Investments — Restricted Investments           $ 1,448     $ 1,448  

_____________________________

(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. Debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of September 30, 2015 is provided.

 

(5) Portfolio company is a public company.

 

(6) For debt investments, represents principal balance less unearned income.

 

(7) Warrants, Equity Interests and Other Investments are non-income producing.

 

(8) Value as a percent of net assets.

 

(9) The Company did not have any non-qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (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.

 

See Notes to Consolidated Financial Statements

 

11

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

September 30, 2015

(In thousands)

 

(10) 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 the Company may pay its Advisor will be based on income that the Company has not yet received in cash.

 

(11) The Company received a contractual right to receive warrants from Bridge2 Solutions, Inc. and its affiliates (collectively, “Bridge2”) upon the earliest of December 31, 2015, a qualifying equity sale of Bridge2’s equity securities or an acquisition of Bridge2.

 

See Notes to Consolidated Financial Statements

 

12

 

 

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  
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 Common 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    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. Debt investments based on LIBOR are based on one-month LIBOR. 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) 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 the Company may pay its Advisor 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 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 nine months ended September 30, 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 nine months ended September 30, 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 investment management agreement, which was amended and restated effective July 1, 2014 (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 Articles 6 and 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 September 30, 2015, there were no investments on non-accrual status. For the three and nine months ended September 30, 2015, the Company recognized interest income payments of $0.04 million and $0.2 million, respectively, 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 total investment income that resulted from the portion of ETPs not received in cash for the three months ended September 30, 2015 and 2014 was 6.5% and 6.0%, respectively. The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the nine months ended September 30, 2015 and 2014 was 7.1% and 5.9%, 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.

 

20

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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 September 30, 2015 and December 31, 2014, included in other assets, was $2.1 million and $2.4 million, respectively. The accumulated amortization balances as of September 30, 2015 and December 31, 2014 were $3.7 million and $3.0 million, respectively. The amortization expense for the three months ended September 30, 2015 and 2014 was $0.2 million and $0.3 million, respectively. The amortization expense for the nine months ended September 30, 2015 and 2014 was $0.7 million and $2.4 million, respectively.

 

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 dividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its 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 Section 946-205-45-3 of the Financial Accounting Standards Board’s (“FASB’s”), Accounting Standards Codification, as amended (“ASC”), 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 at the end of each year. 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 nine months ended September 30, 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% U.S. federal 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 nine months ended September 30, 2015, there was no U.S. federal excise tax recorded. For the nine months ended September 30, 2014, $0.1 million 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 ASC Topic 740, as modified by ASC Topic 946. 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 September 30, 2015 and December 31, 2014. The 2014, 2013 and 2012 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.

 

21

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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.

 

Stock Repurchase Program

 

On September 28, 2015, the Board authorized a stock repurchase program which allows the Company to repurchase up to $5.0 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements. Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of September 30, 2016 or the repurchase of $5.0 million of the Company’s common stock. During the three and nine months ended September 30, 2015, the Company did not make any repurchases of its common stock.

 

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 pronouncement

 

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 (“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, instead of being recorded as a separate asset. 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 its consolidated financial position and disclosures.

 

Note 3.  Related party transactions

 

Investment Management Agreement

 

The Investment Management Agreement was reapproved by the Board in July 2015. 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.

 

22

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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 and nine months ended September 30, 2015, the Advisor waived base management fees of $0.1 million and $0.2 million, respectively, which the Advisor would have otherwise earned on the proceeds raised in the public offering of the Company’s common stock that closed on March 24, 2015. During the first six months of the period ended September 30, 2014, the Advisor waived base management fees of $0.2 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 September 30, 2015 and December 31, 2014 was $0.4 million. After giving effect of the waivers, the base management fee expense was $1.1 million and $1.0 million for the three months ended September 30, 2015 and 2014, respectively. After giving effect of the waivers, the base management fee expense was $3.2 million and $3.4 million for the nine months ended September 30, 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