UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

Form 10-Q

 

(Mark One)

 

þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2016
     
    OR
     
¨   TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
     
    FOR THE TRANSITION PERIOD FROM                      TO                  

 

COMMISSION FILE NUMBER: 814-00802

 

HORIZON TECHNOLOGY FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

 

DELAWARE   27-2114934
(State or other jurisdiction of incorporation or organization)   (I.R.S. Employer Identification No.)

 

312 Farmington Avenue    
Farmington, CT   06032
(Address of principal executive offices)   (Zip Code)

 

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

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

 

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

 

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

 

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

 

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

 

As of May 3, 2016, the Registrant had 11,542,430 shares of common stock, $0.001 par value, outstanding.

 

 

 

 

 

 

HORIZON TECHNOLOGY FINANCE CORPORATION

 

FORM 10-Q

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Consolidated Financial Statements  3
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2016 and December 31, 2015 (unaudited)  3
  Consolidated Statements of Operations for the three months ended March 31, 2016 and 2015 (unaudited)  4
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2016 and 2015 (unaudited)  5
  Consolidated Statements of Cash Flows for the three months ended March 31, 2016 and 2015 (unaudited)  6
  Consolidated Schedules of Investments as of March 31, 2016 and December 31, 2015 (unaudited)  7
  Notes to the Consolidated Financial Statements (unaudited)  19
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations  37
Item 3. Quantitative And Qualitative Disclosures About Market Risk  49
Item 4. Controls and Procedures  49
     
  PART II  
Item 1. Legal Proceedings  50
Item 1A. Risk Factors  50
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds  50
Item 3. Defaults Upon Senior Securities  50
Item 4. Mine Safety Disclosures  50
Item 5. Other Information  50
Item 6. Exhibits  50
  Signatures  51

 

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)

(Dollars in thousands, except share and per share data)

 

  

March 31,

2016

  

December 31,

2015

 
         
Assets          
Non-affiliate investments at fair value (cost of $251,276 and $255,494, respectively) (Note 4)  $245,035   $250,267 
Investments in money market funds   291    285 
Cash   17,263    20,765 
Restricted investments in money market funds   652    1,091 
Interest receivable   7,558    6,258 
Other assets   2,036    2,230 
Total assets  $272,835   $280,896 
           
Liabilities          
Borrowings (Note 6)  $109,151   $114,954 
Distributions payable   3,982    3,980 
Base management fee payable (Note 3)   425    385 
Incentive fee payable (Note 3)   1,099    1,028 
Other accrued expenses   958    798 
Total liabilities   115,615    121,145 
           
Commitments and Contingencies (Note 7)          
           
Net assets          
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2016 and December 31, 2015        
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,653,972 and 11,648,594 shares issued and 11,540,590 and 11,535,212 shares outstanding as of March 31, 2016 and December 31, 2015, respectively   12    12 
Paid-in capital in excess of par   179,761    179,707 
Distributions in excess of net investment income   (1,591)   (2,006)
Net unrealized depreciation on investments   (6,241)   (5,227)
Net realized loss on investments   (14,721)   (12,735)
Total net assets   157,220    159,751 
Total liabilities and net assets  $272,835   $280,896 
Net asset value per common share  $13.62   $13.85 

 

See Notes to Consolidated Financial Statements

 

 3 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Operations (Unaudited)

(Dollars in thousands, except share and per share data)

 

   For the Three Months Ended 
   March 31, 
   2016   2015 
Investment income          
Interest income on non-affiliate investments  $9,003   $6,562 
Prepayment fee income on non-affiliate investments   167    520 
Fee income on non-affiliate investments   127    184 
Total investment income   9,297    7,266 
Expenses          
Interest expense   1,534    1,587 
Base management fee (Note 3)   1,284    1,031 
Performance based incentive fee (Note 3)   1,099    736 
Administrative fee (Note 3)   281    268 
Professional fees   501    431 
General and administrative   201    260 
Total expenses   4,900    4,313 
Net investment income before excise tax   4,397    2,953 
Provision for excise tax       10 
Net investment income   4,397    2,943 
           
Net realized and unrealized (loss) gain on investments          
Net realized loss on investments   (1,986)   (230)
Net unrealized (depreciation) appreciation on investments   (1,014)   1,132 
Net realized and unrealized (loss) gain on investments   (3,000)   902 
Net increase in net assets resulting from operations  $1,397   $3,845 
Net investment income per common share  $0.38   $0.30 
Net increase in net assets per common share  $0.12   $0.39 
Distributions declared per share  $0.345   $0.345 
Weighted average shares outstanding   11,538,003    9,807,198 

 

See Notes to Consolidated Financial Statements

 

 4 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Changes in Net Assets (Unaudited)

(Dollars 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, 2014   9,628,124   $10   $155,240   $(1,102)  $(4,737)  $(11,163)  $138,248 
Issuance of common stock, net of offering costs   2,000,000    2    26,667                26,669 
Net increase in net assets resulting from operations               2,943    1,132    (230)   3,845 
Issuance of common stock under dividend reinvestment plan   2,493        34                34 
Distributions declared               (3,783)           (3,783)
Reclassification of permanent tax differences (Note 2)           (971)   893        78     
Balance at March 31, 2015   11,630,617   $12   $180,970   $(1,049)  $(3,605)  $(11,315)  $165,013 
                                    
Balance at December 31, 2015   11,535,212   $12   $179,707   $(2,006)  $(5,227)  $(12,735)  $159,751 
Net increase in net assets resulting from operations               4,397    (1,014)   (1,986)   1,397 
Issuance of common stock under dividend reinvestment plan   5,378        54                54 
Distributions declared               (3,982)           (3,982)
Balance at March 31, 2016   11,540,590   $12   $179,761   $(1,591)  $(6,241)  $(14,721)  $157,220 

 

See Notes to Consolidated Financial Statements

 

 5 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

   For the Three Months Ended 
   March 31, 
   2016   2015 
Cash flows from operating activities:          
Net increase in net assets resulting from operations  $1,397   $3,845 
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:          
Amortization of debt issuance costs   153    278 
Net realized loss on investments   1,986    230 
Net unrealized (depreciation) appreciation on investments   1,014    (1,132)
Purchase of investments   (16,500)   (23,933)
Principal payments received on investments   18,033    25,790 
Proceeds from sale of investments   836     
Changes in assets and liabilities:          
Net increase in investments in money market funds   (6)   (372)
Net decrease in restricted investments in money market funds   439    555 
(Increase) decrease in interest receivable   (243)   71 
Increase in end-of-term payments   (1,075)   (370)
Decrease in unearned income   (118)   (154)
Decrease in other assets   89    212 
Increase in other accrued expenses   160    486 
Increase (decrease) in base management fee payable   40    (2)
Increase (decrease) in incentive fee payable   71    (63)
Net cash provided by operating activities   6,276    5,441 
Cash flows from financing activities:          
Proceeds from issuance of common stock, net of offering costs       26,667 
Repayment of Asset-Backed Notes   (5,850)   (7,411)
Distributions paid   (3,928)   (3,286)
Net cash (used in) provided by financing activities   (9,778)   15,970 
Net (decrease) increase in cash   (3,502)   21,411 
Cash:          
Beginning of period   20,765    8,417 
End of period  $17,263   $29,828 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $1,350   $1,032 
Supplemental non-cash investing and financing activities:          
Warrant investments received and recorded as unearned income  $81   $156 
Distributions payable  $3,982   $3,783 
End-of-term payments receivable  $6,143   $4,155 

 

See Notes to Consolidated Financial Statements

 

 6 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2016

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
Debt Investments — 151.7% (8)                     
Debt Investments — Life Science — 35.6% (8)                     
Argos Therapeutics, Inc. (2)(5)  Biotechnology  Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;  $5,000   $4,948   $4,948 
      Ceiling 10.75%), 5.00% ETP, Due 10/1/18)               
      Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;   5,000    4,958    4,958 
      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    1,293    1,293 
      11.50%), 11.42% ETP, Due 3/1/19)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   434    431    431 
      11.50%), 11.42% ETP, Due 3/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,000    1,988    1,988 
      10.50%), 6.10% ETP, Due 3/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   6,265    6,196    6,196 
      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    4,944    4,944 
      9.00%), 5.00% ETP, Due 1/1/19)               
      Term Loan (9.00% cash (Libor + 8.50%; Floor   5,000    4,942    4,942 
      9.00%), 5.00% ETP, Due 8/1/19)               
Sample6, Inc. (2)  Biotechnology  Term Loan (9.50% cash (Libor + 9.00%; Floor   1,555    1,551    1,551 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
      Term Loan (9.50% cash (Libor + 9.00%; Floor   945    941    941 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
      Term Loan (9.50% cash (Libor + 9.00%; Floor   2,500    2,483    2,483 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
IntegenX Inc. (2)  Medical Device  Term Loan (10.75% cash (Libor + 10.25%; Floor   3,750    3,708    3,708 
      10.75%; Ceiling 12.75%), 3.50% ETP, Due 7/1/18)               
Lantos Technologies, Inc. (2)  Medical Device  Term Loan (11.50% cash (Libor + 11.00%; Floor   3,354    3,313    3,313 
      11.50%), 5.00% ETP, Due 2/1/18)               
Mederi Therapeutics, Inc. (2)  Medical Device  Term Loan (12.26% cash (Libor + 11.82%), 4.00% ETP,   2,490    2,470    2,463 
      Due 7/1/17)               
      Term Loan (12.26% cash (Libor + 11.82%), 4.00% ETP,   2,490    2,470    2,463 
      Due 7/1/17)               
NinePoint Medical, Inc. (2)  Medical Device  Term Loan (9.25% cash (Libor + 8.75%; Floor   5,000    4,948    4,948 
      9.25%), 4.50% ETP, Due 3/1/19)               
      Term Loan (9.25% cash (Libor + 8.75%; Floor   2,500    2,467    2,467 
      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,   1,875    1,869    1,869 
      Due 9/1/16)               
Total Debt Investments — Life Science              55,920    55,906 
Debt Investments — Technology — 83.1% (8)                  
Ekahau, Inc. (2)  Communications  Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)   549    548    548 
      Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)   183    182    182 
mBlox, Inc. (2)  Communications  Term Loan (11.50% cash (Libor + 11.00%; Floor   5,000    4,979    4,979 
      11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   5,000    4,979    4,979 
      11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)               
      Term Loan (12.00% cash, 100.00% ETP, Due 7/1/16)   1,000    1,000    1,000 
      Term Loan (12.00% cash, 100.00% ETP, Due 7/1/16)   500    500    500 
Additech, Inc. (2)  Consumer-related Technologies  Term Loan (11.75% cash (Libor + 11.25%; Floor   2,333    2,307    2,307 
      11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18)               
      Term Loan (11.75% cash (Libor + 11.25%; Floor   2,500    2,467    2,467 
      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   1,267    1,248    1,248 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   733    718    718 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   800    788    788 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18)               
Rhapsody International, Inc. (2)  Consumer-related Technologies  Term Loan (11.00% cash (Libor + 10.50%; Floor   7,500    7,291    7,291 
      11.00%), 3.00% ETP, Due 10/1/19)               
SavingStar, Inc. (2)  Consumer-related Technologies  Term Loan (10.90% cash (Libor + 10.40%; Floor   3,000    2,947    2,947 
      10.90%), 3.00% ETP, Due 6/1/19)               
      Term Loan (10.90% cash (Libor + 10.40%; Floor   2,000    1,957    1,957 
      10.90%), 3.00% ETP, Due 3/1/20)               
                      

 

See Notes to Consolidated Financial Statements

 

 7 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2016

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
The NanoSteel Company, Inc. (2)  Materials  Term Loan (10.00% cash (Libor + 9.50%; Floor   5,000    4,922    4,922 
      10.00%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   2,500    2,461    2,461 
      10.00%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   2,500    2,455    2,455 
      10.00%), 5.00% ETP, Due 1/1/20)               
Nanocomp Technologies, Inc. (2)  Networking  Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)   614    607    607 
      Term Loan (11.50% cash (Libor + 11.00%; Floor   3,000    2,941    2,941 
      11.50%), 3.00% ETP, Due 4/1/20)               
Powerhouse Dynamics, Inc. (2)  Power Management  Term Loan (11.20% cash (Libor + 10.70%; Floor   2,500    2,459    2,459 
      11.20%), 3.00% ETP, Due 3/1/19)               
Avalanche Technology, Inc. (2)  Semiconductors  Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   1,357    1,353    1,353 
      Ceiling 11.75%), 2.40% ETP, Due 4/1/17)               
      Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   1,882    1,876    1,876 
      Ceiling 11.75%), 2.40% ETP, Due 10/1/18)               
      Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   2,083    2,042    2,042 
      Ceiling 11.75%), 2.00% ETP, Due 2/1/19)               
InVisage Technologies, Inc. (2)  Semiconductors  Term Loan (12.00% cash (Libor + 11.50%; Floor   2,125    2,094    2,014 
      12.00%; Ceiling 14.00%), 2.00% ETP, Due 4/1/18)               
      Term Loan (12.00% cash (Libor + 11.50%; Floor   850    836    805 
      12.00%; Ceiling 14.00%), 2.00% ETP, Due 10/1/18)               
Luxtera, Inc. (2)  Semiconductors  Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;   1,404    1,386    1,386 
      Ceiling 12.25%), 13.00% ETP, Due 7/1/17)               
      Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;   783    780    780 
      Ceiling 12.25%), 13.00% ETP, Due 7/1/17)               
      Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%),   833    829    829 
      4.50% ETP, Due 12/1/18)               
      Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%),   833    828    828 
      4.50% ETP, Due 12/1/18)               
Xtera Communications, Inc. (2)(5)   Semiconductors  Term Loan (12.50% cash, 15.65% ETP, Due 12/31/16)   3,380    3,353    3,353 
      Term Loan (12.50% cash, 21.75% ETP, Due 12/31/16)   939    931    931 
Bridge2 Solutions, Inc.  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   4,000    3,970    3,970 
      11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   1,000    995    995 
      11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20)               
Crowdstar, Inc. (2)  Software  Term Loan (10.75% cash (Libor + 10.25%; Floor   1,758    1,735    1,735 
      10.75%), 3.00% ETP, Due 9/1/18)               
Decisyon, Inc. (2)  Software  Term Loan (12.75% cash (Libor + 12.308%; Floor   1,603    1,599    1,490 
      12.50%), 6.50% ETP, Due 10/1/17)               
      Term Loan (12.75% cash (Libor + 12.308%; Floor   853    714    665 
      12.50%), 6.50% ETP, Due 1/1/18)               
Digital Signal Corporation  Software  Term Loan (10.69% cash (Libor + 10.25%; Floor   1,500    1,460    1,425 
      10.43%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.69% cash (Libor + 10.25%; Floor   1,500    1,460    1,425 
      10.43%), 5.00% ETP, Due 7/1/19)               
Education Elements, Inc. (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   2,000    1,970    1,970 
      10.50%), 4.00% ETP, Due 1/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   1,500    1,472    1,472 
      10.50%), 4.00% ETP, Due 8/1/19)               
Netuitive, Inc. (2)  Software  Term Loan (12.75% cash, Due 7/1/16)   760    759    759 
Nomi Corporation  Software  Term Loan (10.59% cash (Libor + 10.15%; Floor   3,750    3,714    3,226 
      10.35%), 2.00% ETP, Due 1/1/20)               
      Term Loan (10.59% cash (Libor + 10.15%; Floor   3,750    3,714    3,226 
      10.35%), 2.00% ETP, Due 1/1/20)               
ScoreBig, Inc. (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   3,500    3,453    3,453 
      10.50%), 4.00% ETP, Due 4/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   3,500    3,453    3,453 
      10.50%), 4.00% ETP, Due 4/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,000    1,944    1,944 
      10.50%), 4.00% ETP, Due 3/1/20)               
SIGNiX, Inc. (2)  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   2,800    2,757    2,430 
      11.50%), Due 7/1/18)               
SilkRoad Technology, Inc. (2)  Software  Term Loan (10.85% cash (Libor + 10.35%; Floor   7,500    7,441    7,441 
      10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19)               

 

See Notes to Consolidated Financial Statements

 

 8 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2016

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
Skyword, Inc.  Software  Term Loan (11.45% cash (Libor + 10.95%; Floor   4,000    3,928    3,928 
      11.45%), 3.00% ETP, Due 8/1/19)               
Social Intelligence Corp. (2)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   565    552    541 
      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   4,125    4,082    4,082 
      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   4,600    4,572    4,572 
      11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)               
      Term Loan (11.65% cash (Libor + 11.15%; Floor   4,167    4,137    4,137 
      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   1,600    1,589    1,589 
      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)   2,810    2,810    2,810 
xTech Holdings, Inc. (2)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   2,000    1,972    1,972 
      11.00%), 3.00% ETP, Due 4/1/19)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   2,000    1,963    1,963 
      11.00%), 3.00% ETP, Due 3/1/20)               
Total Debt Investments — Technology               132,279    130,626 
Debt Investments — Cleantech — 6.8% (8)                     
Renmatix, Inc. (2)  Alternative Energy  Term Loan (10.25% cash, Due 10/1/16)   1,182    1,180    1,180 
Semprius, Inc. (2)  Alternative Energy  Term Loan (10.25% cash, 5.00% ETP, Due 6/1/16)   435    422    422 
Rypos, Inc. (2)  Energy Efficiency  Term Loan (11.99% cash, 4.25% ETP, Due 6/1/17)   2,250    2,229    2,229 
      Term Loan (11.99% cash, 4.25% ETP, Due 1/1/18)   897    885    885 
Lehigh Technologies, Inc. (2)  Waste Recycling  Term Loan (10.16% cash (Libor + 9.72%), 6.75% ETP,   3,000    2,963    2,963 
      Due 8/1/19)               
      Term Loan (10.16% cash (Libor + 9.72%), 6.75% ETP,   3,000    2,977    2,977 
      Due 8/1/19)               
Total Debt Investments — Cleantech              10,656    10,656 
Debt Investments — Healthcare information and services — 26.2% (8)                     
Interleukin Genetics, Inc. (2)(5)  Diagnostics  Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%)   5,000    4,892    4,892 
      4.50% ETP, Due 10/1/18)               
LifePrint Group, Inc. (2)  Diagnostics  Term Loan (11.00% cash (Libor + 10.50%; Floor   2,100    2,070    2,070 
      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    3,494    3,494 
      Ceiling 11.00%); 4.00% ETP, Due 4/1/18)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;   3,500    3,494    3,494 
      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)(11)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   972    949    250 
      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    2,961    2,961 
      9.75%), 4.00% ETP, Due 1/1/19)               
      Term Loan (9.75% cash (Libor + 9.25%; Floor   3,000    2,961    2,961 
      9.75%), 4.00% ETP, Due 1/1/19)               
      Term Loan (9.75% cash (Libor + 9.25%; Floor   4,000    3,938    3,938 
      9.75%), 4.00% ETP, Due 7/1/19)               
Medsphere Systems Corporation (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   5,000    4,927    4,927 
      10.50%), 7.00% ETP, Due 7/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,500    2,463    2,463 
      10.50%), 7.00% ETP, Due 7/1/19)               
Recondo Technology, Inc. (2)   Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   1,211    1,207    1,207 
      11.50%), 6.60% ETP, Due 12/1/17)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   2,188    2,182    2,182 
      11.00%), 4.50% ETP, Due 12/1/17)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,188    2,183    2,183 
      10.50%), 2.75% ETP, Due 12/1/17)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   3,000    2,968    2,968 
      10.50%), 2.50% ETP, Due 1/1/19)               
Total Debt Investments — Healthcare information and services              41,937    41,238 
Total Debt Investments              240,792    238,426 
                      

 

See Notes to Consolidated Financial Statements

 

 9 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2016

(Dollars in thousands)

 

         Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Investments (6)   Value 
Warrant Investments — 3.3% (8)                
Warrants — Life Science — 0.4% (8)                
ACT Biotech Corporation  Biotechnology  1,521,820 Preferred Stock Warrants   83     
Argos Therapeutics, Inc. (2)(5)  Biotechnology  33,112 Common Stock Warrants   33    6 
Celsion Corporation (5)  Biotechnology  5,708 Common Stock Warrants   15     
Inotek Pharmaceuticals Corporation (5)  Biotechnology  28,204 Common Stock Warrants   17    43 
New Haven Pharmaceuticals, Inc. (2)  Biotechnology  103,982 Preferred Stock Warrants   88    173 
Nivalis Therapeutics, Inc. (5)  Biotechnology  18,534 Common Stock Warrants   122     
Ocera Therapeutics, Inc. (2)(5)  Biotechnology  6,491 Common Stock Warrants   6     
Palatin Technologies, Inc. (2)(5)  Biotechnology  608,058 Common Stock Warrants   51    3 
Revance Therapeutics, Inc. (5)  Biotechnology  34,377 Common Stock Warrants   68    133 
Sample6, Inc. (2)  Biotechnology  351,018 Preferred Stock Warrants   45    30 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  12,302 Common Stock Warrants   5     
AccuVein Inc. (2)  Medical Device  75,769 Preferred Stock Warrants   24    28 
Direct Flow Medical, Inc.  Medical Device  176,922 Preferred Stock Warrants   144     
EnteroMedics, Inc. (5)  Medical Device  9,402 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   38    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  566,038 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     
Total Warrants — Life Science         1,336    599 
Warrants — Technology — 2.2% (8)                
Ekahau, Inc. (2)  Communications  978,261 Preferred Stock Warrants   33    19 
OpenPeak, Inc.  Communications  18,997 Common Stock Warrants   89     
Additech, Inc. (2)  Consumer-related Technologies  150,000 Preferred Stock Warrants   33    26 
Everyday Health, Inc. (5)  Consumer-related Technologies  43,783 Common Stock Warrants   69    1 
Gwynnie Bee, Inc. (2)  Consumer-related Technologies  268,591 Preferred Stock Warrants   68    629 
If(we), Inc.  Consumer-related Technologies  190,868 Preferred Stock Warrants   27    62 
Rhapsody International Inc. (2)  Consumer-related Technologies  852,273 Common Stock Warrants   164    158 
SavingStar, Inc. (2)  Consumer-related Technologies  98,860 Preferred Stock Warrants   59    57 
XIOtech, Inc.  Data Storage  2,217,979 Preferred Stock Warrants   22    18 
SimpleTuition, Inc.  Internet and media  189,573 Preferred Stock Warrants   63    65 
The NanoSteel Company, Inc. (2)  Materials  147,424 Preferred Stock Warrants   93    90 
IntelePeer, Inc.  Networking  141,549 Common Stock Warrants   39    26 
Nanocomp Technologies, Inc. (2)  Networking  681,819 Preferred Stock Warrants   54    49 
Aquion Energy, Inc.  Power Management  115,051 Preferred Stock Warrants   7    61 
Powerhouse Dynamics, Inc. (2)  Power Management  290,698 Preferred Stock Warrants   28    27 
Avalanche Technology, Inc. (2)  Semiconductors  202,602 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    44 
Kaminario, Inc.  Semiconductors  1,087,203 Preferred Stock Warrants   59    62 
Luxtera, Inc.(2)  Semiconductors  2,304,667 Preferred Stock Warrants   48    100 
Soraa, Inc. (2)  Semiconductors  180,000 Preferred Stock Warrants   80    98 
Xtera Communications, Inc. (5)  Semiconductors  37,831 Common Stock Warrants   205     
Bolt Solutions Inc. (2)  Software  202,892 Preferred Stock Warrants   113    112 
Bridge2 Solutions, Inc.  Software  75,458 Common Stock Warrants   18    326 
Clarabridge, Inc.  Software  53,486 Preferred Stock Warrants   14    81 
Crowdstar, Inc. (2)  Software  75,428 Preferred Stock Warrants   14    14 
Decisyon, Inc. (2)  Software  82,967 Common Stock Warrants   46     
Digital Signal Corporation  Software  85,308 Common Stock Warrants   32    31 
Education Elements, Inc. (2)  Software  238,122 Preferred Stock Warrants   28    23 
Lotame Solutions, Inc. (2)  Software  288,115 Preferred Stock Warrants   22    268 
Netuitive, Inc.  Software  41,569 Common Stock Warrants   48     
Nomi Corporation  Software  2,535,864 Preferred Stock Warrants        
Riv Data Corp. (2)  Software  237,361 Preferred Stock Warrants   12    12 
ScoreBig, Inc. (2)  Software  767,626 Preferred Stock Warrants   82    73 
SIGNiX, Inc. (2)  Software  63,365 Preferred Stock Warrants   48    46 
Skyword, Inc.  Software  301,056 Preferred Stock Warrants   48    46 
SpringCM, Inc. (2)  Software  2,385,686 Preferred Stock Warrants   55    119 
Sys-Tech Solutions, Inc.  Software  375,000 Preferred Stock Warrants   242    539 

 

See Notes to Consolidated Financial Statements

 

 10 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2016

(Dollars in thousands)

 

         Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Investments (6)   Value 
Vidsys, Inc.  Software  85,399 Preferred Stock Warrants   23    21 
Visage Mobile, Inc.  Software  1,692,047 Preferred Stock Warrants   19     
xTech Holdings, Inc. (2)  Software  158,730 Preferred Stock Warrants   43    43 
Total Warrants — Technology         2,321    3,414 
Warrants — Cleantech — 0.2% (8)                
Renmatix, Inc.  Alternative Energy  53,022 Preferred Stock Warrants   68    64 
Semprius, Inc.  Alternative Energy  519,981 Preferred Stock Warrants   25    20 
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   32    33 
Total Warrants — Cleantech         269    257 
Warrants — Healthcare information and services — 0.5% (8)                
Accumetrics, Inc.  Diagnostics  100,928 Preferred Stock Warrants   107    63 
BioScale, Inc. (2)  Diagnostics  3,156 Common Stock Warrants   54     
Candescent Health, Inc. (2)  Diagnostics  519,991 Preferred Stock Warrants   378     
Helomics Corporation  Diagnostics  13,461 Common 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    23 
Singulex, Inc.  Other Healthcare  293,632 Preferred Stock Warrants   44    165 
Verity Solutions Group, Inc.  Other Healthcare  300,360 Preferred Stock Warrants   100    36 
Watermark Medical, Inc. (2)  Other Healthcare  27,373 Preferred Stock Warrants   74    62 
Innovatient Solutions, Inc. (2)  Software  157,895 Preferred Stock Warrants   35     
MedAvante, Inc. (2)  Software  114,285 Preferred Stock Warrants   66    65 
Medsphere Systems Corporation (2)  Software  7,097,791 Preferred Stock Warrants   60    204 
Recondo Technology, Inc. (2)  Software  556,796 Preferred Stock Warrants   95    194 
Total Warrants — Healthcare information and services         1,227    862 
Total Warrants         5,153    5,132 
                 
Other Investments — 0.4% (8)                
ZetrOZ, Inc.  Medical Device  Royalty Agreement   383    400 
Vette Technology, LLC  Data Storage  Royalty Agreement Due 4/18/2019   4,399    300 
Total Other Investments         4,782    700 
Equity — 0.5% (8)                
Insmed Incorporated (5)  Biotechnology  33,208 Common Stock   238    421 
Revance Therapeutics, Inc.(5)  Biotechnology  4,861 Common Stock   73    85 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  78,493 Common Stock   83    42 
SnagAJob.com, Inc.  Consumer-related Technologies  82,974 Common Stock   9    83 
Decisyon, Inc.  Software  3,324,444 Common Stock   146    146 
Total Equity         549    777 
Total Portfolio Investment Assets — 155.9% (8)  $251,276   $245,035 
                 
Short Term Investments — Money Market Funds — 0.2% (8)          
US Bank Money Market Deposit Account  $291   $291 
Total Short Term Investments — Money Market Funds  $291   $291 
Short Term Investments — Restricted Investments— 0.7% (8)          
US Bank Money Market Deposit Account (2)  $652   $652 
Total Short Term Investments — Restricted Investments  $652   $652 

 

 

 

(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 March 31, 2016 is provided.
     
(5)   Portfolio company is a public company.
     
(6)   For debt investments, represents principal balance less unearned income.

 

See Notes to Consolidated Financial Statements

 

 11 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2016

(Dollars in thousands)

 

(7)   Warrants, Equity 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”), as of March 31, 2016. 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.
     
(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)   Debt investment is on non-accrual status at March 31, 2016.

 

See Notes to Consolidated Financial Statements

 

 12 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2015

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
Debt Investments — 151.6 % (8)                     
Debt Investments — Life Science — 36.6% (8)                     
Argos Therapeutics, Inc. (2)(5)  Biotechnology  Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;  $5,000   $4,944   $4,944 
      Ceiling 10.75%), 5.00% ETP, Due 10/1/18)               
      Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;   5,000    4,954    4,954 
      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    1,293    1,293 
      11.50%), 11.42% ETP, Due 3/1/19)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   434    431    431 
      11.50%), 11.42% ETP, Due 3/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,000    1,987    1,987 
      10.50%), 6.10% ETP, Due 3/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   6,265    6,190    6,190 
      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    4,939    4,939 
      9.00%), 5.00% ETP, Due 1/1/19)               
      Term Loan (9.00% cash (Libor + 8.50%; Floor   5,000    4,937    4,937 
      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    940    940 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
      Term Loan (9.50% cash (Libor + 9.00%; Floor   2,500    2,481    2,481 
      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    815    815 
IntegenX Inc. (2)  Medical Device  Term Loan (10.75% cash (Libor + 10.25%; Floor   3,750    3,703    3,703 
      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    3,454    3,333 
      11.50%), 5.00% ETP, Due 2/1/18)               
Mederi Therapeutics, Inc. (2)  Medical Device  Term Loan (12.06% cash (Libor + 11.82%), 4.00% ETP,   2,850    2,826    2,738 
      Due 7/1/17)               
      Term Loan (12.06% cash (Libor + 11.82%), 4.00% ETP,   2,850    2,826    2,738 
      Due 7/1/17)               
NinePoint Medical, Inc. (2)  Medical Device  Term Loan (9.25% cash (Libor + 8.75%; Floor   5,000    4,943    4,943 
      9.25%), 4.50% ETP, Due 3/1/19)               
      Term Loan (9.25% cash (Libor + 8.75%; Floor   2,500    2,464    2,464 
      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,   2,063    2,053    2,053 
      Due 9/1/16)               
ZetrOZ, Inc. (2)(11)  Medical Device  Term Loan (11.00% cash (Libor + 10.50%; Floor   1,350    1,330    250 
      11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   1,350    1,326    250 
      11.00%; Ceiling 12.50%), 3.00% ETP, Due 4/1/18)               
Total Debt Investments — Life Science              60,930    58,477 
Debt Investments — Technology — 80.5% (8)                     
Ekahau, Inc. (2)  Communications  Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)   704    700    700 
      Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)   235    233    233 
mBlox, Inc. (2)  Communications  Term Loan (11.50% cash (Libor + 11.00%; Floor   5,000    4,977    4,977 
      11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   5,000    4,977    4,977 
      11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)               
      Term Loan (12.00% cash, 100.00% ETP, Due 7/1/16)   1,000    1,000    1,000 
      Term Loan (12.00% cash, 100.00% ETP, Due 7/1/16)   500    500    500 
Overture Networks, Inc. (2)  Communications  Term Loan (10.75% cash, (Libor + 10.25%; Floor   4,104    4,089    4,089 
      10.75%), 5.75% ETP, Due 12/1/17)               
      Term Loan (10.75% cash (Libor + 10.25%; Floor   2,052    2,043    2,043 
      10.75%), 5.75% ETP, Due 12/1/17)               
      Term Loan (10.75% cash (Libor + 10.25%; Floor   1,000    992    992 
      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    2,470    2,470 
      11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18)               

 

See Notes to Consolidated Financial Statements

 

 13 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2015

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
      Term Loan (11.75% cash (Libor + 11.25%; Floor   2,500    2,464    2,464 
      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   1,467    1,445    1,445 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   833    816    816 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   900    886    886 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18)               
Rhapsody International, Inc. (2)  Consumer-related Technologies  Term Loan (11.00% cash (Libor + 10.50%; Floor   7,500    7,276    7,276 
      11.00%), 3.00% ETP, Due 10/1/19)               
SavingStar, Inc. (2)  Consumer-related Technologies  Term Loan (10.90% cash (Libor + 10.40%; Floor   3,000    2,911    2,911 
      10.90%), 3.00% ETP, Due 6/1/19)               
The NanoSteel Company, Inc. (2)  Materials  Term Loan (10.00% cash (Libor + 9.50%; Floor   5,000    4,915    4,915 
      10.00%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   2,500    2,458    2,458 
      10.00%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   2,500    2,452    2,452 
      10.00%), 5.00% ETP, Due 1/1/20)               
Nanocomp Technologies, Inc. (2)  Networking  Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)   701    693    693 
Powerhouse Dynamics, Inc. (2)  Power Management  Term Loan (11.20% cash (Libor + 10.70%; Floor   2,500    2,456    2,456 
      11.20%), 3.00% ETP, Due 3/1/19)               
Avalanche Technology, Inc. (2)  Semiconductors  Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   1,565    1,561    1,561 
      Ceiling 11.75%), 2.40% ETP, Due 4/1/17)               
      Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   2,003    1,997    1,997 
      Ceiling 11.75%), 2.40% ETP, Due 10/1/18)               
      Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   2,202    2,157    2,157 
      Ceiling 11.75%), 2.00% ETP, Due 2/1/19)               
InVisage Technologies, Inc. (2)  Semiconductors  Term Loan (12.00% cash (Libor + 11.50%; Floor   2,380    2,345    2,242 
      12.00%; Ceiling 14.00%), 2.00% ETP, Due 4/1/18)               
      Term Loan (12.00% cash (Libor + 11.50%; Floor   850    835    798 
      12.00%; Ceiling 14.00%), 2.00% ETP, Due 10/1/18)               
Luxtera, Inc. (2)  Semiconductors  Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;   1,646    1,645    1,645 
      Ceiling 12.25%), 13.00% ETP, Due 7/1/17)               
      Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;   951    926    926 
      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)(5)  Semiconductors  Term Loan (12.50% cash, 15.65% ETP, Due 12/31/16)   4,157    4,114    4,114 
      Term Loan (12.50% cash, 21.75% ETP, Due 12/31/16)   1,155    1,142    1,142 
Bridge2 Solutions, Inc.  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   4,000    3,966    3,966 
      11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   1,000    995    995 
      11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20)               
Crowdstar, Inc. (2)  Software  Term Loan (10.75% cash (Libor + 10.25%; Floor   1,939    1,915    1,915 
      10.75%), 3.00% ETP, Due 9/1/18)               
Decisyon, Inc. (2)  Software  Term Loan (12.69% cash (Libor + 12.308%; Floor   1,603    1,599    1,514 
      12.50%), 6.50% ETP, Due 10/1/17)               
      Term Loan (12.69% cash (Libor + 12.308%; Floor   853    847    802 
      12.50%), 6.50% ETP, Due 1/1/18)               
Digital Signal Corporation  Software  Term Loan (10.54% cash (Libor + 10.25%; Floor   1,500    1,421    1,421 
      10.43%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.54% cash (Libor + 10.25%; Floor   1,500    1,457    1,457 
      10.43%), 5.00% ETP, Due 7/1/19)               
Education Elements, Inc. (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   2,000    1,967    1,967 
      10.50%), 4.00% ETP, Due 1/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   1,500    1,470    1,470 
      10.50%), 4.00% ETP, Due 8/1/19)               
Netuitive, Inc. (2)  Software  Term Loan (12.75% cash, Due 7/1/16)   1,000    998    998 
ScoreBig, Inc. (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   3,500    3,449    3,449 
      10.50%), 4.00% ETP, Due 4/1/19)               

 

See Notes to Consolidated Financial Statements

 

 14 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2015

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
      Term Loan (10.50% cash (Libor + 10.00%; Floor   3,500    3,449    3,449 
      10.50%), 4.00% ETP, Due 4/1/19)               
SIGNiX, Inc. (2)  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   3,000    2,953    2,953 
      11.50%), Due 7/1/18)               
SilkRoad Technology, Inc. (2)  Software  Term Loan (10.85% cash (Libor + 10.35%; Floor   7,500    7,436    7,436 
      10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19)               
Skyword, Inc.  Software  Term Loan (11.45% cash (Libor + 10.95%; Floor   4,000    3,900    3,900 
      11.45%), 3.00% ETP, Due 8/1/19)               
Social Intelligence Corp. (2)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   1,091    1,076    1,067 
      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    4,450    4,450 
      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   5,200    5,168    5,168 
      11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)               
      Term Loan (11.65% cash (Libor + 11.15%; Floor   4,667    4,633    4,633 
      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   1,900    1,887    1,887 
      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)   2,810    2,810    2,810 
xTech Holdings, Inc. (2)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   2,000    1,957    1,957 
      11.00%), 3.00% ETP, Due 4/1/19)               
Total Debt Investments — Technology              128,933    128,654 
Debt Investments — Cleantech — 7.5% (8)                     
Renmatix, Inc. (2)  Alternative Energy  Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)   173    173    173 
      Term Loan (10.25% cash, 3.00% ETP, Due 2/1/16)   173    173    173 
      Term Loan (10.25% cash, Due 10/1/16)   1,667    1,663    1,663 
Semprius, Inc. (2)  Alternative Energy  Term Loan (10.25% cash, 5.00% ETP, Due 6/1/16)   860    840    840 
Rypos, Inc. (2)  Energy Efficiency  Term Loan (11.80% cash, 4.25% ETP, Due 6/1/17)   2,430    2,314    2,314 
      Term Loan (11.80% cash, 4.25% ETP, Due 1/1/18)   947    913    913 
Lehigh Technologies, Inc. (2)  Waste Recycling  Term Loan (9.96% cash (Libor + 9.72%), 6.75% ETP,   3,000    2,961    2,961 
      Due 8/1/19)               
      Term Loan (9.96% cash (Libor + 9.72%), 6.75% ETP,   3,000    2,975    2,975 
      Due 8/1/19)               
Total Debt Investments — Cleantech              12,012    12,012 
Debt Investments — Healthcare information and services — 27.0% (8)                     
Interleukin Genetics, Inc. (2)(5)  Diagnostics  Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%)   5,000    4,881    4,881 
      4.50% ETP, Due 10/1/18)               
LifePrint Group, Inc. (2)  Diagnostics  Term Loan (11.00% cash (Libor + 10.50%; Floor   2,400    2,366    2,366 
      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    3,494    3,494 
      Ceiling 11.00%); 4.00% ETP, Due 4/1/18)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;   3,500    3,494    3,494 
      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    977    977 
      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    2,957    2,957 
      9.75%), 4.00% ETP, Due 1/1/19)               
      Term Loan (9.75% cash (Libor + 9.25%; Floor   3,000    2,957    2,957 
      9.75%), 4.00% ETP, Due 1/1/19)               
      Term Loan (9.75% cash (Libor + 9.25%; Floor   4,000    3,934    3,934 
      9.75%), 4.00% ETP, Due 7/1/19)               
Medsphere Systems Corporation (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   5,000    4,921    4,921 
      10.50%), 7.00% ETP, Due 7/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,500    2,461    2,461 
      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    1,380    1,380 
      11.50%), 6.60% ETP, Due 12/1/17)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   2,500    2,494    2,494 
      11.00%), 4.50% ETP, Due 12/1/17)               

 

See Notes to Consolidated Financial Statements

 

 15 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2015

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,500    2,495    2,495 
      10.50%), 2.75% ETP, Due 12/1/17)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   3,000    2,965    2,965 
      10.50%), 2.50% ETP, Due 1/1/19)               
Total Debt Investments — Healthcare information and services              43,024    43,024 
Total Debt Investments              244,899    242,167 
                      
Warrant Investments — 4.2% (8)                     
Warrants — Life Science — 0.8% (8)                     
ACT Biotech Corporation  Biotechnology  1,521,820 Preferred Stock Warrants        83     
Argos Therapeutics, Inc. (2)(5)  Biotechnology  33,112 Common Stock Warrants        33     
Celsion Corporation (5)  Biotechnology  5,708 Common Stock Warrants        15     
Inotek Pharmaceuticals Corporation (5)  Biotechnology  28,204 Preferred Stock Warrants        17    149 
New Haven Pharmaceuticals, Inc. (2)  Biotechnology  103,982 Preferred Stock Warrants        88    178 
Nivalis Therapeutics, Inc. (5)  Biotechnology  18,534 Common Stock Warrants        122     
Ocera Therapeutics, Inc. (2)(5)  Biotechnology  6,460 Common Stock Warrants        6     
Palatin Technologies, Inc. (2)(5)  Biotechnology  608,058 Common Stock Warrants        51    16 
Revance Therapeutics, Inc. (5)  Biotechnology  34,377 Common Stock Warrants        68    684 
Sample6, Inc. (2)  Biotechnology  351,018 Preferred Stock Warrants        45    40 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  12,302 Common Stock Warrants        5     
AccuVein Inc. (2)  Medical Device  75,769 Preferred Stock Warrants        24    30 
Direct Flow Medical, Inc.  Medical Device  176,922 Preferred Stock Warrants        144    41 
EnteroMedics, Inc. (5)  Medical Device  141,025 Common Stock Warrants        347     
IntegenX, Inc. (2)  Medical Device  158,006 Preferred Stock Warrants        33    25 
Lantos Technologies, Inc. (2)  Medical Device  1,287,817 Preferred Stock Warrants        38    43 
Mederi Therapeutics, Inc. (2)  Medical Device  248,736 Preferred Stock Warrants        26    41 
Mitralign, Inc. (2)  Medical Device  641,909 Preferred Stock Warrants        52    38 
NinePoint Medical, Inc. (2)  Medical Device  566,038 Preferred Stock Warrants        33    34 
OraMetrix, Inc. (2)  Medical Device  812,348 Preferred Stock Warrants        78     
Tryton Medical, Inc. (2)  Medical Device  122,362 Preferred Stock Warrants        15    12 
ViOptix, Inc.  Medical Device  375,763 Preferred Stock Warrants        13     
ZetrOZ, Inc. (2)  Medical Device  475,561 Preferred Stock Warrants        25     
Total Warrants — Life Science              1,361    1,331 
Warrants — Technology — 2.6% (8)                     
Ekahau, Inc. (2)  Communications  978,261 Preferred Stock Warrants        33    19 
OpenPeak, Inc.  Communications  18,997 Common Stock Warrants        89     
Overture Networks, Inc.  Communications  385,617 Preferred Stock Warrants        55    386 
Additech, Inc. (2)  Consumer-related Technologies  150,000 Preferred Stock Warrants        32    27 
Everyday Health, Inc. (5)  Consumer-related Technologies  43,783 Common Stock Warrants        69    1 
Gwynnie Bee, Inc. (2)  Consumer-related Technologies  268,591 Preferred Stock Warrants        68    634 
If(we), Inc.  Consumer-related Technologies  190,868 Preferred Stock Warrants        27    62 
Rhapsody International Inc. (2)  Consumer-related Technologies  852,273 Common Stock Warrants        164    165 
SavingStar, Inc. (2)  Consumer-related Technologies  79,088 Preferred Stock Warrants        48    49 
XIOtech, Inc.  Data Storage  2,217,979 Preferred Stock Warrants        22    19 
SimpleTuition, Inc.  Internet and media  189,573 Preferred Stock Warrants        63    69 
The NanoSteel Company, Inc. (2)  Materials  147,424 Preferred Stock Warrants        93    95 
IntelePeer, Inc.  Networking  141,549 Common Stock Warrants        39    27 
Nanocomp Technologies, Inc. (2)  Networking  272,728 Preferred Stock Warrants        25    20 
Aquion Energy, Inc.  Power Management  115,051 Preferred Stock Warrants        7    57 
Powerhouse Dynamics, Inc. (2)  Power Management  290,698 Preferred Stock Warrants        27    28 
Avalanche Technology, Inc. (2)  Semiconductors  202,602 Preferred Stock Warrants        101    45 
eASIC Corporation (2)  Semiconductors  40,445 Preferred Stock Warrants        25    29 
InVisage Technologies, Inc. (2)  Semiconductors  185,790 Preferred Stock Warrants        48    47 
Kaminario, Inc.  Semiconductors  1,087,203 Preferred Stock Warrants        59    65 
Luxtera, Inc.(2)  Semiconductors  2,304,667 Preferred Stock Warrants        48    103 
Soraa, Inc. (2)  Semiconductors  180,000 Preferred Stock Warrants        80    102 
Xtera Communications, Inc. (5)  Semiconductors  37,831 Preferred Stock Warrants        206     
Bolt Solutions Inc. (2)  Software  202,892 Preferred Stock Warrants        113    119 
Bridge2 Solutions, Inc.  Software  1,769 Common Stock Warrants        18    688 

 

See Notes to Consolidated Financial Statements

 

 16 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2015

(Dollars in thousands)

 

         Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Investments (6)   Value 
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  2,526,909 Common Stock Warrants   46     
Digital Signal Corporation  Software  85,308 Common Stock Warrants   32    32 
Education Elements, Inc. (2)  Software  238,122 Preferred Stock Warrants   28    29 
Lotame Solutions, Inc. (2)  Software  288,115 Preferred Stock Warrants   22    271 
Lytx, Inc.  Software  71,639 Preferred Stock Warrants   20    121 
Netuitive, Inc.  Software  41,569 Common 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    57 
SIGNiX, Inc. (2)  Software  63,365 Preferred Stock Warrants   48    49 
Skyword, Inc.  Software  301,056 Preferred Stock Warrants   48    48 
SpringCM, Inc. (2)  Software  2,385,686 Preferred Stock Warrants   55    54 
Sys-Tech Solutions, Inc.  Software  375,000 Preferred Stock Warrants   242    524 
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    32 
Total Warrants — Technology         2,316    4,181 
Warrants — Cleantech — 0.2% (8)                
Renmatix, Inc.  Alternative Energy  53,022 Preferred Stock Warrants   68    68 
Semprius, Inc.  Alternative Energy  519,981 Preferred Stock Warrants   25    21 
Rypos, Inc. (2)  Energy Efficiency  5,627 Preferred Stock Warrants   44    32 
Tigo Energy, Inc. (2)  Energy Efficiency  804,604 Preferred Stock Warrants   100    111 
Lehigh Technologies, Inc. (2)  Waste Recycling  272,727 Preferred Stock Warrants   32    34 
Total Warrants — Cleantech         269    266 
Warrants — Healthcare information and services — 0.6% (8)                
Accumetrics, Inc.  Diagnostics  100,928 Preferred Stock Warrants   108    63 
BioScale, Inc. (2)  Diagnostics  315,618 Common Stock Warrants   54     
Candescent Health, Inc. (2)  Diagnostics  519,992 Preferred Stock Warrants   378     
Helomics Corporation  Diagnostics  13,461Common Stock Warrants   73     
Interleukin Genetics, Inc. (2)(5)  Diagnostics  2,492,523 Common Stock Warrants   112    2 
LifePrint Group, Inc. (2)  Diagnostics  49,000 Preferred Stock Warrants   29    24 
Singulex, Inc.  Other Healthcare  293,632 Preferred Stock Warrants   43    167 
Verity Solutions Group, Inc.  Other Healthcare  300,360 Preferred Stock Warrants   100    36 
Watermark Medical, Inc. (2)  Other Healthcare  27,373 Preferred Stock Warrants   74    65 
Innovatient Solutions, Inc. (2)  Software  157,895 Preferred Stock Warrants   35    35 
MedAvante, Inc. (2)  Software  114,285 Preferred Stock Warrants   66    68 
Medsphere Systems Corporation (2)  Software  7,097,791 Preferred Stock Warrants   60    210 
Recondo Technology, Inc. (2)  Software  556,796 Preferred Stock Warrants   95    197 
Total Warrants — Healthcare information and services         1,227    867 
Total Warrants         5,173    6,645 
                 
Other Investments — 0.2% (8)                
Vette Technology, LLC  Data Storage  Royalty Agreement Due 4/18/2019   4,422    300 
Total Other Investments         4,422    300 
Equity — 0.7% (8)                
Insmed Incorporated (5)  Biotechnology  33,208 Common Stock   238    603 
Revance Therapeutics, Inc.(5)  Biotechnology  4,861 Common Stock   73    166 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  78,493 Common Stock   83    70 
Overture Networks Inc.  Communications  772,382 Common Stock   482     
SnagAJob.com, Inc.  Consumer-related Technologies  151,655 Common Stock   23    215 
Decisyon, Inc.  Technology  2,301,717 Common Stock   101    101 
Total Equity         1,000    1,155 
Total Portfolio Investment Assets — 156.7%  (8)  $255,494   $250,267 
                 
Short Term Investments — Money Market Funds — 0.2% (8)          
US Bank Money Market Deposit Account  $285   $285 
Total Short Term Investments — Money Market Funds  $285   $285 

 

See Notes to Consolidated Financial Statements

 

 17 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2015

(Dollars in thousands)

 

         Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Investments (6)   Value 
Short Term Investments — Restricted Investments— 0.7% (8)          
US Bank Money Market Deposit Account (2)   $1,091   $1,091 
Total Short Term Investments — Restricted Investments  $1,091   $1,091 

 

 

 

(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 December 31, 2015 is provided.
     
(5)   Portfolio company is a public company.
     
(6)   For debt investments, represents principal balance less unearned income.
     
(7)   Warrants, Equity 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”), as of December 31, 2015. 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.
     
(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)   Debt investment is on non-accrual status at December 31, 2015.

 

See Notes to Consolidated Financial Statements

 

 18 

 

 

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, 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 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.

 

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 an additional wholly owned subsidiary, which is structured as a Delaware limited liability company, to hold the assets of a portfolio company acquired in connection with foreclosure or bankruptcy which 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, (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.

 

On March 24, 2015, the Company completed a 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 $26.5 million, after deducting underwriting commission and discounts and other offering expenses.

 

 19 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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, 2015.

 

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.

 

 20 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Investments

 

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

 

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of March 31, 2016, there was one debt investment on non-accrual status with a cost of $0.9 million and a fair value of $0.3 million. For the three ended March 31, 2015, the Company recognized interest income payments of $0.1 million received from one portfolio company whose debt investment was on non-accrual status. As of December 31, 2015, there was one investment on non-accrual status with a cost of $2.7 million and a fair value of $0.5 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 the ETP when 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 March 31, 2016 and 2015 was 20.5% and 7.4%, respectively.

 

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

 

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

 

Debt issuance costs

 

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of March 31, 2016 and December 31, 2015 was $1.7 million and $1.9 million, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortization balances as of March 31, 2016 and December 31, 2015 were $4.1 million and $3.9 million, respectively. The amortization expense for the three months ended March 31, 2016 and 2015 was $0.2 million and $0.3 million, respectively.

 

 21 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

Income taxes

 

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute 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 generally relieves the Company from corporate-level U.S. federal income taxes. Accordingly, no provision for federal income tax has been recorded in the financial statements. Differences between taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the future, or permanent. In accordance with Paragraph 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 three months ended March 31, 2015, the Company reclassified $1.0 million to paid-in capital from distributions in excess of net investment income of $0.9 million and net realized loss on investments of $0.1 million, which related to excise taxes paid in prior years.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% 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 three months ended March 31, 2016, there was no U.S. federal excise tax accrual recorded. For the three months ended March 31, 2015, $0.01 million accrual 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 March 31, 2016 and December 31, 2015. 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.

 

The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash 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.

 

 22 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

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 months ended March 31, 2016, the Company did not make any repurchases of its common stock. Since inception, the Company repurchased 113,382 shares of its common stock at an average price of $11.53 on the open market at a total cost of $1.3 million.

 

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.

 

Recently adopted accounting pronouncement

 

In April 2015, the FASB issued Accounting Standards Update (“ASU”) 2015-03, Interest—Imputation of Interest (Subtopic 835-30): Simplifying the Presentation of Debt Issuance Costs (“ASU 2015-03”) containing guidance that requires 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. The Company has adopted ASU 2015-03 which did not have a material impact on the Company’s consolidated financial statements other than corresponding reductions to total assets and total liabilities on the consolidated statements of assets and liabilities. Prior to adoption, the Company recorded debt issuance costs in other assets as an asset on the consolidated statements of assets and liabilities. Upon adoption, the Company reclassified these costs as unamortized debt issuance costs that reduce debt in the liabilities on the consolidated statements of assets and liabilities and retrospectively reclassified the debt issuance costs that were previously presented in other assets as an asset as of December 31, 2015, as discussed further in Note 6.

 

Note 3.  Related party transactions

 

Investment Management Agreement

 

The Investment Management Agreement was reapproved by the Board on July 29, 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.

 

 23 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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

 

The base management fee under the Investment Management Agreement 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.

 

The base management fee payable at March 31, 2016 and December 31, 2015 was $0.4 million. The base management fee expense was $1.3 million and $1.0 million for the three months ended March 31, 2016 and 2015, respectively.

 

The incentive fee has two parts, as follows:

 

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

 

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

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Commencing with the calendar quarter beginning July 1, 2014, the incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) commenced on July 1, 2014 and increases by one quarter in length at the end of each calendar quarter until June 30, 2017, after which time, the Incentive Fee Look-back Period will include the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”). The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to the Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. The Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. “Cumulative Pre-Incentive Fee Net Return” during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period. As of March 31, 2016 and December 31, 2015, the quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income was not limited by the Incentive Fee Cap and Deferral Mechanism.

 

The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Management Agreement, as of the termination date), and equals 20.00% of the Company’s realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee. However, in accordance with GAAP, the Company is required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement.

 

The performance based incentive fee expense was $1.1 million and $0.7 million for the three months ended March 31, 2016 and 2015, respectively. The performance based incentive fee payable as of March 31, 2016 and December 31, 2015 was $1.1 million and $1.0 million, respectively. The entire incentive fee payable as of March 31, 2016 and December 31, 2015 represented part one of the incentive fee.

 

Administration Agreement

 

The Company entered into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer and their respective staffs. The administrative fee expense was $0.3 million for the three months ended March 31, 2016 and 2015.

 

 25 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

Note 4.  Investments

 

The following table shows the Company’s investments as of March 31, 2016 and December 31, 2015:

 

   March 31, 2016   December 31, 2015 
   Cost   Fair Value   Cost   Fair Value 
       (In thousands)     
Money market funds  $291   $291   $285   $285 
Restricted investments in money market funds  $652   $652   $1,091   $1,091 
Non-affiliate investments                    
Debt  $240,792   $238,426   $244,899   $242,167 
Warrants   5,153    5,132    5,173    6,645 
Other   4,782    700    4,422    300 
Equity   549    777    1,000    1,155 
Total non-affiliate investments  $251,276   $245,035   $255,494   $250,267 

 

The following table shows the Company’s non-affiliate investments by industry sector as of March 31, 2016 and December 31, 2015:

 

   March 31, 2016   December 31, 2015 
   Cost   Fair Value   Cost   Fair Value 
       (In thousands)     
Life Science                    
Biotechnology  $35,602   $35,611   $36,932   $37,911 
Medical Device   22,431    21,842    25,753    22,736 
Technology                    
Communications   12,310    12,207    20,170    19,916 
Consumer-Related   20,152    20,739    18,699    19,421 
Data Storage   4,421    318    4,444    319 
Internet and Media   63    65    63    69 
Materials   9,931    9,928    9,918    9,920 
Networking   3,641    3,623    757    740 
Power Management   2,494    2,547    2,490    2,541 
Semiconductors   16,874    16,569    18,944    18,628 
Software   69,268    68,573    60,792    61,897 
Cleantech                    
Alternative Energy   1,695    1,686    2,942    2,938 
Energy Efficiency   3,258    3,254    3,371    3,370 
Waste Recycling   5,972    5,973    5,968    5,970 
Healthcare Information and Services                    
Diagnostics   7,715    7,098    8,001    7,336 
Other   8,454    8,499    8,453    8,504 
Software   26,995    26,503    27,797    28,051 
Total non-affiliate investments  $251,276   $245,035   $255,494   $250,267 

 

Note 5.  Fair value

 

The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.

 

The Company’s fair value measurements are classified into a fair value hierarchy based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows:

 

Level 1Quoted prices in active markets for identical assets and liabilities.

 

Level 2Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

 

Level 3Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

 

Investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms which are engaged at the direction of the Board to assist in the valuation of each portfolio investment lacking a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm.

 

Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by the Board, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio investment.

 

Cash and interest receivable:  The carrying amount is a reasonable estimate of fair value. These financial instruments are not recorded at fair value on a recurring basis and are categorized as Level 1 within the fair value hierarchy described above.

 

Money market funds:  The carrying amounts are valued at their net asset value as of the close of business on the day of valuation. These financial instruments are recorded at fair value on a recurring basis and are categorized as Level 2 within the fair value hierarchy described above as these funds can be redeemed daily.

 

Debt investments:  For variable rate debt investments which re-price frequently and have no significant change in credit risk, carrying values are a reasonable estimate of fair values. The fair value of fixed rate debt investments is estimated by discounting the expected future cash flows using the period end rates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. At March 31, 2016 and December 31, 2015, the hypothetical market yield used ranged from 11% to 25%. Significant increases (decreases) in this unobservable input would result in a significantly lower (higher) fair value measurement. These assets are recorded at fair value on a recurring basis and are categorized as Level 3 within the fair value hierarchy described above.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Under certain circumstances, the Company may use an alternative technique to value debt investments that better reflects its fair value such as the use of multiple probability weighted cash flow models when the expected future cash flows contain elements of variability. 

 

Warrant investments:  The Company values its warrants using the Black-Scholes valuation model incorporating the following material assumptions:

 

Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

 

Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on indices of publicly traded companies similar in nature to the underlying company issuing the warrant. A total of seven such indices are used. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.

 

The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.

 

Other adjustments, including a marketability discount on private company warrants, are estimated based on management’s judgment about the general industry environment.

 

Historical portfolio experience on cancellations and exercises of the Company’s warrants are utilized as the basis for determining the estimated time to exit of the warrants in each financial reporting period. Warrants may be exercised in the event of acquisitions, mergers or IPOs, and cancelled due to events such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorter than the contractual term of the warrants. Significant increases (decreases) in this unobservable input would result in significantly higher (lower) fair value measurement.

 

Under certain circumstances the Company may use an alternative technique to value warrants that better reflects the warrants’ fair value, such as an expected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant. The fair value may be determined based on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option. 

 

The fair value of the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public markets or can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level 2 within the fair value hierarchy described above. The fair value of the Company’s warrants held in private companies is determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Company has categorized these warrants as Level 3 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.

 

Equity investments: The fair value of an equity investment in a privately held company is initially the face value of the amount invested. The Company adjusts the fair value of equity investments in private companies upon the completion of a new third-party round of equity financing. The Company may make adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial or operational performance. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement. The Company has categorized these equity investments as Level 3 within the fair value hierarchy described above. The fair value of an equity investment in a publicly traded company is based upon the closing public share price on the date of measurement. Therefore, the Company has categorized these equity investments as Level 1 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.

 

Other investments: Other investments are valued based on the facts and circumstances of the underlying agreement. The Company currently values one contractual agreement using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability. Significant changes in the estimated cash flows and probability weightings would result in a significantly higher or lower fair value measurement. The Company has categorized this other investment as Level 3 within the fair value hierarchy described above. This asset is recorded at fair value on a recurring basis.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as of March 31, 2016 and December 31, 2015. In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining its fair value measurements.

 

The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements as of March 31, 2016:

 

 

March 31, 2016
   Fair   Valuation Techniques/  Unobservable      Weighted 
Investment Type  Value   Methodologies  Input  Range   Average 
(Dollars in thousands, except per share data) 
Debt investments  $238,176   Discounted Expected Future Cash Flows  Hypothetical Market Yield   11% – 25%   13%
                      
    250   Liquidation Scenario  Discount Rate   18%   18%
           Probability Weighting   50%   50%
                      
Warrant investments   4,897   Black-Scholes Valuation Model  Price Per Share  $0.00 – $63.98   $3.80 
           Average Industry Volatility   18%   18%
           Marketability Discount   20%   20%
           Estimated Time to Exit   1 to 5 years    3 years 
                      
Other investments   700   Multiple Probability Weighted  Discount Rate   25%   25%
        Cash Flow Model  Probability Weighting   0% – 100%   33%
                      
Equity investments   229   Last Equity Financing  Price Per Share  $0. 04 – $1.00   $0.39 
Total Level 3 investments  $244,252                 

  

The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements as of December 31, 2015:

 

December 31, 2015
   Fair   Valuation Techniques/  Unobservable      Weighted 
Investment Type  Value   Methodologies  Input  Range   Average 
(Dollars in thousands, except per share data) 
Debt investments  $241,667   Discounted Expected Future Cash Flows  Hypothetical Market Yield   11% – 25%   13%
                      
    500   Liquidation Scenario  Discount Rate   25%   25%
           Probability Weighting   0% – 100%   30%
                      
Warrant investments   5,407   Black-Scholes Valuation Model  Price Per Share  $0.00 – $615.46   $81.27 
           Average Industry Volatility Volatility   18%   18%
           Marketability Discount   20%   20%
           Estimated Time to Exit   1 to 5 years    3 years 
                      
    386   Expected Acquisition Settlement  Price Per Share  $2.09   $2.09 
                      
Other investments   300   Multiple Probability Weighted  Discount Rate   25%   25%
        Cash Flow Model  Probability Weighting   100%   100%
                      
Equity investments   101   Last Equity Financing  Price Per Share  $0.04   $0.04 
                      
    215   Expected Settlement  Price Per Share  $0.00 – $1.41   $1.41 
Total Level 3 investments  $248,576                 

 

Borrowings:  The carrying amount of borrowings under the Company’s revolving credit facility (the “Key Facility”) with KeyBank National Association (“Key”) approximates fair value due to the variable interest rate of the Key Facility and is categorized as Level 2 within the fair value hierarchy described above. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings. The fair value of the fixed rate 2019 Notes (as defined in Note 6) is based on the closing public share price on the date of measurement. On March 31, 2016, the closing price of the 2019 Notes on the New York Stock Exchange was $25.40 per note, or $33.5 million. Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described above. Based on market quotations on March 31, 2016, the Asset-Backed Notes (as defined in Note 6) were trading at par value, or $8.7 million, and are categorized as Level 3 within the fair value hierarchy described above. These borrowings are not recorded at fair value on a recurring basis.

 

 29 

 

 

Off-balance-sheet instruments:  Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Therefore, the Company has categorized these instruments as Level 3 within the fair value hierarchy described above.

 

The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of March 31, 2016 and December 31, 2015 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:

 

   March 31, 2016 
   Total   Level 1   Level 2   Level 3 
   (In thousands) 
Money market funds  $291   $   $291   $ 
Restricted investments in money market funds  $652   $   $652   $ 
Debt investments  $238,426   $   $   $238,426 
Warrant investments  $5,132   $   $235   $4,897 
Other investments  $700   $   $   $700 
Equity investments  $777   $548   $   $229 

 

   December 31, 2015 
   Total   Level 1   Level 2   Level 3 
   (In thousands) 
Money market funds  $285   $   $285   $ 
Restricted investments in money market funds  $1,901   $   $1,901   $ 
Debt investments  $242,167   $   $   $242,167 
Warrant investments  $6,645   $   $852   $5,793 
Other investments  $300   $   $   $300 
Equity investments  $1,155   $839   $   $316 
                     

 

 

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2016:

 

   Three Months Ended March 31, 2016 
  

Debt

Investments

  

Warrant

Investments

  

Equity

Investments

  

Other

Investments

   Total 
   (In thousands) 
Level 3 assets, beginning of period  $242,167   $5,793   $316   $300   $248,576 
Purchase of investments   16,500                16,500 
Warrants and equity received and classified as Level 3       81    45        126 
Principal payments received on investments   (18,060)           (23)   (18,083)
Proceeds from sale of investments       (709)   (127)       (836)
Net realized (loss) gain on investments   (2,157)   608    (369)       (1,918)
Unrealized appreciation (depreciation) included in earnings   366    (876)   364    40    (106)
Transfer from debt investments to other investments   (383)           383     
Other   (7)               (7)
Level 3 assets, end of period  $238,426   $4,897   $229   $700   $244,252 

 

 30 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The Company’s transfers between levels are recognized at the end of each reporting period. During the three months ended March 31, 2016, there were no transfers between levels.

 

The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at March 31, 2016 includes $1.8 million in unrealized depreciation on debt and other investments, $0.5 million in unrealized depreciation on warrant investments and $0.1 million in unrealized appreciation on equity investments.

 

The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2015:

 

   Three Months Ended March 31, 2015 
  

Debt

Investments

  

Warrant

Investments

  

Equity

Investments

  

Other

Investments

   Total 
   (In thousands) 
Level 3 assets, beginning of period  $199,180   $3,966   $222   $300   $203,668 
Purchase of investments   23,933                23,933 
Warrants and equity received and classified as Level 3       151            151 
Principal payments received on investments   (25,720)           (70)   (25,790)
Net realized loss on investments       (230)           (230)
Unrealized appreciation  included in earnings   219    392        70    681 
Transfer out of Level 3       (15)           (15)
Other   (2)               (2)
Level 3 assets, end of period  $197,610   $4,264   $222   $300   $202,396 

 

The Company’s transfers between levels are recognized at the end of the applicable reporting period. During the three months ended March 31, 2015, there were no transfers between Level 1 and Level 2. The transfer out of Level 3 relates to warrants held in one portfolio company, with an aggregate fair value of $0.02 million, that was transferred into Level 2 upon the portfolio company becoming a public company during the period.

 

The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at March 31, 2015 includes $0.2 million in unrealized appreciation on debt investments and $0.2 million in unrealized appreciation on warrants.

 

The Company discloses fair value information about financial instruments, whether or not recognized in the consolidated statement of assets and liabilities, for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.

 

The fair value amounts for 2016 and 2015 have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date may be different than amounts reported.

 

As of March 31, 2016 and December 31, 2015, the recorded balances equaled fair values of all the Company’s financial instruments, except for the Company’s 2019 Notes, as previously described.

 

Off-balance-sheet instruments

 

The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new debt investments and by investing in securities with terms that mitigate the Company’s overall interest rate risk.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

Note 6.  Borrowings

 

The following table shows the Company’s borrowings as of March 31, 2016 and December 31, 2015:

 

   March 31, 2016   December 31, 2015 
   Total
Commitment
   Balance
Outstanding
   Unused 
Commitment
   Total
Commitment
   Balance
Outstanding
   Unused 
Commitment
 
           (In thousands)         
Asset-Backed Notes  $8,696   $8,696   $   $14,546   $14,546   $ 
Key Facility   70,000    68,000    2,000    70,000    68,000    2,000 
2019 Notes   33,000    33,000        33,000    33,000     
Total before debt issuance costs   111,696    109,696    2,000    117,546    115,546    2,000 
Unamortized debt issuance costs attributable to term borrowings       (545)           (592)    
Total borrowings outstanding, net  $111,696   $109,151   $2,000   $117,546   $114,954   $2,000 

 

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that the Company’s asset coverage, as defined in the 1940 Act, is at least 200% after such borrowings. As of March 31, 2016, the asset coverage for borrowed amounts was 244%.

 

On August 12, 2015, the Company amended the Key Facility to (1) add a $20 million commitment to the existing $50 million commitment and (2) extend the term of the Key Facility. The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the current $70 million commitment. The Key Facility is collateralized by all debt investments and warrants held by Credit II and permits an advance rate of up to 50% of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes portfolio company concentration limits as defined in the related loan agreement. The Key Facility has a three-year revolving period followed by a two-year amortization period and matures on August 12, 2020. The interest rate is based upon the one-month London Interbank Offered Rate (“LIBOR”), plus a spread of 3.25%, with a LIBOR floor of 0.75%. Based on a LIBOR rate of 0.44% and 0.43% on March 31, 2016 and December 31, 2015, respectively, the interest rate was 4.00% as of March 31, 2016 and December 31, 2015. The average rate for the three months ended March 31, 2016 and 2015 was 4.00%. As of March 31, 2016 and December 31, 2015, the Company had available borrowing capacity of $2.0 million, subject to existing terms and advance rates.

 

On March 23, 2012, the Company issued and sold an aggregate principal amount of $30 million of 7.375% senior unsecured notes due in 2019 and on April 18, 2012, pursuant to the underwriters’ 30 day option to purchase additional notes, the Company sold an additional $3 million of such notes (collectively, the “2019 Notes”). The 2019 Notes will mature on March 15, 2019 and may be redeemed in whole or in part at the Company’s option at any time or from time to time at a redemption price of $25 per security plus accrued and unpaid interest. The 2019 Notes bear interest at a rate of 7.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2019 Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2019 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. As of March 31, 2016, the Company was in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed on the New York Stock Exchange under the symbol “HTF”.

 

 32 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

On June 28, 2013, the Company completed the 2013-1 Securitization. In connection with the 2013-1 Securitization, 2013-1 Trust, a wholly owned subsidiary of the Company, issued $90 million in the Asset-Backed Notes, which are rated A1(sf) by Moody’s Investors Service, Inc. The Company is the sponsor, originator and servicer for the transaction. The Asset-Backed Notes bear interest at a fixed rate of 3.00% per annum and have a stated maturity of May 15, 2018. As of March 31, 2016, 13.9%, or $33.2 million, of the Company’s total debt investment portfolio at fair value was held through the 2013-1 Securitization.

 

The Asset-Backed Notes were issued by 2013-1 Trust pursuant to a note purchase agreement (the “Note Purchase Agreement”), dated as of June 28, 2013, by and among the Company, 2013-1 LLC, as trust depositor, 2013-1 Trust and Guggenheim Securities, LLC (“Guggenheim Securities”), as initial purchaser, and are backed by a pool of loans made to certain portfolio companies of the Company (the “Trust Loans”) and secured by certain assets of such portfolio companies. The Trust Loans are serviced by the Company. In connection with the issuance and sale of the Asset-Backed Notes, the Company has made customary representations, warranties and covenants in the Note Purchase Agreement. The Asset-Backed Notes are secured obligations of 2013-1 Trust and are non-recourse to the Company.

 

As part of the transaction, the Company entered into a sale and contribution agreement, dated as of June 28, 2013 (the “Sale and Contribution Agreement”), with 2013-1 LLC, pursuant to which the Company sold or contributed to 2013-1 LLC the Trust Loans. The Company made customary representations, warranties and covenants in the Sale and Contribution Agreement with respect to the Trust Loans as of the date of the transfer of the Trust Loans to 2013-1 LLC. The Company also entered into a sale and servicing agreement, dated as of June 28, 2013 (the “Sale and Servicing Agreement”), with 2013-1 LLC and 2013-1 Trust pursuant to which 2013-1 LLC sold or contributed the Trust Loans to 2013-1 Trust. The Company has made customary representations, warranties and covenants in the Sale and Servicing Agreement. The Company serves as administrator to 2013-1 Trust pursuant to an administration agreement, dated as of June 28, 2013, with 2013-1 Trust, Wilmington Trust, National Association, and U.S. Bank National Association. 2013-1 Trust also entered into an indenture, dated as of June 28, 2013, which governs the Asset-Backed Notes and includes customary covenants and events of default. In addition, 2013-1 LLC entered into an amended and restated trust agreement, dated as of June 28, 2013, which includes customary representations, warranties and covenants. The Asset-Backed Notes were sold through an unregistered private placement to “qualified institutional buyers” in compliance with the exemption from registration provided by Rule 144A under the Securities Act, and to institutional “accredited investors” (as defined in Rule 501(a)(1), (2), (3) or (7) under the Securities Act) who, in each case, were “qualified purchasers” for purposes of Section 3(c)(7) under the 1940 Act.

 

Under the terms of the Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through principal collections from the underlying securitized debt portfolio, which may be used to make monthly interest and principal payments on the Asset-Backed Notes. The Company has segregated these funds and classified them as restricted investments in money market funds on the consolidated statements of assets and liabilities. The balances of restricted investments in money market funds were $0.7 million and $1.1 million as of March 31, 2016 and December 31, 2015, respectively.

 

Note 7.  Financial instruments with off-balance-sheet risk

 

In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.

 

The balance of unfunded commitments to extend credit was $2.5 million and $10.0 million as of March 31, 2016 and December 31, 2015, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving credit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

 

 33 

 

  

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The following table provides the Company’s unfunded commitments by portfolio company as of March 31, 2016:

 

  

Principal 
Balance

   Fair Value of
Unfunded
Commitment
Liability
 
   (In thousands) 
Lehigh Technologies, Inc.  $1,500   $14 
ScoreBig, Inc.   1,000     
Total  $2,500   $14 

 

The table above also provides the fair value of the Company’s unfunded commitment liability as of March 31, 2016 totaling $0.01 million. The fair value at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account the remaining terms of the agreements and the counterparties’ credit profile. The unfunded commitment liability reflects the fair value of these future funding commitments and is included in the Company’s consolidated statement of assets and liabilities.

 

Note 8.  Concentrations of credit risk

 

The Company’s debt investments consist primarily of loans to development-stage companies at various stages of development in the technology, life science, healthcare information and services and cleantech industries. Many of these companies may have relatively limited operating histories and also may experience variation in operating results. Many of these companies conduct business in regulated industries and could be affected by changes in government regulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances, to service the interest and principal payments on the loans.

 

The Company’s largest debt investments may vary from period to period as new debt investments are recorded and existing debt investments are repaid. The Company’s five largest debt investments represented 21% of total debt investments outstanding as of March 31, 2016 and December 31, 2015. No single debt investment represented more than 10% of the total debt investments as of March 31, 2016 and December 31, 2015. Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments accounted for 20% and 24% of total interest and fee income on investments for the three months ended March 31, 2016 and 2015, respectively.

 

 34 

 

  

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Note 9. Distributions

 

The Company’s distributions are recorded on the declaration date. The following table summarizes the Company’s distribution activity for the three months ended March 31, 2016 and for the years ended December 31, 2015 and 2014:

 

Date

Declared

  Record Date  Payment Date 

Amount

Per Share

  

Cash

Distribution

  

DRIP
Shares

Issued

  

DRIP
Share

Value

 
   (In thousands, except share and per share data) 
Three Months Ended March 31, 2016                       
3/3/16  5/19/16  6/15/16  $0.115   $       $ 
3/3/16  4/20/16  5/16/16   0.115             
3/3/16  3/18/16  4/15/16   0.115    1,306    1,840    21 
         $0.345   $1,306    1,840   $21 
Year Ended December 31, 2015                       
10/30/15  2/22/16  3/15/16  $0.115   $1,309    1,606   $18 
10/30/15  1/21/16  2/17/16   0.115    1,308    1,931    18 
10/30/15  12/18/15  1/15/16   0.115    1,311    1,841    18 
7/29/15  11/19/15  12/15/15   0.115    1,317    1,687    20 
7/29/15  10/20/15  11/16/15   0.115    1,317    1,967    22 
7/29/15  9/18/15  10/15/15   0.115    1,315    2,418    24 
5/1/15  8/19/15  9/15/15   0.115    1,312    2,577    26 
5/1/15  7/20/15  8/14/15   0.115    1,312    2,420    27 
5/1/15  6/18/15  7/15/15   0.115    1,312    2,045    26 
3/6/15  5/20/15  6/15/15   0.115    1,311    2,036    28 
3/6/15  4/20/15  5/15/15   0.115    1,311    1,950    28 
3/6/15  3/20/15  4/15/15   0.115