UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-Q

 

 

(Mark One)

 

x QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
   
FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2019
   
OR
   
¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

 

FOR THE TRANSITION PERIOD FROM                TO

 

COMMISSION FILE NUMBER: 814-00802

 

 

HORIZON TECHNOLOGY FINANCE CORPORATION

(Exact name of registrant as specified in its charter)

 

 

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

 

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

 

 

 

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 x  No ¨

 

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes ¨ No ¨

 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.

 

Large accelerated filer   ¨ Accelerated filer   x
       
Non-accelerated filer ¨ Smaller reporting company   ¨
       
Emerging growth company   ¨    

 

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act  ¨

 

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

 

The number of shares of the registrant’s common stock traded under the symbol “HRZN” on the Nasdaq Global Select Market, $0.001 par value per share, outstanding as of April 30, 2019 was 13,539,680. 

 

 

 

 

 

 

HORIZON TECHNOLOGY FINANCE CORPORATION

 

FORM 10-Q

TABLE OF CONTENTS

 

    Page
  PART I  
Item 1. Consolidated Financial Statements 3
     
  Consolidated Statements of Assets and Liabilities as of March 31, 2019 and December 31, 2018 (unaudited) 3
  Consolidated Statements of Operations for the three months ended March 31, 2019 and 2018 (unaudited) 4
  Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2019 and 2018 (unaudited) 5
  Consolidated Statements of Cash Flows for the three months ended March 31, 2019 and 2018 (unaudited) 6
  Consolidated Schedules of Investments as of March 31, 2019 and December 31, 2018 (unaudited) 7
  Notes to the Consolidated Financial Statements (unaudited) 18
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations 44
Item 3. Quantitative and Qualitative Disclosures About Market Risk 61
Item 4. Controls and Procedures 62
     
  PART II  
Item 1. Legal Proceedings 63
Item 1A. Risk Factors 63
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds 63
Item 3. Defaults Upon Senior Securities 63
Item 4. Mine Safety Disclosures 63
Item 5. Other Information 64
Item 6. Exhibits 64
  Signatures 65
     
EX-31.1    
EX-31.2    
EX-32.1    
EX-32.2    

 

 2 

 

 

PART I: FINANCIAL INFORMATION

 

Item 1. Consolidated Financial Statements

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Assets and Liabilities (Unaudited)

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

 

   March 31,
2019
   December 31,
2018
 
         
Assets          
Non-affiliate investments at fair value (cost of $248,890 and $229,772, respectively)  $245,226   $227,624 
Non-controlled affiliate investments at fair value (cost of $7,742 and $7,887, respectively) (Note 5)   7,581    7,574 
Controlled affiliate investments at fair value (cost of $13,360 and $13,262, respectively) (Note 5)   13,345    13,243 
Total investments at fair value (cost of $269,992 and $250,921, respectively) (Note 4)   266,152    248,441 
Cash   22,163    12,591 
Interest receivable   4,848    3,966 
Other assets   1,628    1,751 
Total assets  $294,791   $266,749 
           
Liabilities          
Borrowings (Note 7)  $131,923   $126,853 
Distributions payable   4,062    3,461 
Base management fee payable (Note 3)   447    422 
Incentive fee payable (Note 3)   808    991 
Other accrued expenses   1,127    765 
Total liabilities   138,367    132,492 
           
Commitments and Contingencies (Note 8)          
           
Net assets          
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2019 and December 31, 2019        
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 13,705,946 and 11,702,594 shares issued and 13,538,481 and 11,535,129 shares outstanding as of March 31, 2019 and December 31, 2018, respectively   14    12 
Paid-in capital in excess of par   202,818    179,616 
Distributable earnings   (46,408)   (45,371)
Total net assets   156,424    134,257 
Total liabilities and net assets  $294,791   $266,749 
Net asset value per common share  $11.55   $11.64 

 

See Notes to Consolidated Financial Statements

 

 3 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Operations (Unaudited)

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

 

   For the Three Months Ended 
   March 31, 
   2019   2018 
Investment income          
Interest income on investments          
Interest income on non-affiliate investments  $7,434   $6,622 
Interest income on affiliate investments   223    131 
Total interest income on investments   7,657    6,753 
Fee income          
Fee income on non-affiliate investments   313    422 
Fee income on affiliate investments   5     
Total fee income   318    422 
Dividend income          
Dividend income on controlled affiliate investments   331     
Total dividend income   331     
Total investment income   8,306    7,175 
Expenses          
Interest expense   2,048    1,484 
Base management fee (Note 3)   1,297    1,114 
Performance based incentive fee (Note 3)   1,948    545 
Administrative fee (Note 3)   211    184 
Professional fees   491    445 
General and administrative   218    193 
Total expenses   6,213    3,965 
Performance based incentive fees waived (Note 3)   (1,140)    
Net expenses   5,073    3,965 
Net investment income   3,233    3,210 
Net realized and unrealized loss on investments          
Net realized gain (loss) on non-affiliate investments   1,151    (149)
Net realized gain (loss) on investments   1,151    (149)
Net unrealized depreciation on non-affiliate investments   (1,515)   (332)
Net unrealized appreciation (depreciation) on affiliate investments   152    (126)
Net unrealized appreciation on controlled affiliate investments   4     
Net unrealized depreciation on investments   (1,359)   (458)
Net realized and unrealized loss on investments   (208)   (607)
Net increase in net assets resulting from operations  $3,025   $2,603 
Net investment income per common share  $0.28   $0.28 
Net increase in net assets per common share  $0.26   $0.23 
Distributions declared per share  $0.30   $0.30 
Weighted average shares outstanding   11,670,196    11,522,153 

 

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
   Distributable   Total Net 
   Shares   Amount   Par  

Earnings

   Assets 
Balance at December 31, 2017   11,520,406   $12   $179,641   $(44,578)  $135,075 
Net increase in net assets resulting from operations, net of excise tax:                         
Net investment income, net of excise tax               3,210    3,210 
Net realized loss on investments               (149)   (149)
Net unrealized depreciation on investments               (458)   (458)
Issuance of common stock under dividend reinvestment plan   3,545        40        40 
Distributions declared               (3,457)   (3,457)
Balance at March 31, 2018   11,523,951    12    179,681    (45,432)   134,261 
                          
Balance at December 31, 2018   11,535,129    12    179,616    (45,371)   134,257 
Issuance of common stock, net of offering costs   2,000,000    2    23,160        23,162 
Net increase in net assets resulting from operations, net of excise tax:                         
Net investment income, net of excise tax               3,233    3,233 
Net realized gain on investments               1,151    1,151 
Net unrealized depreciation on investments               (1,359)   (1,359)
Issuance of common stock under dividend reinvestment plan   3,352        42        42 
Distributions declared               (4,062)   (4,062)
Balance at March 31, 2019   13,538,481   $14   $202,818   $(46,408)  $156,424 

 

See Notes to Consolidated Financial Statements

 

 5 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Statements of Cash Flows (Unaudited)

(Dollars in thousands)

 

   For the Three Months Ended 
   March 31, 
   2019   2018 
Cash flows from operating activities:          
Net increase in net assets resulting from operations  $3,025   $2,603 
Adjustments to reconcile net increase in net assets resulting from operations to net cash (used in) provided by operating activities:          
Amortization of debt issuance costs   172    150 
Net realized (gain) loss on investments   (1,151)   149 
Net unrealized depreciation on investments   1,359    458 
Purchase of investments   (38,082)   (8,562)
Principal payments received on investments   18,613    15,540 
Proceeds from sale of investments   1,768    2,715 
Distributions from controlled affiliate investment   233     
Dividends from controlled affiliate investment   (331)    
Changes in assets and liabilities:          
(Increase) decrease in interest receivable   (327)   4 
Increase in end-of-term payments   (555)   (242)
Decrease in unearned income   (120)   (106)
Decrease (increase) in other assets   21    (124)
Increase in other accrued expenses   362    355 
Increase in base management fee payable   25    5 
(Decrease) increase in incentive fee payable   (183)   4 
Net cash (used in) provided by operating activities   (15,171)   12,949 
Cash flows from financing activities:          
Proceeds from issuance of common stock, net of offering costs   23,162     
Advances on credit facility   15,000     
Repayment of credit facility   (10,000)    
Distributions paid   (3,419)   (3,416)
Net cash provided by (used in) financing activities   24,743    (3,416)
Net increase in cash   9,572    9,533 
Cash:          
Beginning of period   12,591    6,594 
End of period  $22,163   $16,127 
Supplemental disclosure of cash flow information:          
Cash paid for interest  $1,785   $1,278 
Supplemental non-cash investing and financing activities:          
Warrant investments received and recorded as unearned income  $714   $248 
Distributions payable  $4,062   $3,457 
End-of-term payments receivable  $3,570   $3,178 

 

See Notes to Consolidated Financial Statements

 

 6 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
Non-Affiliate Investments — 156.7% (8)                  
Non-Affiliate Debt Investments — 146.1% (8)                  
Non-Affiliate Debt Investments — Life Science — 50.9% (8)               
Celsion Corporation (2)(5)(12)  Biotechnology  Term Loan (10.12% cash (Libor + 7.63%; Floor  $2,500   $2,453   $2,453 
      9.63%), 4.00% ETP, Due 7/1/22)               
      Term Loan (10.12% cash (Libor + 7.63%; Floor   2,500    2,453    2,453 
      9.63%), 4.00% ETP, Due 7/1/22)               
Espero BioPharma, Inc. (2)(12)  Biotechnology  Term Loan (12.39% cash (Libor + 9.9%; Floor   5,000    4,830    4,830 
      12.00%), 4.00% ETP, Due 6/30/19)               
Mustang Bio, Inc. (2)(5)(12)  Biotechnology  Term Loan (9.00% cash (Libor + 6.5%; Floor   5,000    4,807    4,807 
      9.00%), 5.00% ETP, Due 10/1/22)               
      Term Loan (9.00% cash (Libor + 6.5%; Floor   5,000    4,903    4,903 
      9.00%), 5.00% ETP, Due 10/1/22)               
      Term Loan (9.00% cash (Libor + 6.5%; Floor   5,000    4,903    4,903 
      9.00%), 5.00% ETP, Due 10/1/22)               
Palatin Technologies, Inc. (2)(5)(12)  Biotechnology  Term Loan (10.99% cash (Libor + 8.50%; Floor   667    661    661 
      9.00%), 5.00% ETP, Due 8/1/19)               
      Term Loan (10.99% cash (Libor + 8.50%; Floor   667    667    667 
      9.00%), 3.27% ETP, Due 8/1/19)               
vTv Therapeutics Inc. (2)(5)(12)  Biotechnology  Term Loan (12.49% cash (Libor + 10.00%; Floor   3,385    3,361    3,361 
      10.50%), 6.00% ETP, Due 5/1/20)               
      Term Loan (12.49% cash (Libor + 10.00%; Floor   2,813    2,785    2,785 
      10.50%), 6.00% ETP, Due 10/1/20)               
Titan Pharmaceuticals, Inc. (2)(5)(12)  Drug Delivery  Term Loan (10.89% cash (Libor + 8.40%; Floor   1,600    1,506    1,506 
      9.50%), 5.00% ETP, Due 6/1/21)               
Aerin Medical, Inc. (2)(12)  Medical Device  Term Loan (9.94% cash (Libor + 7.45%; Floor   4,000    3,895    3,895 
      8.75%), 4.00% ETP, Due 1/1/22)               
      Term Loan (9.94% cash (Libor + 7.45%; Floor   3,000    2,969    2,969 
      8.75%), 4.00% ETP, Due 1/1/22)               
      Term Loan (9.94% cash (Libor + 7.45%; Floor   3,000    2,969    2,969 
      8.75%), 4.00% ETP, Due 1/1/22)               
Conventus Orthopaedics, Inc. (2)(12)  Medical Device  Revolving Loan (10.49% cash (Libor + 8.00%;   4,000    3,955    3,955 
      Floor 9.25%), 6.00% ETP, Due 6/1/21)               
      Revolving Loan (10.49% cash (Libor + 8.00%;   4,000    3,955    3,955 
      Floor 9.25%), 6.00% ETP, Due 6/1/21)               
      Revolving Loan (10.49% cash (Libor + 8.00%;   4,000    3,955    3,955 
      Floor 9.25%), 6.00% ETP, Due 6/1/21)               
CSA Medical, Inc. (2)(12)  Medical Device  Term Loan (10.42% cash (Libor + 7.93%; Floor   6,000    5,775    5,775 
      10.00%), 5.00% ETP, Due 10/1/22)               
Lantos Technologies, Inc. (2)(12)  Medical Device  Term Loan (10.92% cash (Libor + 8.43%; Floor   4,000    3,604    3,604 
      10.00%), 10.00% ETP, Due 9/1/21)               
MacuLogix, Inc. (2)(12)  Medical Device  Term Loan (10.17% cash (Libor + 7.68%; Floor   3,750    3,632    3,632 
      9.50%), 4.00% ETP, Due 8/1/22)               
      Term Loan (10.17% cash (Libor + 7.68%; Floor   3,750    3,646    3,646 
      9.50%), 4.00% ETP, Due 8/1/22)               
VERO Biotech LLC (2)(12)  Medical Device  Term Loan (10.49% cash (Libor + 8.00%; Floor   4,000    3,954    3,954 
      9.25%), 5.00% ETP, Due 1/1/22)               
      Term Loan (10.49% cash (Libor + 8.00%; Floor   4,000    3,954    3,954 
      9.25%), 5.00% ETP, Due 1/1/22)               
Total Non-Affiliate Debt Investments — Life Science     79,592    79,592 
Non-Affiliate Debt Investments — Technology — 79.0% (8)               
Audacy Corporation (2)(12)  Communications  Term Loan (10.39% cash (Libor + 7.90%; Floor   3,143    3,092    2,492 
      9.50%), 5.00% ETP, Due 7/1/22)               
Intelepeer Holdings, Inc. (2)(12)  Communications  Term Loan (12.44% cash (Libor + 9.95%; Floor   4,000    3,929    3,929 
      11.25%), 3.30% ETP, Due 1/1/22)               
      Term Loan (12.44% cash (Libor + 9.95%; Floor   3,000    2,941    2,941 
      11.25%), 2.50% ETP, Due 2/1/22)               
      Term Loan (12.45% cash (Libor + 9.95%; Floor   1,073    1,053    1,053 
      12.45%), 2.50% ETP, Due 10/1/22)               
Betabrand Corporation (2)(12)  Consumer-related Technologies  Term Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23)    4,250    4,102    4,102 
      Term Loan (10.05% cash (Libor + 7.50%; Floor 10.05%), 4.50% ETP, Due 9/1/23)    4,250    4,168    4,168 

 

See Notes to Consolidated Financial Statements

 

 7 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
Food52, Inc. (2)(12)  Consumer-related Technologies  Term Loan (10.90% cash (Libor + 8.40%; Floor 10.90%), 3.00% ETP, Due 1/1/23)    3,000    2,923    2,923 
      Term Loan (10.90% cash (Libor + 8.40%; Floor   3,000    2,923    2,923 
      10.90%), 3.00% ETP, Due 1/1/23)               
Mohawk Group Holdings, Inc. (2)(12)  Consumer-related Technologies  Term Loan (9.90% cash (Libor + 7.40%; Floor 9.90%), 4.00% ETP, Due 1/1/23)    5,000    4,892    4,892 
      Term Loan (9.90% cash (Libor + 7.40%; Floor   5,000    4,892    4,892 
      9.90%), 4.00% ETP, Due 1/1/23)               
      Term Loan (9.90% cash (Libor + 7.40%; Floor   5,000    4,892    4,892 
      9.90%), 4.00% ETP, Due 1/1/23)               
Canara, Inc. (2)(12)  Data Storage  Term Loan (11.09% cash (Libor + 8.60%; Floor   5,000    4,836    4,836 
      11.00%), 1.00% ETP, Due 2/1/23)               
      Term Loan (11.09% cash (Libor + 8.60%; Floor   5,000    4,836    4,836 
      11.00%), 1.00% ETP, Due 2/1/23)               
Kaminario, Inc. (2)(12)  Data Storage  Term Loan (10.89% cash (Libor + 8.40%; Floor   5,000    4,923    4,923 
      10.65%), 3.00% ETP, Due 1/1/23)               
      Term Loan (10.89% cash (Libor + 8.40%; Floor   5,000    4,923    4,923 
      10.65%), 3.00% ETP, Due 1/1/23)               
IgnitionOne, Inc. (2)(12)  Internet and Media  Term Loan (12.72% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)    3,000    2,881    2,881 
      Term Loan (12.72% cash (Libor + 10.23%; Floor   3,000    2,881    2,881 
      10.23%), 2.00% ETP, Due 4/1/22)               
      Term Loan (12.72% cash (Libor + 10.23%; Floor   3,000    2,881    2,881 
      10.23%), 2.00% ETP, Due 4/1/22)               
      Term Loan (12.72% cash (Libor + 10.23%; Floor   3,000    2,881    2,881 
      10.23%), 2.00% ETP, Due 4/1/22)               
Jump Ramp Games, Inc. (2)(12)  Internet and Media  Term Loan (12.22% cash (Libor + 9.73%), 3.00% ETP, Due 4/1/21)    4,000    3,964    3,964 
Kixeye, Inc. (2)(12)  Internet and Media  Term Loan (12.09% cash (Libor + 9.60%; Floor 10.75%), 4.00% ETP, Due 5/1/21)    2,550    2,476    2,476 
      Term Loan (12.09% cash (Libor + 9.60%; Floor   2,550    2,516    2,516 
      10.75%), 4.00% ETP, Due 5/1/21)               
Verve Wireless, Inc. (2)(12)  Internet and Media  Term Loan (11.29% cash (Libor + 8.80%; Floor 10.80%), 3.33% ETP, Due 9/1/21)    3,000    2,884    2,884 
Zinio Holdings, LLC (2)(12)  Internet and Media  Term Loan (13.74% cash (Libor + 11.25%; Floor 11.75%), 8.50% ETP, Due 2/1/20)    2,800    2,791    2,791 
The NanoSteel Company, Inc. (2)(12)  Materials  Term Loan (11.00% cash (Libor + 8.50%; Floor   4,250    4,190    4,190 
      11.00%), 4.0% ETP, Due 6/1/22)               
      Term Loan (11.00% cash (Libor + 8.50%; Floor   4,250    4,190    4,190 
      11.00%), 4.0% ETP, Due 6/1/22)               
Powerhouse Dynamics, Inc. (2)(12)  Power Management  Term Loan (13.19% cash (Libor + 10.70%; Floor 11.20%), 3.32% ETP, Due 9/1/19)    408    400    400 
Bridge2 Solutions, LLC. (2)(12)  Software  Term Loan (11.74% cash (Libor + 9.25%; Floor   5,000    4,850    4,850 
      10.50%), 2.00% ETP, Due 11/1/21)               
      Term Loan (11.74% cash (Libor + 9.25%; Floor   5,000    4,850    4,850 
      10.50%), 2.00% ETP, Due 11/1/21)               
Education Elements, Inc. (2)(12)  Software  Term Loan (12.49% cash (Libor + 10.00%; Floor   200    197    197 
      10.50%), 4.00% ETP, Due 8/1/19)               
New Signature US, Inc. (2)(12)(13)  Software  Term Loan (10.99% cash (Libor + 8.50%; Floor   2,750    2,712    2,712 
      10.50%), 3.50% ETP, Due 7/1/22)               
      Term Loan (10.99% cash (Libor + 8.50%; Floor   1,000    984    984 
      10.50%), 3.50% ETP, Due 2/1/23)               
SIGNiX, Inc. (12)  Software  Term Loan (13.49% cash (Libor + 11.00%; Floor   1,645    1,602    1,500 
      11.50%), 8.67% ETP, Due 2/1/20)               
xAd, Inc. (2)(12)  Software  Term Loan (11.19% cash (Libor + 8.70%; Floor   5,000    4,930    4,930 
      10.00%), 4.75% ETP, Due 11/1/21)               
      Term Loan (11.19% cash (Libor + 8.70%; Floor   5,000    4,930    4,930 
      10.00%), 4.75% ETP, Due 11/1/21)               
      Term Loan (11.19% cash (Libor + 8.70%; Floor   3,000    2,958    2,958 
      10.00%), 4.75% ETP, Due 11/1/21)               

 

See Notes to Consolidated Financial Statements

 

 8 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
      Term Loan (11.19% cash (Libor + 8.70%; Floor   2,000    1,972    1,972 
      10.00%), 4.75% ETP, Due 11/1/21)               
Total Non-Affiliate Debt Investments — Technology        124,245    123,543 
Non-Affiliate Debt Investments — Healthcare information and services — 16.2% (8)               
Catasys, Inc. (2)(5)(12)  Software  Term Loan (10.24% cash (Libor + 7.75%;   2,500    2,480    2,480 
      Floor 9.75%), 6.00% ETP, Due 3/1/22)               
      Term Loan (10.24% cash (Libor + 7.75%;   2,500    2,480    2,480 
      Floor 9.75%), 6.00% ETP, Due 3/1/22)               
      Term Loan (10.24% cash (Libor + 7.75%;   2,500    2,479    2,479 
      Floor 9.75%), 6.00% ETP, Due 3/1/22)               
      Revolving Loan (10.23% cash (Libor + 7.75%;   2,500    2,276    2,276 
      Floor 9.75%), 6.00% ETP, Due 8/31/22)               
HealthEdge Software, Inc. (2)(12)  Software  Term Loan (10.74% cash (Libor + 8.25%;   4,643    4,593    4,593 
      Floor 9.25%), 3.00% ETP, Due 7/1/22)               
      Term Loan (10.74% cash (Libor + 8.25%;   3,750    3,707    3,707 
      Floor 9.25%), 3.00% ETP, Due 1/1/23)               
      Term Loan (10.74% cash (Libor + 8.25%;   3,750    3,704    3,704 
      Floor 9.25%), 3.00% ETP, Due 4/1/23)               
      Term Loan (10.74% cash (Libor + 8.25%;   3,750    3,699    3,699 
      Floor 9.25%), 3.00% ETP, Due 1/1/24)               
Total Non-Affiliate Debt Investments — Healthcare information and services        25,418    25,418 
Total Non- Affiliate Debt Investments        229,255    228,553 
                      
Non-Affiliate Warrant Investments — 6.2% (8)                 
Non-Affiliate Warrants — Life Science — 1.4% (8)               
ACT Biotech Corporation  Biotechnology  130,872 Preferred Stock Warrants        12     
Alpine Immune Sciences, Inc. (5)(12)  Biotechnology  4,634 Common Stock Warrants        122     
Celsion Corporation (2)(5)(12)  Biotechnology  95,465 Common Stock Warrants        79    11 
Espero BioPharma, Inc. (2)(5)(12)  Biotechnology  1,506,937 Common Stock Warrants        185    182 
Mustang Bio, Inc. (2)(5)(12)  Biotechnology  288,184 Common Stock Warrants        187    187 
Rocket Pharmaceuticals Corporation (5)(12)  Biotechnology  7,051 Common Stock Warrants        17    3 
Palatin Technologies, Inc. (2)(5)(12)  Biotechnology  608,058 Common Stock Warrants        51    139 
Revance Therapeutics, Inc. (5)(12)  Biotechnology  34,113 Common Stock Warrants        68    86 
Sample6, Inc. (2)(12)  Biotechnology  661,956 Preferred Stock Warrants        53    25 
Strongbridge U.S. Inc. (2)(5)(12)  Biotechnology  160,714 Common Stock Warrants        72    433 
Sunesis Pharmaceuticals, Inc. (5)(12)  Biotechnology  2,050 Common Stock Warrants        5     
vTv Therapeutics Inc. (2)(5)(12)  Biotechnology  95,293 Common Stock Warrants        44     
Titan Pharmaceuticals, Inc. (2)(5)(12)  Drug Delivery  373,333 Common Stock Warrants        95    201 
AccuVein Inc. (2)(12)  Medical Device  1,174,881 Preferred Stock Warrants        24    27 
Aerin Medical, Inc. (2)(12)  Medical Device  1,818,182 Preferred Stock Warrants        66    66 
Conventus Orthopaedics, Inc. (2)(12)  Medical Device  720,000 Preferred Stock Warrants        95    97 
CSA Medical, Inc. (12)  Medical Device  745,562 Preferred Stock Warrants        89    84 
Lantos Technologies, Inc. (2)(12)  Medical Device  1,715,926 Common Stock Warrants        253    285 
MacuLogix, Inc. (2)(12)  Medical Device  234,742 Preferred Stock Warrants        179    88 
NinePoint Medical, Inc. (2)(12)  Medical Device  29,102 Preferred Stock Warrants        33    6 
ReShape Lifesciences Inc. (5)(12)  Medical Device  121 Common Stock Warrants        341     
Tryton Medical, Inc. (2)(12)  Medical Device  122,362 Preferred Stock Warrants        15    13 
VERO Biotech LLC (2)(12)  Medical Device  800 Common Stock Warrants        53    329 
Total Non-Affiliate Warrants — Life Science        2,138    2,262 
Non-Affiliate Warrants — Technology — 4.2% (8)                 
Audacy Corporation  (2)(12)  Communications  1,545,575 Preferred Stock Warrants        194     
Intelepeer Holdings, Inc. (2)(12)  Communications  1,702,617 Preferred Stock Warrants        122    83 
PebblePost, Inc. (2)(12)  Communications  598,850 Preferred Stock Warrants        92    156 
Betabrand Corporation (2)(12)  Consumer-related Technologies  248,211 Preferred Stock Warrants        101    101 
Food52, Inc. (2)(12)  Consumer-related Technologies  102,941 Preferred Stock Warrants        104    102 
Gwynnie Bee, Inc. (2)(12)  Consumer-related Technologies  268,591 Preferred Stock Warrants        68    837 
Le Tote, Inc. (2)(12)  Consumer-related Technologies  202,974 Preferred Stock Warrants        63    366 
Mohawk Group Holdings, Inc. (2)(12)  Consumer-related Technologies  300,000 Common Stock Warrants        195    190 
Rhapsody International Inc. (2)(12)  Consumer-related Technologies  852,273 Common Stock Warrants        164     
Canara, Inc. (2)(12)  Data Storage  500,000 Preferred Stock Warrants        242    242 
Kaminario, Inc. (2)(12)  Data Storage  9,981,346 Preferred Stock Warrants        124    159 
IgnitionOne, Inc. (2)(12)  Internet and Media  262,910 Preferred Stock Warrants        672    697 

 

See Notes to Consolidated Financial Statements

 

 9 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
Jump Ramp Games, Inc. (2)(12)  Internet and Media  159,766 Preferred Stock Warrants        32    1 
Kixeye, Inc. (2)(12)  Internet and Media  791,251 Preferred Stock Warrants        75    60 
Rocket Lawyer Incorporated (2)(12)  Internet and Media  261,721 Preferred Stock Warrants        92    75 
Verve Wireless, Inc. (2)(12)  Internet and Media  112,805 Common Stock Warrants        120    119 
The NanoSteel Company, Inc. (2)(12)  Materials  467,277 Preferred Stock Warrants        233    561 
Powerhouse Dynamics, Inc. (2)(12)  Power Management  348,838 Preferred Stock Warrants        33    50 
Avalanche Technology, Inc. (2)(12)  Semiconductors  202,602 Preferred Stock Warrants        101    53 
Soraa, Inc. (2)(12)  Semiconductors  203,616 Preferred Stock Warrants        80    423 
Bridge2 Solutions, Inc. (2)(12)  Software  125,458 Common Stock Warrants        432    755 
BSI Platform Holdings, LLC (2)(12)(13)  Software  187,500 Preferred Stock Warrants        26    25 
Clarabridge, Inc. (12)  Software  53,486 Preferred Stock Warrants        14    105 
Education Elements, Inc. (2)(12)  Software  238,121 Preferred Stock Warrants        28    23 
Lotame Solutions, Inc. (2)(12)  Software  288,115 Preferred Stock Warrants        22    284 
Metricly, Inc. (12)  Software  41,569 Common Stock Warrants        48     
Riv Data Corp. (2)(12)  Software  321,428 Preferred Stock Warrants        12    254 
ShopKeep.com, Inc. (2)(12)  Software  193,962 Preferred Stock Warrants        118    113 
SIGNiX, Inc. (12)  Software  133,560 Preferred Stock Warrants        225    35 
Skyword, Inc. (12)  Software  301,056 Preferred Stock Warrants        48    3 
Sys-Tech Solutions, Inc. (2)(12)  Software  375,000 Preferred Stock Warrants        242    429 
Weblinc Corporation (2)(12)  Software  195,122 Preferred Stock Warrants        42     
xAd, Inc. (2)(12)  Software  4,343,350 Preferred Stock Warrants        177    248 
Total Non-Affiliate Warrants — Technology        4,341    6,549 
Non-Affiliate Warrants — Cleantech — 0.1% (8)                 
Renmatix, Inc. (2)(12)  Alternative Energy  53,022 Preferred Stock Warrants        68     
Tigo Energy, Inc. (2)(12)  Energy Efficiency  804,604 Preferred Stock Warrants        100    111 
Total Non-Affiliate Warrants — Cleantech        168    111 
Non-Affiliate Warrants — Healthcare information and services — 0.5% (8)               
LifePrint Group, Inc. (2)(12)  Diagnostics  49,000 Preferred Stock Warrants        29    2 
ProterixBio, Inc. (2)(12)  Diagnostics  2,676 Common Stock Warrants        42     
Singulex, Inc. (12)  Other Healthcare  294,231 Preferred Stock Warrants        44    45 
Verity Solutions Group, Inc. (12)  Other Healthcare  300,360 Preferred Stock Warrants        100    64 
Watermark Medical, Inc. (2)(12)  Other Healthcare  27,373 Preferred Stock Warrants        74    61 
Catasys, Inc. (2)(5)(12)  Software  40,282 Common Stock Warrants        149    149 
HealthEdge Software, Inc. (2)(12)  Software  205,481 Preferred Stock Warrants        83    69 
Medsphere Systems Corporation (2)(12)  Software  7,097,792 Preferred Stock Warrants        60    210 
Recondo Technology, Inc. (2)(12)  Software  556,796 Preferred Stock Warrants        95    211 
Total Non-Affiliate Warrants — Healthcare information and services        676    811 
Total Non-Affiliate Warrants        7,323    9,733 
                      
Non-Affiliate Other Investments — 4.1% (8)                  
Espero Pharmaceuticals, Inc. (12)  Biotechnology  Royalty Agreement        5,300    4,700 
ZetrOZ, Inc. (12)  Medical Device  Royalty Agreement        142    700 
Vette Technology, LLC (12)  Data Storage  Royalty Agreement Due 4/18/2019        4,166    20 
Triple Double Holdings, LLC (12)  Software  License Agreement        2,200    1,000 
Total Non-Affiliate Other Investments        11,808    6,420 
                      
Non-Affiliate Equity — 0.3% (8)                     
Revance Therapeutics, Inc.(5)  Biotechnology  5,125 Common Stock        72    81 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  13,082 Common Stock        83    16 
SnagAJob.com, Inc. (12)  Consumer-related Technologies  82,974 Common Stock        9    83 
Verve Wireless, Inc. (2)(12)  Internet and Media  100,598 Preferred Stock        225    225 
Formetrix, Inc. (2)(12)  Materials  74,286 Common Stock        74    74 
TruSignal, Inc. (12)  Software  32,637 Common Stock        41    41 
Total Non-Affiliate Equity              504    520 
Total Non-Affiliate Portfolio Investment Assets       $248,890   $245,226 
                      
Non-controlled Affiliate Investments — 4.9% (8)                  
Non-controlled Affiliate Debt Investments — Technology — 4.3% (8)               
Decisyon, Inc. (12)  Software  Term Loan (14.798% cash (Libor + 12.308%; Floor  $1,426   $1,425   $1,423 
      12.50%), 8.00% ETP, Due 12/1/20)               
      Term Loan (14.798% cash (Libor + 12.308%; Floor   780    747    746 
      12.50%), 8.00% ETP, Due 12/1/20)               

 

See Notes to Consolidated Financial Statements

 

 10 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
      Term Loan (12.02% cash, Due 12/31/19)   250    250    250 
      Term Loan (12.03% cash, Due 12/31/19)   250    250    250 
      Term Loan (12.24% cash, Due 12/31/19)   750    750    748 
      Term Loan (13.08% cash, Due 12/31/19)   300    300    300 
      Term Loan (13.10% cash, Due 12/31/19)   200    200    200 
StereoVision Imaging, Inc. (12)  Software  Term Loan (9.52% Cash (Libor + 7.03%; Floor    3,200    2,798    2,798 
      8.50%), 8.50% ETP, Due 9/1/21) (11)               
Total Non-controlled Affiliate Debt Investments — Technology        6,720    6,715 
                      
Non-controlled Affiliate Warrants — Technology — 0.0% (8)               
Decisyon, Inc. (12)  Software  82,967 Common Stock Warrants        46     
Total Non-controlled Affiliate Warrants — Technology        46     
                      
Non-controlled Affiliate Equity — Technology — 0.6% (8)               
Decisyon, Inc. (12)  Software  45,365,936 Common Stock        185    75 
StereoVision Imaging, Inc. (12)  Software  1,943,572 Common Stock        791    791 
Total Non-controlled Affiliate Equity        976    866 
Total Non-controlled Affiliate Portfolio Investment Assets       $7,742   $7,581 
                      
Controlled Affiliate Investments — 8.5% (8)               
Controlled Affiliate Equity — Financial — 8.5% (8)               
Horizon Secured Loan Fund I LLC (12)(14)  Investment funds          $13,360   $13,345 
Total Controlled Affiliate Equity        13,360    13,345 
Total Controlled Affiliate Portfolio Investment Assets       $13,360   $13,345 
                      
Total Portfolio Investment Assets — 170.1%(8)       $269,992   $266,152 

 

 

 

(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 revolving credit facility with KeyBank National Association (the “Key Facility”).
     
(3)   All non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).
     
(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. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All debt investments based on the London InterBank Offered Rate (“LIBOR”) are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of March 31, 2019 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)   As of March 31, 2019, 4.5% of the Company’s total assets on a cost and fair value basis are in non-qualifying assets. Under the Investment Company Act of 1940, as amended (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 has a payment-in-kind (“PIK”) feature.
     
(12)   The fair value of the investment was valued using significant unobservable inputs.

 

See Notes to Consolidated Financial Statements

 

 11 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

March 31, 2019

(Dollars in thousands)

 

(13)   New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.
     
(14)   On June 1, 2018, the Company entered into an agreement with Arena Sunset SPV, LLC (“Arena”) to co-invest through Horizon Secured Loan Fund I (“HSLFI”), a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries.  All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

 

See Notes to Consolidated Financial Statements

 

 12 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
Non-Affiliate Investments — 169.6% (8)                  
Non-Affiliate Debt Investments — 156.3% (8)                  
Non-Affiliate Debt Investments — Life Science — 49.9% (8)               
Celsion Corporation (2)(5)(12)  Biotechnology  Term Loan (9.98% cash (Libor + 7.63%; Floor  $2,500   $2,450   $2,450 
      9.63%), 4.00% ETP, Due 7/1/22)               
      Term Loan (9.98% cash (Libor + 7.63%; Floor   2,500    2,450    2,450 
      9.63%), 4.00% ETP, Due 7/1/22)               
Espero BioPharma, Inc. (2)(12)  Biotechnology  Term Loan (12.25% cash (Libor + 9.9%; Floor   5,000    4,760    4,760 
      12.00%), 4.00% ETP, Due 6/30/19)               
Palatin Technologies, Inc. (2)(5)(12)  Biotechnology  Term Loan (10.85% cash (Libor + 8.50%; Floor   1,167    1,156    1,156 
      9.00%), 5.00% ETP, Due 8/1/19)               
      Term Loan (10.85% cash (Libor + 8.50%; Floor   1,167    1,167    1,167 
      9.00%), 3.27% ETP, Due 8/1/19)               
vTv Therapeutics Inc. (2)(5)(12)  Biotechnology  Term Loan (12.35% cash (Libor + 10.00%; Floor   4,167    4,136    4,136 
      10.50%), 6.00% ETP, Due 5/1/20)               
      Term Loan (12.35% cash (Libor + 10.00%; Floor   3,281    3,250    3,250 
      10.50%), 6.00% ETP, Due 10/1/20)               
Titan Pharmaceuticals, Inc. (2)(5)(12)  Drug Delivery  Term Loan (10.75% cash (Libor + 8.40%; Floor   1,600    1,495    1,495 
      9.50%), 5.00% ETP, Due 6/1/21)               
Aerin Medical, Inc. (2)(12)  Medical Device  Term Loan (9.80% cash (Libor + 7.45%; Floor   4,000    3,891    3,891 
      8.75%), 4.00% ETP, Due 1/1/22)               
      Term Loan (9.80% cash (Libor + 7.45%; Floor   3,000    2,966    2,966 
      8.75%), 4.00% ETP, Due 1/1/22)               
      Term Loan (9.80% cash (Libor + 7.45%; Floor   3,000    2,966    2,966 
      8.75%), 4.00% ETP, Due 1/1/22)               
Conventus Orthopaedics, Inc. (2)(12)  Medical Device  Term Loan (10.35% cash (Libor + 8.00%; Floor   4,000    3,949    3,949 
      9.25%), 6.00% ETP, Due 6/1/21)               
      Term Loan (10.35% cash (Libor + 8.00%; Floor   4,000    3,949    3,949 
      9.25%), 6.00% ETP, Due 6/1/21)               
      Term Loan (10.35% cash (Libor + 8.00%; Floor   4,000    3,949    3,949 
      9.25%), 6.00% ETP, Due 6/1/21)               
CSA Medical, Inc. (2)(12)  Medical Device  Term Loan (10.28% cash (Libor + 7.93%; Floor   6,000    5,768    5,768 
      10.00%), 5.00% ETP, Due 10/1/22)               
Lantos Technologies, Inc. (2)(12)  Medical Device  Term Loan (10.78% cash (Libor + 8.43%; Floor   4,000    3,563    3,563 
      10.00%), 6.00% ETP, Due 9/1/21)               
MacuLogix, Inc. (2)(12)  Medical Device  Term Loan (10.02% cash (Libor + 7.68%; Floor   3,750    3,623    3,623 
      9.50%), 4.00% ETP, Due 8/1/22)               
      Term Loan (10.14% cash (Libor + 7.68%; Floor   3,750    3,638    3,638 
      9.50%), 4.00% ETP, Due 8/1/22)               
VERO Biotech LLC (2)(12)  Medical Device  Term Loan (10.35% cash (Libor + 8.00%; Floor   4,000    3,950    3,950 
      9.25%), 5.00% ETP, Due 1/1/22)               
      Term Loan (10.35% cash (Libor + 8.00%; Floor   4,000    3,950    3,950 
      9.25%), 5.00% ETP, Due 1/1/22)               
Total Non-Affiliate Debt Investments — Life Science        67,026    67,026 
Non-Affiliate Debt Investments — Technology — 88.9% (8)               
Audacy Corporation (2)(12)  Communications  Term Loan (10.25% cash (Libor + 7.90%; Floor   4,000    3,936    3,636 
      9.50%), 5.00% ETP, Due 7/1/22)               
Intelepeer Holdings, Inc. (2)(12)  Communications  Term Loan (12.30% cash (Libor + 9.95%; Floor   4,000    3,948    3,948 
      11.25%), 2.50% ETP, Due 7/1/21)               
      Term Loan (12.30% cash (Libor + 9.95%; Floor   3,000    2,955    2,955 
      11.25%), 2.50% ETP, Due 2/1/21)               
Food52, Inc. (2)(12)  Consumer-related Technologies  Term Loan (10.90% cash (Libor + 8.40%; Floor   3,000    2,918    2,918 
      10.90%), 3.00% ETP, Due 1/1/23)               
      Term Loan (10.90% cash (Libor + 8.40%; Floor   3,000    2,918    2,918 
      10.90%), 3.00% ETP, Due 1/1/23)               
Mohawk Group Holdings, Inc. (2)(12)  Consumer-related Technologies  Term Loan (9.90% cash (Libor + 7.40%; Floor   5,000    4,885    4,885 
      9.90%), 4.00% ETP, Due 1/1/23)               
      Term Loan (9.90% cash (Libor + 7.40%; Floor   5,000    4,885    4,885 
      9.90%), 4.00% ETP, Due 1/1/23)               
      Term Loan (9.90% cash (Libor + 7.40%; Floor   5,000    4,885    4,885 
      9.90%), 4.00% ETP, Due 1/1/23)               
Kaminario, Inc. (2)(12)  Data Storage  Term Loan (10.87% cash (Libor + 8.40%; Floor   5,000    4,918    4,918 
      10.65%), 3.00% ETP, Due 1/1/23)               

 

See Notes to Consolidated Financial Statements

 

 13 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
      Term Loan (10.87% cash (Libor + 8.40%; Floor   5,000    4,917    4,917 
      10.65%), 3.00% ETP, Due 1/1/23)               
IgnitionOne, Inc. (2)(12)  Internet and Media  Term Loan (12.58% cash (Libor + 10.23%; Floor 10.23%), 2.00% ETP, Due 4/1/22)    3,000    2,871    2,871 
      Term Loan (12.58% cash (Libor + 10.23%; Floor   3,000    2,871    2,871 
      10.23%), 2.00% ETP, Due 4/1/22)               
      Term Loan (12.58% cash (Libor + 10.23%; Floor   3,000    2,871    2,871 
      10.23%), 2.00% ETP, Due 4/1/22)               
      Term Loan (12.58% cash (Libor + 10.23%; Floor   3,000    2,871    2,871 
      10.23%), 2.00% ETP, Due 4/1/22)               
Jump Ramp Games, Inc. (2)(12)  Internet and Media  Term Loan (12.08% cash (Libor + 9.73%), 3.00% ETP, Due 4/1/21)   4,000    3,960    3,960 
Kixeye, Inc. (2)(12)  Internet and Media  Term Loan (11.95% cash (Libor + 9.60%; Floor 10.75%), 2.00% ETP, Due 5/1/21)    2,700    2,617    2,617 
      Term Loan (11.95% cash (Libor + 9.60%; Floor   2,700    2,661    2,661 
      10.75%), 2.00% ETP, Due 5/1/21)               
Rocket Lawyer Incorporated (2)(12)  Internet and Media  Term Loan (11.75% cash (Libor + 9.40%; Floor 10.50%), 3.00% ETP, Due 7/1/21)    4,000    3,952    3,952 
      Term Loan (11.75% cash (Libor + 9.40%; Floor   4,000    3,952    3,952 
      10.50%), 3.00% ETP, Due 7/1/21)               
      Term Loan (11.75% cash (Libor + 9.40%; Floor   2,000    1,973    1,973 
      10.50%), 3.00% ETP, Due 11/1/21)               
Verve Wireless, Inc. (2)(12)  Internet and Media  Term Loan (11.15% cash (Libor + 8.80%; Floor 10.80%), 3.33% ETP, Due 9/1/21)    3,300    3,172    3,172 
Zinio Holdings, LLC (2)(12)  Internet and Media  Term Loan (13.60% cash (Libor + 11.25%; Floor 11.75%), 6.00% ETP, Due 2/1/20)    3,225    3,213    3,213 
The NanoSteel Company, Inc. (2)(12)  Materials  Term Loan (11.00% cash (Libor + 8.50%; Floor   4,250    4,186    4,186 
      11.00%), 4.0% ETP, Due 6/1/22)               
      Term Loan (11.00% cash (Libor + 8.50%; Floor   4,250    4,186    4,186 
      11.00%), 4.0% ETP, Due 6/1/22)               
Powerhouse Dynamics, Inc. (2)(12)  Power Management  Term Loan (13.05% cash (Libor + 10.70%; Floor 11.20%), 3.32% ETP, Due 9/1/19)    525    512    512 
Luxtera, Inc. (12)  Semiconductors  Term Loan (12.00% cash (Prime + 6.75%),   2,000    1,945    1,945 
      Due 3/28/20)               
      Term Loan (12.00% cash (Prime + 6.75%),   1,500    1,468    1,468 
      Due 3/28/20)               
Bridge2 Solutions, LLC. (2)(12)  Software  Term Loan (11.60% cash (Libor + 9.25%; Floor   5,000    4,835    4,835 
      10.50%), 2.00% ETP, Due 11/1/21)               
      Term Loan (11.60% cash (Libor + 9.25%; Floor   5,000    4,835    4,835 
      10.50%), 2.00% ETP, Due 11/1/21)               
Education Elements, Inc. (2)(12)  Software  Term Loan (12.35% cash (Libor + 10.00%; Floor   350    346    346 
      10.50%), 4.00% ETP, Due 8/1/19)               
New Signature US, Inc. (2)(12)(13)  Software  Term Loan (10.85% cash (Libor + 8.50%; Floor   2,750    2,699    2,699 
      10.50%), 3.50% ETP, Due 7/1/22)               
SIGNiX, Inc. (12)  Software  Term Loan (13.35% cash (Libor + 11.00%; Floor   1,845    1,790    1,555 
      11.50%), 8.67% ETP, Due 2/1/20)               
xAd, Inc. (2)(12)  Software  Term Loan (11.05% cash (Libor + 8.70%; Floor   5,000    4,923    4,923 
      10.00%), 4.75% ETP, Due 11/1/21)               
      Term Loan (11.05% cash (Libor + 8.70%; Floor   5,000    4,923    4,923 
      10.00%), 4.75% ETP, Due 11/1/21)               
      Term Loan (11.05% cash (Libor + 8.70%; Floor   3,000    2,954    2,954 
      10.00%), 4.75% ETP, Due 11/1/21)               
      Term Loan (11.05% cash (Libor + 8.70%; Floor   2,000    1,969    1,969 
      10.00%), 4.75% ETP, Due 11/1/21)               
Total Non-Affiliate Debt Investments — Technology        119,720    119,185 
Non-Affiliate Debt Investments — Healthcare information and services — 17.5% (8)               
Catasys, Inc. (2)(5)(12)  Software  Term Loan (10.10% cash (Libor + 7.75%;   2,500    2,478    2,478 
      Floor 9.75%), 6.00% ETP, Due 3/1/22)               
      Term Loan (10.10% cash (Libor + 7.75%;   2,500    2,478    2,478 
      Floor 9.75%), 6.00% ETP, Due 3/1/22)               
      Term Loan (10.10% cash (Libor + 7.75%;   2,500    2,477    2,477 
      Floor 9.75%), 6.00% ETP, Due 3/1/22)               

 

See Notes to Consolidated Financial Statements

 

 14 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
HealthEdge Software, Inc. (2)(12)  Software  Term Loan (10.60% cash (Libor + 8.25%;   5,000    4,948    4,948 
      Floor 9.25%), 3.00% ETP, Due 7/1/22)               
      Term Loan (10.60% cash (Libor + 8.25%;   3,750    3,704    3,704 
      Floor 9.25%), 3.00% ETP, Due 1/1/23)               
      Term Loan (10.60% cash (Libor + 8.25%;   3,750    3,701    3,701 
      Floor 9.25%), 3.00% ETP, Due 4/1/23)               
      Term Loan (10.69% cash (Libor + 8.25%;   3,750    3,696    3,696 
      Floor 9.25%), 3.00% ETP, Due 1/1/24)               
Total Non-Affiliate Debt Investments — Healthcare information and services        23,482    23,482 
Total Non- Affiliate Debt Investments        210,228    209,693 
                      
Non-Affiliate Warrant Investments — 6.9% (8)                  
Non-Affiliate Warrants — Life Science — 1.5% (8)               
ACT Biotech Corporation  Biotechnology  130,872 Preferred Stock Warrants        12     
Alpine Immune Sciences, Inc. (5)(12)  Biotechnology  4,634 Common Stock Warrants        122     
Celsion Corporation (2)(5)(12)  Biotechnology  95,465 Common Stock Warrants        79    1 
Espero BioPharma, Inc. (2)(5)(12)  Biotechnology  1,506,937 Common Stock Warrants        184    185 
Rocket Pharmaceuticals Corporation (5)(12)  Biotechnology  7,051 Common Stock Warrants        17     
Palatin Technologies, Inc. (2)(5)(12)  Biotechnology  608,058 Common Stock Warrants        51    34 
Revance Therapeutics, Inc. (5)(12)  Biotechnology  34,113 Common Stock Warrants        68    210 
Sample6, Inc. (2)(12)  Biotechnology  661,956 Preferred Stock Warrants        53    26 
Strongbridge U.S. Inc. (2)(5)(12)  Biotechnology  160,714 Common Stock Warrants        72    356 
Sunesis Pharmaceuticals, Inc. (5)(12)  Biotechnology  2,050 Common Stock Warrants        5     
vTv Therapeutics Inc. (2)(5)(12)  Biotechnology  95,293 Common Stock Warrants        44    1 
Titan Pharmaceuticals, Inc. (2)(5)(12)  Drug Delivery  2,240,000 Common Stock Warrants        95    89 
AccuVein Inc. (2)(12)  Medical Device  1,174,881 Preferred Stock Warrants        24    28 
Aerin Medical, Inc. (2)(12)  Medical Device  1,818,182 Preferred Stock Warrants        66    68 
Conventus Orthopaedics, Inc. (2)(12)  Medical Device  720,000 Preferred Stock Warrants        95    99 
CSA Medical, Inc. (12)  Medical Device  745,562 Preferred Stock Warrants        89    86 
Lantos Technologies, Inc. (2)(12)  Medical Device  1,715,926 Common Stock Warrants        253    285 
MacuLogix, Inc. (2)(12)  Medical Device  234,742 Preferred Stock Warrants        179    90 
Mitralign, Inc. (2)(12)  Medical Device  64,190 Common Stock Warrants        52    1 
NinePoint Medical, Inc. (2)(12)  Medical Device  29,102 Preferred Stock Warrants        33    6 
ReShape Lifesciences Inc. (5)(12)  Medical Device  121 Common Stock Warrants        341     
Tryton Medical, Inc. (2)(12)  Medical Device  122,362 Preferred Stock Warrants        15    13 
VERO Biotech LLC (2)(12)  Medical Device  800 Common Stock Warrants        53    331 
Total Non-Affiliate Warrants — Life Science              2,002    1,909 
Non-Affiliate Warrants — Technology — 4.8% (8)               
Audacy Corporation  (2)(12)  Communications  1,545,575 Preferred Stock Warrants        194     
Intelepeer Holdings, Inc. (2)(12)  Communications  1,171,549 Preferred Stock Warrants        94    57 
PebblePost, Inc. (2)(12)  Communications  598,850 Preferred Stock Warrants        92    158 
Food52, Inc. (2)(12)  Consumer-related Technologies  102,941 Preferred Stock Warrants        104    104 
Gwynnie Bee, Inc. (2)(12)  Consumer-related Technologies  268,591 Preferred Stock Warrants        68    820 
Le Tote, Inc. (2)(12)  Consumer-related Technologies  202,974 Preferred Stock Warrants        63    368 
Mohawk Group Holdings, Inc. (2)(12)  Consumer-related Technologies  300,000 Common Stock Warrants        195    195 
Rhapsody International Inc. (2)(12)  Consumer-related Technologies  852,273 Common Stock Warrants        164     
Kaminario, Inc. (2)(12)  Data Storage  9,981,346 Preferred Stock Warrants        124    161 
IgnitionOne, Inc. (2)(12)  Internet and Media  262,910 Preferred Stock Warrants        672    665 
Jump Ramp Games, Inc. (2)(12)  Internet and Media  159,766 Preferred Stock Warrants        32    1 
Kixeye, Inc. (2)(12)  Internet and Media  791,251 Preferred Stock Warrants        75    61 
Rocket Lawyer Incorporated (2)(12)  Internet and Media  261,721 Preferred Stock Warrants        92    76 
Verve Wireless, Inc. (2)(12)  Internet and Media  112,805 Common Stock Warrants        120    120 
The NanoSteel Company, Inc. (2)(12)  Materials  467,277 Preferred Stock Warrants        233    567 
Powerhouse Dynamics, Inc. (2)(12)  Power Management  348,838 Preferred Stock Warrants        33     
Avalanche Technology, Inc. (2)(12)  Semiconductors  202,602 Preferred Stock Warrants        101    53 
Luxtera, Inc.(2)(12)  Semiconductors  3,546,553 Preferred Stock Warrants        213    744 
Soraa, Inc. (2)(12)  Semiconductors  203,616 Preferred Stock Warrants        80    426 
Bolt Solutions Inc. (2)(12)  Software  202,892 Preferred Stock Warrants        113     
Bridge2 Solutions, Inc. (2)(12)  Software  125,458 Common Stock Warrants        432    756 
BSI Platform Holdings, LLC (2)(12)(13)  Software  137,500 Preferred Stock Warrants        19    19 
Clarabridge, Inc. (12)  Software  53,486 Preferred Stock Warrants        14    106 
Education Elements, Inc. (2)(12)  Software  238,121 Preferred Stock Warrants        28    23 

 

See Notes to Consolidated Financial Statements

 

 15 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
Lotame Solutions, Inc. (2)(12)  Software  288,115 Preferred Stock Warrants        22    286 
Metricly, Inc. (12)  Software  41,569 Common Stock Warrants        48     
Riv Data Corp. (2)(12)  Software  321,428 Preferred Stock Warrants        12    36 
ShopKeep.com, Inc. (2)(12)  Software  193,962 Preferred Stock Warrants        118    114 
SIGNiX, Inc. (12)  Software  133,560 Preferred Stock Warrants        225    35 
Skyword, Inc. (12)  Software  301,056 Preferred Stock Warrants        48    3 
Sys-Tech Solutions, Inc. (2)(12)  Software  375,000 Preferred Stock Warrants        242    429 
Weblinc Corporation (2)(12)  Software  195,122 Preferred Stock Warrants        42     
xAd, Inc. (2)(12)  Software  4,343,350 Preferred Stock Warrants        177    251 
Total Non-Affiliate Warrants — Technology        4,289    6,634 
Non-Affiliate Warrants — Cleantech — 0.1% (8)                  
Renmatix, Inc. (2)(12)  Alternative Energy  53,022 Preferred Stock Warrants        68     
Tigo Energy, Inc. (2)(12)  Energy Efficiency  804,604 Preferred Stock Warrants        100    112 
Total Non-Affiliate Warrants — Cleantech        168    112 
Non-Affiliate Warrants — Healthcare information and services — 0.5% (8)               
LifePrint Group, Inc. (2)(12)  Diagnostics  49,000 Preferred Stock Warrants        29    2 
ProterixBio, Inc. (2)(12)  Diagnostics  2,676 Common Stock Warrants        42     
Singulex, Inc. (12)  Other Healthcare  294,231 Preferred Stock Warrants        44    45 
Verity Solutions Group, Inc. (12)  Other Healthcare  300,360 Preferred Stock Warrants        100    65 
Watermark Medical, Inc. (2)(12)  Other Healthcare  27,373 Preferred Stock Warrants        74    62 
HealthEdge Software, Inc. (2)(12)  Software  205,481 Preferred Stock Warrants        83    71 
Medsphere Systems Corporation (2)(12)  Software  7,097,792 Preferred Stock Warrants        60    212 
Recondo Technology, Inc. (2)(12)  Software  556,796 Preferred Stock Warrants        95    212 
Total Non-Affiliate Warrants — Healthcare information and services        527    669 
Total Non-Affiliate Warrants              6,986    9,324 
                      
Non-Affiliate Other Investments — 5.7% (8)                  
Espero Pharmaceuticals, Inc. (12)  Biotechnology  Royalty Agreement        5,300    4,700 
ZetrOZ, Inc. (12)  Medical Device  Royalty Agreement        142    700 
Vette Technology, LLC (12)  Data Storage  Royalty Agreement Due 4/18/2019        4,173    40 
Triple Double Holdings, LLC (12)  Software  License Agreement        2,200    2,200 
Total Non-Affiliate Other Investments        11,815    7,640 
                      
Non-Affiliate Equity — 0.7% (8)                     
Insmed Incorporated (5)  Biotechnology  33,208 Common Stock        238    436 
Revance Therapeutics, Inc.(5)  Biotechnology  5,125 Common Stock        73    103 
Sunesis Pharmaceuticals, Inc. (5)  Biotechnology  13,082 Common Stock        83    5 
SnagAJob.com, Inc. (12)  Consumer-related Technologies  82,974 Common Stock        9    83 
Verve Wireless, Inc. (2)(12)  Internet and Media  100,598 Preferred Stock        225    225 
Formetrix, Inc. (2)(12)  Materials  74,286 Common Stock        74    74 
TruSignal, Inc. (12)  Software  32,637 Common Stock        41    41 
Total Non-Affiliate Equity              743    967 
Total Non-Affiliate Portfolio Investment Assets       $229,772   $227,624 
                      
Non-controlled Affiliate Investments — 5.6% (8)                  
Non-controlled Affiliate Debt Investments — Technology — 5.0% (8)               
Decisyon, Inc. (12)  Software  Term Loan (14.658% cash (Libor + 12.308%; Floor  $1,523   $1,522   $1,464 
      12.50%), 8.00% ETP, Due 12/1/20)               
      Term Loan (14.658% cash (Libor + 12.308%; Floor   833    795    764 
      12.50%), 8.00% ETP, Due 12/1/20)               
      Term Loan (12.02% cash, Due 12/31/19)   250    250    240 
      Term Loan (12.03% cash, Due 12/31/19)   250    250    240 
      Term Loan (12.24% cash, Due 12/31/19)   750    750    721 
      Term Loan (13.08% cash, Due 12/31/19)   300    300    289 
      Term Loan (13.10% cash, Due 12/31/19)   200    200    192 
StereoVision Imaging, Inc. (12)  Software  Term Loan (9.38% Cash (Libor + 7.03%; Floor   3,200    2,798    2,798 
      8.50%), 8.50% ETP, Due 9/1/21) (11)               
Total Non-controlled Affiliate Debt Investments — Technology        6,865    6,708 
                      
Non-controlled Affiliate Warrants — Technology — 0.0% (8)               
Decisyon, Inc. (12)  Software  82,967 Common Stock Warrants        46     
Total Non-controlled Affiliate Warrants — Technology        46     

 

See Notes to Consolidated Financial Statements

 

 16 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Consolidated Schedule of Investments (Unaudited)

December 31, 2018

(Dollars in thousands)

 

         Principal   Cost of   Fair 
Portfolio Company (1)(3)  Sector  Type of Investment (4)(7)(9)(10)  Amount   Investments (6)   Value 
                   
Non-controlled Affiliate Equity — Technology — 0.6% (8)              
Decisyon, Inc. (12)  Software  45,365,936 Common Stock        185    75 
StereoVision Imaging, Inc. (12)  Software  1,943,572 Common Stock        791    791 
Total Non-controlled Affiliate Equity        976    866 
Total Non-controlled Affiliate Portfolio Investment Assets       $7,887   $7,574 
                      
Controlled Affiliate Investments — 9.9% (8)                  
Controlled Affiliate Equity — Financial — 9.9% (8)               
Horizon Secured Loan Fund I LLC (12)(14)  Investment funds          $13,262   $13,243 
Total Controlled Affiliate Equity        13,262    13,243 
Total Controlled Affiliate Portfolio Investment Assets       $13,262   $13,243 
                      
Total Portfolio Investment Assets — 185.1%(8)       $250,921   $248,441 

 

 
(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 non-affiliate investments are investments in which the Company owns less than 5% of the voting securities of the portfolio company. All non-controlled affiliate investments are investments in which the Company owns 5% or more of the voting securities of the portfolio company but not more than 25% of the voting securities of the portfolio company. All controlled affiliate investments are investments in which the Company owns more than 25% of the portfolio company’s outstanding voting securities or has the power to exercise control over management or policies of such portfolio company (including through a management agreement).
     
(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 ETPs, and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. Debt investments are at variable rates for the term of the debt investment, unless otherwise indicated. All 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, 2018 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)   As of December 31, 2018, 5.0% of the Company’s total assets on a cost and fair value basis are in non-qualifying assets. Under the 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 has a PIK feature.
     
(12)   The fair value of the investment was valued using significant unobservable inputs.
     
(13)   New Signature US, Inc. is a subsidiary of BSI Platform Holdings, LLC.
     
(14)   On June 1, 2018, the Company entered into an agreement with Arena to co-invest through HSLFI, a joint venture, which is expected to make investments, either directly or indirectly through subsidiaries, primarily in the form of secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries.  All HSLFI investment decisions require unanimous approval of a quorum of HSLFI’s board of managers. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise.

 

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 (including net 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.

 

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 26, 2019, the Company completed a follow-on public offering of 2,000,000 shares of its common stock at a public offering price of $12.14 per share, for total net proceeds to the Company of $23.2 million, after deducting underwriting commission and discounts and other offering expenses.

 

Note 2.  Basis of presentation and significant accounting policies

 

The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X (“Regulation S-X”) under the Securities Act of 1933, as amended (the “Securities Act”). In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. 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, 2018.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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 wholly-owned subsidiaries in its consolidated financial statements. Although the Company owns more than 25% of the voting securities of HSLFI, the Company does not have sole control over significant actions of HSLFI for purposes of the 1940 Act or otherwise, and thus does not consolidate its interest.

 

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 6. 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 6 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.

 

Investments

 

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

 

Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of March 31, 2019 and December 31, 2018, there were no debt investments on non-accrual status. For the three months ended March 31, 2019 and 2018, the Company did not recognize any interest income from debt investments on non-accrual status.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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

 

Certain debt investment agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay the ETP when due. The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the three months ended March 31, 2019 and 2018 was 8.1% and 7.5%, 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 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.

 

Distributions from HSLFI are evaluated at the time of distribution to determine if the distribution should be recorded as dividend income or a return of capital. Generally, the Company will not record distributions from HSLFI as dividend income unless there are sufficient accumulated tax-basis earnings and profit in HSLFI prior to distribution. Distributions that are classified as a return of capital are recorded as a reduction in the cost basis of the investment. For the three months ended March 31, 2019, HSLFI distributed $0.2 million classified as dividend income to the Company.

 

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

 

Debt issuance costs

 

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of March 31, 2019 and December 31, 2018 was $2.0 million and $2.2 million, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortization balances as of March 31, 2019 and December 31, 2018 were $2.6 million and $2.4 million, respectively. The amortization expense for the three months ended March 31, 2019 and 2018 was $0.2 million.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Income taxes

 

As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the portion of its taxable 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 and determined without regard to any deduction for dividends paid, 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 Topic 946, Financial ServicesInvestment Companies, 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 fiscal 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 year ended December 31, 2018, the Company reclassified $0.03 million to paid-in capital from distributions in excess of net investment income, which related to excise taxes payable.

 

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 incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended March 31, 2019 and 2018, there was no U.S. federal excise tax recorded.

 

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, Income Taxes, as modified by ASC Topic 946. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had no material uncertain tax positions at March 31, 2019 and December 31, 2018. The Company’s income tax returns for the 2017, 2016 and 2015 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 capital gains, if any, may be distributed, although the Company may decide to retain such net realized 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.

 

Stock Repurchase Program

 

On April 26, 2019, the Board extended a previously authorized 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 (the “Exchange Act”), and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of June 30, 2020 or the repurchase of $5.0 million of the Company’s common stock. During the three months ended March 31, 2019 and 2018, the Company did not make any repurchases of its common stock. From the inception of the stock repurchase program through March 31, 2019, the Company repurchased 167,465 shares of its common stock at an average price of $11.22 on the open market at a total cost of $1.9 million.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

Transfers of financial assets

 

Assets related to transactions that do not meet the requirements under ASC Topic 860, Transfers and Servicing for sale treatment under GAAP 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 pronouncements

 

In April 2014, the FASB issued Accounting Standards Update 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASU 2014-09”), which amends existing revenue recognition guidance to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. ASU 2014-09 is effective for annual and interim periods beginning after December 15, 2017. As required, the Company adopted ASU 2014-09 effective January 1, 2018, and such adoption did not have an impact on the Company’s consolidated financial statements and disclosures.

 

In August 2018, the FASB issued ASU 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework — Changes to the Disclosure Requirements for Fair Value Measurement (“ASU 2018-13”), which modifies disclosure requirements for the fair value measurement of Level 3 securities of public companies. This guidance is effective for annual and interim periods beginning on or after December 15, 2019 and early adoption is permitted. The Company elected to early adopt ASU 2018-13 for the year ended December 31, 2018. As a result, no significant changes were made to the Company’s disclosures in the notes to the consolidated financial statements.

 

Securities and Exchange Commission Disclosure Update and Simplification

 

In August 2018, the Securities and Exchange Commission (the “SEC”) adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification (the “SEC Release”), amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The SEC Release is effective for all filings on or after November 5, 2018. As required, the Company adopted the SEC Release for the year ended December 31, 2018. The SEC Release required changes to the presentation of the Company's Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Changes in Net Assets. Prior to adoption, the Company presented distributable earnings on the Consolidated Statements of Assets and Liabilities and the Consolidated Statement of Net Assets as three components: 1) distributions in excess of net investment income; 2) net unrealized depreciation on investments; and 3) net realized loss on investments. Upon adoption, the Company presents distributable earnings in total on the Consolidated Statements of Assets and Liabilities and the Consolidated Statements of Changes in Net Assets. The changes in presentation have been retrospectively applied to the Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2018.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The following table provides a reconciliation of previously disclosed components of distributable earnings on the Consolidated Statement of Changes in Net Assets as of March 31, 2018 to currently disclosed total distributable earnings on the Consolidated Statement of Assets and Liabilities as of March 31, 2018:

 

   For the three months ended March 31, 2018 
   Accumulated
Undistributed
(Distributions in
Excess of) Net
Investment Income
   Net
Unrealized
Depreciation
on
Investments
   Net Realized
Loss on
Investments
   Distributable
Earnings
 
   (In thousands) 
Net investment income, net of excise tax  $3,210   $   $   $3,210 
Net unrealized depreciation on investments       (458)       (458)
Net realized loss on investments           (149)   (149)
Net increase in net assets resulting from operations  $3,210   $(458)  $(149)  $2,603 

 

Note 3.  Related party transactions

 

Investment Management Agreement

 

On July 27, 2018, the Board approved the New Investment Management Agreement, which the shareholders, at a special meeting of the stockholders, approved October 30, 2018; the New Investment Management Agreement replaced the existing Investment Management Agreement and went into effect upon a change of control of the Advisor. 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 SEC. 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.

 

Through October 30, 2018, the base management fee was calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage. From and after October 31, 2018, the first date on which the reduced asset coverage requirements in Section 61(a)(2) of the 1940 Act apply to the Company, the base management fee was and will be calculated at an annual rate of 2.00% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage; provided, that, to the extent the Company’s gross assets (less cash and cash equivalents) exceed $250 million, the base management fee on the amount of such excess over $250 million will be calculated at an annual rate of 1.60% of the Company’s gross assets (less cash and cash equivalents) including any assets acquired with the proceeds of leverage. The base management fee is payable monthly in arrears and is prorated for any partial month.

 

The base management fee payable at March 31, 2019 and December 31, 2018 was $0.4 million. The base management fee expense was $1.3 million and $1.1 million for the three months ended March 31, 2019 and 2018, respectively.

 

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Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

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 PIK 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 hurdle rate of 1.75% (which is 7.00% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to 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.

 

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 increased 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 includes 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.

 

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Notes to Consolidated Financial Statements

 

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.

 

On March 5, 2019, the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2019 and ending on December 31, 2019. Such waived incentive fees will not be subject to recoupment. During the three months ended March 31, 2019, the Advisor waived performance based incentive fees of $1.1 million which the Advisor would have otherwise been paid by the Company.

 

On March 6, 2018, the Advisor irrevocably waived the receipt of incentive fees related to the amounts previously deferred that it may be entitled to receive under the Investment Management Agreement for the period commencing on January 1, 2018 and ending on December 31, 2018. Such waived incentive fees are not subject to recoupment. During the three months ended March 31, 2018, the Advisor did not waive performance based incentive fees.

 

The net performance based incentive fee expense was $0.8 million and $0.5 million for the three months ended March 31, 2019 and 2018, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for the three months ended March 31, 2018, which resulted in $0.2 million of reduced expense and additional net investment income. The performance based incentive fee payable as of March 31, 2019 and December 31, 2018 was $0.8 million and $1.0 million, respectively. The entire incentive fee payable as of March 31, 2019 and December 31, 2018 represented part one of the incentive fee.

 

Administration Agreement

 

The Company entered into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer and their respective staffs. The administrative fee expense was $0.2 million for the three months ended March 31, 2019 and 2018.

 

Note 4.  Investments

 

The following table shows the Company’s investments as of March 31, 2019 and December 31, 2018:

 

   March 31, 2019   December 31, 2018 
   Cost   Fair Value   Cost   Fair Value 
       (In thousands)     
Investments                    
Debt  $235,975   $235,268   $217,093   $216,401 
Warrants   7,369    9,733    7,032    9,324 
Other   11,808    6,420    11,815    7,640 
Equity   1,480    1,386    1,719    1,833 
Equity interest in HSLFI   13,360    13,345    13,262    13,243 
Total investments  $269,992   $266,152   $250,921   $248,441 

 

Additionally, as of March 31, 2019, the Company had commitments to fund undrawn revolvers to its portfolio companies totaling $5.0 million. As of December 31, 2018, the Company had no commitments to fund undrawn revolvers to its portfolio companies.

 

 25 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The following table shows the Company’s investments by industry sector as of March 31, 2019 and December 31, 2018:

 

   March 31, 2019   December 31, 2018 
   Cost   Fair Value   Cost   Fair Value 
       (In thousands)     
Life Science                    
Biotechnology  $38,173   $37,686   $25,770   $25,426 
Drug Delivery   1,601    1,707    1,590    1,584 
Medical Device   47,553    47,958    47,504    47,869 
Technology                    
Communications   11,423    10,654    11,219    10,754 
Consumer-Related   29,496    30,471    21,094    22,061 
Data Storage   24,050    19,939    14,132    10,036 
Internet and Media   27,371    27,332    38,200    38,132 
Materials   8,687    9,015    8,679    9,013 
Power Management   433    450    545    512 
Semiconductors   181    476    3,807    4,636 
Software   41,402    40,779    40,942    40,912 
Cleantech                    
Alternative Energy   68        68     
Energy Efficiency   100    111    100    112 
Healthcare Information and Services                    
Diagnostics   71    2    71    2 
Other   218    170    218    172 
Software   25,805    26,057    23,720    23,977 
Investment funds                    
HSLFI   13,360    13,345    13,262    13,243 
Total investments  $269,992   $266,152   $250,921   $248,441 

 

Horizon Secured Loan Fund I LLC

 

On June 1, 2018, the Company and Arena formed a joint venture, HSLFI, to make investments, either directly or indirectly through subsidiaries, primarily in secured loans to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. HSLFI was formed as a Delaware limited liability company and is not consolidated by either the Company or Arena for financial reporting purposes. Investments held by HSLFI are measured at fair value using the same valuation methodology as described in Note 6. As of March 31, 2019 and December 31, 2018, HSLFI had total assets of $30.9 million and $26.4 million, respectively. HSLFI’s portfolio consisted of debt investments in four portfolio companies as of March 31, 2019 and December 31, 2018. As of March 31, 2019, the largest investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $11.3 million, and the four largest investments in portfolio companies in the HSLFI totaled $29.2 million. As of December 31, 2018, the largest investment in a single portfolio company in the HSLFI’s portfolio in aggregate principal amount was $8.3 million, and the four largest investments in portfolio companies in the HSLFI totaled $25.0 million. As of March 31, 2019 and December 31, 2018, HSLFI had no investments on non-accrual status. HSLFI invests in portfolio companies in the same industries in which the Company may directly invest.

 

The Company invests cash or securities in portfolio companies in HSLFI in exchange for limited liability company equity interests in HSLFI. As of March 31, 2019 and December 31, 2018, the Company and Arena each owned 50.0% of the equity interests of HSLFI. The Company had an original commitment to fund $25.0 million of equity interests in HSLFI. As of March 31, 2019 and December 31, 2018, $11.7 million was unfunded. The Company’s investment in HSLFI consisted of an equity contribution of $13.3 million as of March 31, 2019 and December 31, 2018.

 

 26 

 

 

Horizon Technology Finance Corporation and Subsidiaries

 

Notes to Consolidated Financial Statements

 

The Company and Arena each appointed two members to HSLFI’s four-person board of managers. All material decisions with respect to HSLFI, including those involving its investment portfolio, require unanimous approval of a quorum of the board of managers. Quorum is defined as (i) the presence of two members of the board of managers; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of managers, provided that the individual that was elected, designated or appointed by the member with only one individual present will be entitled to cast two votes on each matter; or (iii) the presence of all four members of the board of managers.

 

Horizon Funding I, LLC (“HFI”) was formed as a Delaware limited liability company on May 9, 2018, with HSLFI as its sole member. HFI is a special purpose bankruptcy-remote entity and is a separate legal entity from HSLFI. Any assets conveyed to HFI are not available to creditors of HSLFI or any other entity other than HFI’s lenders.

 

In addition, on June 1, 2018, HSLFI entered into a sale and servicing agreement with HFI, as Issuer, and the Company, as Servicer, pursuant to which HSLFI will sell or contribute to HFI certain secured loans made to certain portfolio companies. HFI entered into a Note Funding Agreement (the “NYL Facility”) with several entities owned or affiliated with New York Life Insurance Company (“Noteholders”) for an aggregate purchase price of up to $100.0 million, with an accordion feature of up to $200.0 million at the mutual discretion and agreement of HSLFI and the Noteholders. The Note Funding Agreement has an investment period that ends on June 1, 2020, if not extended, followed by a five year amortization period and a scheduled final payment date of June 10, 2025, subject to any extension of the investment period. Any notes issued by HFI will be collateralized by all investments held by HFI and permit an advance rate of up to 67% of the aggregate principal amount of eligible debt investments. The interest rate on the notes issued under the NYL Facility is based on the three year USD mid-market swap rate plus a margin of between 2.75% and 3.25% depending on the rating of such notes at the time of issuance. There were $4.2 million in advances made by the Noteholders as of March 31, 2019 at an interest rate of 5.29%. There were no advances made by the Noteholders as of December 31, 2018.

 

The following table shows HSLFI’s individual investments as of March 31, 2019:

 

         Principal   Cost of   Fair 
Portfolio Company (1)  Sector  Type of Investment (2)(3)(4)  Amount   Investments(5)   Value 
(Dollars in thousands)
Debt Investments — Life science                     
Celsion Corporation (6)(7)(8)  Biotechnology  Term Loan (10.12% cash (Libor + 7.63%; Floor  $2,500   $2,453   $2,453 
      9.63%), 4.00% ETP, Due 7/1/22)               
      Term Loan (10.12% cash (Libor + 7.63%; Floor   2,500    2,453    2,453 
      9.63%), 4.00% ETP, Due 7/1/22)               
Total Debt Investments — Life science              4,906    4,906 
Debt Investments — Technology                     
Intelepeer Holdings, Inc. (6)(7)  Communications  Term Loan (12.44% cash (Libor + 9.95%; Floor   4,000    3,930    3,930 
      11.25%), 3.30% ETP, Due 1/1/22)               
      Term Loan (12.44% cash (Libor + 9.95%; Floor   4,000    3,930    3,930 
      11.25%), 3.30% ETP, Due 1/1/22)               
      Term Loan (12.45% cash (Libor + 9.95%; Floor   1,227    1,204    1,204 
      12.45%), 2.50% ETP, Due 10/1/22)               
New Signature US, Inc. (6)(7)(9)  Software  Term Loan (10.99% cash (Libor + 8.50%; Floor   8,250    8,136    8,136 
      10.50%), 3.50% ETP, Due 7/1/22)