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 JUNE 30, 2016
   
  OR
   
o 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 o .

 

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

 

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

 

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

 

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

 

As of August 2, 2016, the Registrant had 11,548,564 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 June 30, 2016 and December 31, 2015 (unaudited) 3
  Consolidated Statements of Operations for the three and six months ended June 30, 2016 and 2015 (unaudited) 4
  Consolidated Statements of Changes in Net Assets for the six months ended June 30, 2016 and 2015 (unaudited) 5
  Consolidated Statements of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited) 6
  Consolidated Schedules of Investments as of June 30, 2016 and December 31, 2015 (unaudited) 7
  Notes to the Consolidated Financial Statements (unaudited) 18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 37
Item 3. Quantitative and Qualitative Disclosures About Market Risk 50
Item 4. Controls and Procedures 51
     
PART II  
Item 1. Legal Proceedings 52
Item 1A. Risk Factors 52
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 52
Item 3. Defaults Upon Senior Securities 52
Item 4. Mine Safety Disclosures 52
Item 5. Other Information 52
Item 6. Exhibits 52
  Signatures 53
EX-10.1    
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)

 

  

June 30,

2016

   December 31,
2015
 
         
Assets          
Non-affiliate investments at fair value (cost of $243,221 and $255,494, respectively) (Note 4)  $233,266   $250,267 
Investments in money market funds       285 
Cash   16,280    20,765 
Restricted investments in money market funds       1,091 
Interest receivable   8,114    6,258 
Other assets   2,259    2,230 
Total assets  $259,919   $280,896 
           
Liabilities          
Borrowings (Note 6)  $100,502   $114,954 
Distributions payable   3,984    3,980 
Base management fee payable (Note 3)   406    385 
Incentive fee payable (Note 3)   1,027    1,028 
Other accrued expenses   770    798 
Total liabilities   106,689    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 June 30, 2016 and December 31, 2015
        
Common stock, par value $0.001 per share, 100,000,000 shares authorized,
11,661,531 and 11,648,594 shares issued and 11,548,149 and 11,535,212 shares outstanding as of June 30, 2016 and December 31, 2015, respectively
   12    12 
Paid-in capital in excess of par   179,833    179,707 
Distributions in excess of net investment income   (1,063)   (2,006)
Net unrealized depreciation on investments   (9,955)   (5,227)
Net realized loss on investments   (15,597)   (12,735)
Total net assets   153,230    159,751 
Total liabilities and net assets  $259,919   $280,896 
Net asset value per common share  $13.27   $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   For the Six Months Ended 
   June 30,   June 30, 
   2016   2015   2016   2015 
Investment income                    
Interest income on non-affiliate investments  $8,788   $6,599   $17,790   $13,161 
Prepayment fee income on non-affiliate investments   263    208    429    728 
Fee income on non-affiliate investments   41    50    170    234 
Total investment income   9,092    6,857    18,389    14,123 
Expenses                    
Interest expense   1,512    1,263    3,046    2,850 
Base management fee (Note 3)   1,247    1,146    2,531    2,177 
Performance based incentive fee (Note 3)   1,027    722    2,126    1,458 
Administrative fee (Note 3)   275    309    556    577 
Professional fees   343    287    844    718 
General and administrative   261    299    462    559 
Total expenses   4,665    4,026    9,565    8,339 
Management and performance based incentive fees waived (Note 3)       (67)       (67)
Net expenses   4,665    3,959    9,565    8,272 
Net investment income before excise tax   4,427    2,898    8,824    5,851 
(Credit) provision for excise tax   (85)   10    (85)   20 
Net investment income   4,512    2,888    8,909    5,831 
Net realized and unrealized loss on investments                    
Net realized loss on investments   (876)   (29)   (2,862)   (259)
Net unrealized (depreciation) appreciation on investments   (3,714)   (1,114)   (4,728)   18 
Net realized and unrealized loss on investments   (4,590)   (1,143)   (7,590)   (241)
Net (decrease) increase in net assets resulting from operations  $(78)  $1,745   $1,319   $5,590 
Net investment income per common share  $0.39   $0.25   $0.77   $0.54 
Net (decrease) increase in net assets per common share  $(0.01)  $0.15   $0.11   $0.52 
Distributions declared per share  $0.345   $0.345   $0.69   $0.69 
Weighted average shares outstanding   11,544,412    11,632,724    11,541,208    10,725,004 

 

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
   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    26,657                26,659 
Net increase in net assets resulting from operations               5,831    18    (259)   5,590 
Issuance of common stock under dividend reinvestment plan   7,356        102                102 
Distributions declared               (7,797)           (7,797)
Reclassification of permanent tax differences (Note 2)           (971)   893        78     
Balance at June 30, 2015   11,635,480   $12   $181,028   $(2,175)  $(4,719)  $(11,344)  $162,802 
                                    
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               8,909    (4,728)   (2,862)   1,319 
Issuance of common stock under dividend reinvestment plan   12,937        142                142 
Repurchases of common stock           (16)               (16)
Distributions declared               (7,966)           (7,966)
Balance at June 30, 2016   11,548,149   $12   $179,833   $(1,063)  $(9,955)  $(15,597)  $153,230 

 

See Notes to Consolidated Financial Statements

 

5

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

   For the Six Months Ended 
   June 30, 
   2016   2015 
Cash flows from operating activities:          
Net increase in net assets resulting from operations  $1,319   $5,590 
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by (used in) operating activities:          
Amortization of debt issuance costs   306    523 
Net realized loss on investments   2,862    259 
Net unrealized depreciation (appreciation) on investments   4,728    (18)
Purchase of investments   (31,687)   (71,933)
Principal payments received on investments   40,466    36,577 
Proceeds from sale of investments   935     
Changes in assets and liabilities:          
Net decrease (increase) in investments in money market funds   285    (307)
Net decrease in restricted investments in money market funds   1,091    1,064 
Increase in interest receivable   (372)   (194)
Increase in end-of-term payments   (1,510)   (673)
(Decrease) increase in unearned income   (278)   97 
(Increase) decrease in other assets   (19)   431 
(Decrease) increase in other accrued expenses   (28)   38 
Increase in base management fee payable   21    11 
Decrease in incentive fee payable   (1)   (77)
Net cash provided by (used in) operating activities   18,118    (28,612)
Cash flows from financing activities:          
Proceeds from issuance of common stock, net of offering costs       26,659 
Repayment of Asset-Backed Notes   (14,546)   (14,191)
Advances on credit facility       26,000 
Distributions paid   (7,820)   (7,003)
Repurchase of common stock   (16)    
Debt issuance costs   (221)    
Net cash (used in) provided by financing activities   (22,603)   31,465 
Net (decrease) increase in cash   (4,485)   2,853 
Cash:          
Beginning of period   20,765    8,417 
End of period  $16,280   $11,270 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $2,722   $2,317 
Supplemental non-cash investing and financing activities:          
Warrant investments received and recorded as unearned income  $149   $485 
Distributions payable  $3,984   $4,014 
End-of-term payments receivable  $6,570   $4,458 

 

See Notes to Consolidated Financial Statements

 

6

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

June 30, 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 — 148.1% (8)               
Debt Investments — Life Science — 33.0% (8)               
Argos Therapeutics, Inc. (2)(5)  Biotechnology  Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;  $5,000   $4,953   $4,953 
      Ceiling 10.75%), 5.00% ETP, Due 10/1/18)               
      Term Loan (9.25% cash (Libor + 8.75%; Floor 9.25%;   5,000    4,962    4,962 
      Ceiling 10.75%), 5.00% ETP, Due 3/1/19)               
New Haven Pharmaceuticals, Inc. (2)(11)  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    6,198    6,198 
      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    4,950    4,950 
      9.00%), 5.00% ETP, Due 1/1/19)               
      Term Loan (9.00% cash (Libor + 8.50%; Floor   5,000    4,946    4,946 
      9.00%), 5.00% ETP, Due 8/1/19)               
Sample6, Inc. (2)  Biotechnology  Term Loan (9.50% cash (Libor + 9.00%; Floor   1,361    1,357    1,357 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
      Term Loan (9.50% cash (Libor + 9.00%; Floor   827    823    823 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
      Term Loan (9.50% cash (Libor + 9.00%; Floor   2,500    2,485    2,485 
      9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)               
Lantos Technologies, Inc. (2)  Medical Device  Term Loan (11.50% cash (Libor + 10.50%; Floor   2,917    2,881    2,881 
      11.50%), 5.00% ETP, Due 2/1/18)               
Mederi Therapeutics, Inc. (2)  Medical Device  Term Loan (12.29% cash (Libor + 11.82%), 4.00% ETP,   2,121    2,105    2,105 
      Due 7/1/17)               
      Term Loan (12.29% cash (Libor + 11.82%), 4.00% ETP,   2,121    2,105    2,105 
      Due 7/1/17)               
NinePoint Medical, Inc. (2)  Medical Device  Term Loan (9.25% cash (Libor + 8.75%; Floor   5,000    4,952    4,952 
      9.25%), 4.50% ETP, Due 3/1/19)               
      Term Loan (9.25% cash (Libor + 8.75%; Floor   2,500    2,470    2,470 
      9.25%), 4.50% ETP, Due 3/1/19)               
Tryton Medical, Inc. (2)  Medical Device  Term Loan (10.66% cash (Prime + 7.16%), 2.50% ETP,   1,688    1,685    1,685 
      Due 9/1/16)               
Total Debt Investments — Life Science              50,584    50,584 
Debt Investments — Technology — 83.8% (8)                     
Ekahau, Inc. (2)  Communications  Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)   390    388    388 
      Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)   130    130    130 
mBlox, Inc. (2)  Communications  Term Loan (11.50% cash (Libor + 11.00%; Floor   4,464    4,446    4,446 
      11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   4,464    4,446    4,446 
      11.50%; Ceiling 13.00%), 3.40% ETP, Due 7/1/18)               
Additech, Inc. (2)  Consumer-related Technologies  Term Loan (11.75% cash (Libor + 11.25%; Floor   2,083    2,060    2,060 
      11.75%; Ceiling 13.25%), 4.00% ETP, Due 7/1/18)               
      Term Loan (11.75% cash (Libor + 11.25%; Floor   2,500    2,470    2,470 
      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   1,067    1,051    1,051 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   633    620    620 
      11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   700    689    689 
      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    7,306    7,306 
      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    2,952    2,952 
      10.90%), 3.00% ETP, Due 6/1/19)               
      Term Loan (10.90% cash (Libor + 10.40%; Floor   2,000    1,960    1,960 
      10.90%), 3.00% ETP, Due 3/1/20)               
MediaBrix, Inc. (2)  Internet and Media  Term Loan (11.50% cash (Libor + 11.00%; Floor   4,000    3,960    3,960 
      11.50%), 3.00% ETP, Due 1/1/20)               
Zinio Holdings, LLC (2)  Internet and Media  Term Loan (11.75% cash (Libor + 11.25%; Floor   4,000    3,962    3,962 
      11.75%), 4.00% ETP, Due 2/1/20)               

 

See Notes to Consolidated Financial Statements

 

7

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

June 30, 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    4,928    4,928 
      10.00%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor   2,500    2,464    2,464 
      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 1/1/20)               
Nanocomp Technologies, Inc. (2)  Networking  Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)   524    520    520 
      Term Loan (11.50% cash (Libor + 11.00%; Floor   3,000    2,944    2,944 
      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    2,463    2,463 
      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%;   1,044    1,041    1,041 
      Ceiling 11.75%), 2.40% ETP, Due 4/1/17)               
      Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   1,700    1,695    1,695 
      Ceiling 11.75%), 2.40% ETP, Due 10/1/18)               
      Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;   1,905    1,867    1,867 
      Ceiling 11.75%), 2.00% ETP, Due 2/1/19)               
InVisage Technologies, Inc. (2)  Semiconductors  Term Loan (12.00% cash (Libor + 11.50%; Floor   1,955    1,913    1,913 
      12.00%; Ceiling 14.00%), 2.50% ETP, Due 12/31/16)               
      Term Loan (12.00% cash (Libor + 11.50%; Floor   822    811    811 
      12.00%; Ceiling 14.00%), 2.50% ETP, Due 12/31/16)               
Luxtera, Inc. (2)  Semiconductors  Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;   1,140    1,126    1,126 
      Ceiling 12.25%), 13.00% ETP, Due 7/1/17)               
      Term Loan (10.25% cash (Libor + 9.75%; Floor 10.25%;   636    634    634 
      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)               
      Term Loan (9.50% cash (Libor + 9.00%; Floor 9.50%),   2,000    1,989    1,989 
      4.50% ETP, Due 11/1/19)               
Xtera Communications, Inc. (5)  Semiconductors  Term Loan (12.50% cash, 17.50% ETP, Due 7/31/16)   3,056    3,047    3,047 
      Term Loan (12.50% cash, 17.50% ETP, Due 7/31/16)   849    847    847 
Bridge2 Solutions, Inc.  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   4,000    3,971    3,971 
      11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)               
      Term Loan (11.50% cash (Libor + 11.00%; Floor   1,000    996    996 
      11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20)               
ControlScan, Inc. (2)  Software  Term Loan (10.70% cash (Libor + 10.25%),   4,500    4,406    4,406 
      3.00% ETP, Due 7/1/20)               
Crowdstar, Inc. (2)  Software  Term Loan (10.75% cash (Libor + 10.25%; Floor   1,636    1,616    1,616 
      10.75%), 3.00% ETP, Due 9/1/18)               
Decisyon, Inc. (2)  Software  Term Loan (12.78% cash (Libor + 12.308%; Floor   1,523    1,520    1,434 
      12.50%), 6.50% ETP, Due 10/1/17)               
      Term Loan (12.78% cash (Libor + 12.308%; Floor   833    703    663 
      12.50%), 6.50% ETP, Due 1/1/18)               
Digital Signal Corporation  Software  Term Loan (10.72% cash (Libor + 10.25%; Floor   1,500    1,463    1,214 
      10.43%), 5.00% ETP, Due 7/1/19)               
      Term Loan (10.72% cash (Libor + 10.25%; Floor   1,500    1,463    1,214 
      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    1,973    1,973 
      10.50%), 4.00% ETP, Due 1/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   1,500    1,474    1,474 
      10.50%), 4.00% ETP, Due 8/1/19)               
Netuitive, Inc.  Software  Term Loan (12.72% cash (Libor + 12.25%; Floor   663    662    662 
      12.50%), 3.33% ETP, Due 9/1/17)               
Nomi Corporation (11)  Software  Term Loan (10.62% cash (Libor + 10.15%; Floor   3,184    3,148    850 
      10.35%), 2.00% ETP, Due 1/1/20)               
      Term Loan (10.62% cash (Libor + 10.15%; Floor   3,184    3,148    850 
      10.35%), 2.00% ETP, Due 1/1/20)               
ScoreBig, Inc. (2)  Software  Term Loan (10.50% cash (Libor + 10.00%; Floor   3,403    3,327    3,327 
      10.50%), 4.00% ETP, Due 4/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   3,403    3,357    3,357 
      10.50%), 4.00% ETP, Due 4/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,000    1,948    1,948 

 

See Notes to Consolidated Financial Statements

 

8

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

June 30, 2016

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Amount   Investments (6)   Value 
      10.50%), 4.00% ETP, Due 3/1/20)               
SIGNiX, Inc. (2)  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   2,600    2,524    2,235 
      11.50%), Due 8/1/18)               
SilkRoad Technology, Inc. (2)  Software  Term Loan (10.85% cash (Libor + 10.35%; Floor   7,500    7,445    7,445 
      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    3,934    3,934 
      11.45%), 3.00% ETP, Due 8/1/19)               
Social Intelligence Corp. (2)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   484    473    467 
      11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17)               
Sys-Tech Solutions, Inc. (2)  Software  Term Loan (11.65% cash (Libor + 11.15%; Floor   4,000    3,976    3,976 
      11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)               
      Term Loan (11.65% cash (Libor + 11.15%; Floor   3,667    3,640    3,640 
      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   1,300    1,291    1,291 
      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)   2,770    2,770    2,770 
xTech Holdings, Inc. (2)  Software  Term Loan (11.00% cash (Libor + 10.50%; Floor   1,833    1,808    1,808 
      11.00%), 3.00% ETP, Due 4/1/19)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   2,000    1,966    1,966 
      11.00%), 3.00% ETP, Due 3/1/20)               
Total Debt Investments — Technology              133,846    128,331 
Debt Investments — Cleantech — 6.1% (8)                     
Renmatix, Inc. (2)  Alternative Energy  Term Loan (10.25% cash, Due 10/1/16)   684    684    684 
Rypos, Inc. (2)  Energy Efficiency  Term Loan (12.02% cash, 4.25% ETP, Due 6/1/17)   1,995    1,978    1,978 
      Term Loan (12.02% cash, 4.25% ETP, Due 1/1/18)   852    841    841 
Lehigh Technologies, Inc. (2)  Waste Recycling  Term Loan (10.19% cash (Libor + 9.72%), 6.75% ETP,   3,000    2,964    2,964 
      Due 8/1/19)               
      Term Loan (10.19% cash (Libor + 9.72%), 6.75% ETP,   3,000    2,978    2,978 
      Due 8/1/19)               
Total Debt Investments — Cleantech              9,445    9,445 
Debt Investments — Healthcare information and services — 25.2% (8)                     
Interleukin Genetics, Inc. (2)(5)  Diagnostics  Term Loan (9.00% cash (Libor + 8.50%; Floor 9.00%)   4,500    4,403    4,156 
      4.50% ETP, Due 10/1/18)               
LifePrint Group, Inc. (2)  Diagnostics  Term Loan (11.00% cash (Libor + 10.50%; Floor   1,800    1,775    1,775 
      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%;   3,208    3,203    3,203 
      Ceiling 11.00%); 4.00% ETP, Due 4/1/18)               
      Term Loan (10.00% cash (Libor + 9.50%; Floor 10.00%;   3,208    3,203    3,203 
      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)               
MedAvante, Inc. (2)  Software  Term Loan (9.75% cash (Libor + 9.25%; Floor   3,000    2,964    2,964 
      9.75%), 4.00% ETP, Due 1/1/19)               
      Term Loan (9.75% cash (Libor + 9.25%; Floor   3,000    2,964    2,964 
      9.75%), 4.00% ETP, Due 1/1/19)               
      Term Loan (9.75% cash (Libor + 9.25%; Floor   4,000    3,943    3,943 
      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    4,933    4,933 
      10.50%), 7.00% ETP, Due 7/1/19)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   2,500    2,466    2,466 
      10.50%), 7.00% ETP, Due 7/1/19)               
Recondo Technology, Inc. (2)  Software  Term Loan (11.50% cash (Libor + 11.00%; Floor   1,038    1,035    1,035 
      11.50%), 6.60% ETP, Due 12/1/17)               
      Term Loan (11.00% cash (Libor + 10.50%; Floor   1,875    1,870    1,870 
      11.00%), 4.50% ETP, Due 12/1/17)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   1,875    1,872    1,872 
      10.50%), 2.75% ETP, Due 12/1/17)               
      Term Loan (10.50% cash (Libor + 10.00%; Floor   3,000    2,971    2,971 
      10.50%), 2.50% ETP, Due 1/1/19)               
Total Debt Investments — Healthcare information and services              38,850    38,603 
Total Debt Investments              232,725    226,963 

 

See Notes to Consolidated Financial Statements

 

9

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

June 30, 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 — 0.2% (8)                
ACT Biotech Corporation  Biotechnology  1,521,820 Preferred Stock Warrants   83     
Argos Therapeutics, Inc. (2)(5)  Biotechnology  33,112 Common Stock Warrants   33    4 
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    1 
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     
Revance Therapeutics, Inc. (5)  Biotechnology  34,377 Common Stock Warrants   68    47 
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  170,646 Preferred Stock Warrants   34    25 
Lantos Technologies, Inc. (2)  Medical Device  1,287,817 Preferred Stock Warrants   38    40 
Mederi Therapeutics, Inc. (2)  Medical Device  248,736 Preferred Stock Warrants   26    38 
Mitralign, Inc. (2)  Medical Device  641,909 Preferred Stock Warrants   52    36 
NinePoint Medical, Inc. (2)  Medical Device  566,038 Preferred Stock Warrants   33    32 
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         1,337    334 
Warrants — Technology — 2.5% (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    8 
Gwynnie Bee, Inc. (2)  Consumer-related Technologies  268,591 Preferred Stock Warrants   68    689 
If(we), Inc.  Consumer-related Technologies  190,868 Preferred Stock Warrants   27    61 
Rhapsody International Inc. (2)  Consumer-related Technologies  852,273 Common Stock Warrants   164    146 
SavingStar, Inc. (2)  Consumer-related Technologies  98,860 Preferred Stock Warrants   59    57 
XIOtech, Inc.  Data Storage  2,217,979 Preferred Stock Warrants   22     
SimpleTuition, Inc.  Internet and media  189,573 Preferred Stock Warrants   63    64 
The NanoSteel Company, Inc. (2)  Materials  147,424 Preferred Stock Warrants   93    88 
IntelePeer, Inc.  Networking  141,549 Common Stock Warrants   39    26 
Nanocomp Technologies, Inc. (2)  Networking  681,819 Preferred Stock Warrants   54    48 
Aquion Energy, Inc.  Power Management  115,051 Preferred Stock Warrants   7    60 
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  395,009 Preferred Stock Warrants   48    43 
Kaminario, Inc.  Semiconductors  1,087,203 Preferred Stock Warrants   59    61 
Luxtera, Inc.(2)  Semiconductors  2,508,671 Preferred Stock Warrants   49    100 
Soraa, Inc. (2)  Semiconductors  180,000 Preferred Stock Warrants   80    411 
Xtera Communications, Inc. (5)  Semiconductors  37,831 Common Stock Warrants   205     
Bolt Solutions Inc. (2)  Software  202,892 Preferred Stock Warrants   113    109 
Bridge2 Solutions, Inc.  Software  75,458 Common Stock Warrants   18    333 
Clarabridge, Inc.  Software  53,486 Preferred Stock Warrants   14    81 
ControlScan, Inc. (2)  Software  2,295,918 Preferred Stock Warrants   19    19 
Crowdstar, Inc. (2)  Software  75,428 Preferred Stock Warrants   14    11 
Decisyon, Inc. (2)  Software  82,967 Common Stock Warrants   46     
Digital Signal Corporation  Software  85,308 Common Stock Warrants   32     
Education Elements, Inc. (2)  Software  238,122 Preferred Stock Warrants   28    22 
Lotame Solutions, Inc. (2)  Software  288,115 Preferred Stock Warrants   22    267 
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    10 
ScoreBig, Inc. (2)  Software  879,014 Preferred Stock Warrants   88    45 
SIGNiX, Inc. (2)  Software  72,166 Preferred Stock Warrants   88    85 
Skyword, Inc.  Software  301,056 Preferred Stock Warrants   48    46 
SpringCM, Inc. (2)  Software  2,385,686 Preferred Stock Warrants   55    118 

 

See Notes to Consolidated Financial Statements

 

10

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

June 30, 2016

(Dollars in thousands)

 

         Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (3)(4)(7)(9)(10)  Investments (6)   Value 
Sys-Tech Solutions, Inc.  Software  375,000 Preferred Stock Warrants   242    555 
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         2,387    3,768 
Warrants — Cleantech — 0.1% (8)                
Renmatix, Inc.  Alternative Energy  53,022 Preferred Stock Warrants   68     
Semprius, Inc.  Alternative Energy  519,981 Preferred Stock Warrants   25    20 
Rypos, Inc. (2)  Energy Efficiency  5,627 Preferred Stock Warrants   44    21 
Tigo Energy, Inc. (2)  Energy Efficiency  804,604 Preferred Stock Warrants   100    108 
Lehigh Technologies, Inc. (2)  Waste Recycling  272,727 Preferred Stock Warrants   33    32 
Total Warrants — Cleantech         270    181 
Warrants — Healthcare information and services — 0.5% (8)                
Accumetrics, Inc.  Diagnostics  100,928 Preferred Stock Warrants   107    63 
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    88 
LifePrint Group, Inc. (2)  Diagnostics  49,000 Preferred Stock Warrants   29    1 
ProterixBio, Inc. (2)  Diagnostics  3,156 Common Stock Warrants   54     
Singulex, Inc.  Other Healthcare  293,632 Preferred Stock Warrants   44    44 
Verity Solutions Group, Inc.  Other Healthcare  300,360 Preferred Stock Warrants   100    35 
Watermark Medical, Inc. (2)  Other Healthcare  27,373 Preferred Stock Warrants   74    61 
MedAvante, Inc. (2)  Software  114,285 Preferred Stock Warrants   66    64 
Medsphere Systems Corporation (2)  Software  7,097,791 Preferred Stock Warrants   60    194 
Recondo Technology, Inc. (2)  Software  556,796 Preferred Stock Warrants   95    193 
Total Warrants — Healthcare information and services         1,192    743 
Total Warrants         5,186    5,026 
                 
Other Investments — 0.4% (8)                
ZetrOZ, Inc.  Medical Device  Royalty Agreement   375    400 
Vette Technology, LLC  Data Storage  Royalty Agreement Due 4/18/2019   4,375    200 
Total Other Investments         4,750    600 
Equity — 0.4% (8)                
Insmed Incorporated (5)  Biotechnology  33,208 Common Stock   238    328 
Revance Therapeutics, Inc.(5)  Biotechnology  4,861 Common Stock   73    66 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  78,493 Common Stock   83    43 
SnagAJob.com, Inc.  Consumer-related Technologies  82,974 Common Stock   9    83 
Decisyon, Inc.  Software  3,573,173 Common Stock   157    157 
Total Equity         560    677 
Total Portfolio Investment Assets — 152.2%        $243,221   $233,266 

_____________________________

(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.
   
(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 June 30, 2016 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 June 30, 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 June 30, 2016.

 

See Notes to Consolidated Financial Statements

 

11

 

 

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

 

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 
      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

 

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 (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

 

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   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

 

15

 

 

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

 

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 
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

 

17

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Note 1.  Organization

 

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

 

On October 28, 2010, the Company completed an initial public offering (“IPO”) and its common stock trades on the NASDAQ Global Select Market under the symbol “HRZN”. The Company was formed to continue and expand the business of Compass Horizon Funding Company LLC, 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 (the “2015 Offering”).

 

18

 

 

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.

 

19

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Investments

 

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

 

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of June 30, 2016, there were two debt investments on non-accrual status with a cost of $16.2 million and a fair value of $11.6 million. For the three and six months ended June 30, 2015, the Company recognized interest income payments of $0.05 million and $0.1 million, respectively, 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 June 30, 2016 and 2015 was 7.7% and 7.4%, respectively. The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the six months ended June 30, 2016 and 2015 was 14.2% 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.

 

20

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Debt issuance costs

 

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of June 30, 2016 and December 31, 2015 was $1.8 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 June 30, 2016 and December 31, 2015 were $4.2 million and $3.9 million, respectively. The amortization expense for the three months ended June 30, 2016 and 2015 was $0.2 million. The amortization expense for the six months ended June 30, 2016 and 2015 was $0.3 million and $0.5 million, respectively.

 

Income taxes

 

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which 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 six months ended June 30, 2015, the Company reclassified $1.0 million to paid-in capital from distributions in excess of net investment income of $0.9 million and net realized loss on investments of $0.1 million, which related to excise taxes paid in prior years.

 

Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and pay a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the six months ended June 30, 2016, there was no U.S. federal excise tax accrual recorded. For the six months ended June 30, 2015, a $0.02 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 June 30, 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 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 or the Company may purchase shares in the open market to fulfill its obligations under the plan.

 

21

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Stock Repurchase Program

 

On September 28, 2015, the Board authorized a stock repurchase program which allows the Company to repurchase up to $5.0 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements. Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of September 30, 2016 or the repurchase of $5.0 million of the Company’s common stock. During the three and six months ended June 30, 2016, the Company did not complete any repurchases of its common stock. Since the inception of the stock repurchase program, the Company has 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. On July 29, 2016, the Board extended the stock repurchase program until the earlier of June 30, 2017 or the repurchase of $5.0 million of the Company’s common stock.

 

Transfers of financial assets

 

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

 

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

 

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”), as clarified by ASU 2015-15, Interest—Imputation of Interest: Presentation and Subsequent Measurement of Debt Issuance Costs Associated with Line-of-Credit Arrangements (“ASU 2015-15”), 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. ASU 2015-15 allows an entity to defer and present debt issuance costs for line-of-credit arrangements as an asset and subsequently amortize these deferred costs over the term of the line-of-credit arrangement. The Company has adopted ASU 2015-03, as clarified by ASU 2015-15, 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.

 

22

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Note 3.  Related party transactions

 

Investment Management Agreement

 

The Investment Management Agreement was reapproved by the Board on July 29, 2016. Under the terms of the Investment Management Agreement, the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes; identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

 

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

 

The base management fee under the Investment Management Agreement is calculated at an annual rate of 2.00% of (i) the Company’s gross assets, less (ii) assets consisting of cash and cash equivalents, and is payable monthly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage. In addition, the Advisor agreed to waive its base management fee relating to the proceeds raised in the 2015 Offering, to the extent such fee is not otherwise waived and regardless of the application of the proceeds raised, until the earlier to occur of (i) March 31, 2016 or (ii) the last day of the second consecutive calendar quarter in which the Company’s net investment income exceeds distributions declared on its shares of common stock for the applicable quarter. As of December 31, 2015, the Company met condition (ii) above as net investment income exceeded distributions declared for the quarters ended September 30, 2015 and December 31, 2015.

 

During the three months ended June 30, 2015, the Advisor waived base management fees of $0.1 million, which the Advisor would have otherwise earned on the proceeds raised in the 2015 Offering. The base management fee payable at June 30, 2016 and December 31, 2015 was $0.4 million. After giving effect of the waiver, the base management fee expense was $1.2 million and $1.1 million for the three months ended June 30, 2016 and 2015, respectively. After giving effect of the waiver, the base management fee expense was $2.5 million and $2.1 million for the six months ended June 30, 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% quarterly (which is 8.75% annualized). 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.

 

23

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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.

 

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.

 

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 $1.0 million and $0.7 million for the three months ended June 30, 2016 and 2015, respectively. The performance based incentive fee expense was $2.1 million and $1.5 million for the six months ended June 30, 2016 and 2015, respectively. The performance based incentive fee expense was subject to the Incentive Fee Cap and Deferral Mechanism for the three months ended June 30, 2016, which resulted in $0.1 million of reduced expense resulting in $0.1 million of additional net investment income. The performance based incentive fee payable as of June 30, 2016 and December 31, 2015 was $1.0 million. The entire incentive fee payable as of June 30, 2016 and December 31, 2015 represented part one of the incentive fee.

 

24

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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 June 30, 2016 and 2015. The administrative fee expense was $0.6 million for the six months ended June 30, 2016 and 2015.

 

Note 4.  Investments

 

The following table shows the Company’s investments as of June 30, 2016 and December 31, 2015:

 

   June 30, 2016   December 31, 2015 
   Cost   Fair Value   Cost   Fair Value 
       (In thousands)     
Money market funds  $   $   $285   $285 
Restricted investments in money market funds  $   $   $1,091   $1,091 
Non-affiliate investments                    
Debt  $232,725   $226,963   $244,899   $242,167 
Warrants   5,186    5,026    5,173    6,645 
Other   4,750    600    4,422    300 
Equity   560    677    1,000    1,155 
Total non-affiliate investments  $243,221   $233,266   $255,494   $250,267 

 

The following table shows the Company’s non-affiliate investments by industry sector as of June 30, 2016 and December 31, 2015:

 

   June 30, 2016   December 31, 2015 
   Cost   Fair Value   Cost   Fair Value 
       (In thousands)     
Life Science                    
Biotechnology  $35,313   $34,948   $36,932   $37,911 
Medical Device   17,377    16,807    25,753    22,736 
Technology                    
Communications   9,532    9,429    20,170    19,916 
Consumer-Related   19,537    20,178    18,699    19,421 
Data Storage   4,397    200    4,444    319 
Internet and Media   7,985    7,986    63    69 
Materials   9,943    9,938    9,918    9,920 
Networking   3,557    3,538    757    740 
Power Management   2,498    2,550    2,490    2,541 
Semiconductors   17,194    17,311    18,944    18,628 
Software   66,131    61,409    60,792    61,897 
Cleantech                    
Alternative Energy   777    704    2,942    2,938 
Energy Efficiency   2,963    2,948    3,371    3,370 
Waste Recycling   5,975    5,974    5,968    5,970 
Healthcare Information and Services                    
Diagnostics   6,931    6,083    8,001    7,336 
Other   7,872    7,794    8,453    8,504 
Software   25,239    25,469