UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 

FORM 10-Q

 

(Mark One)

QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended March 31, 2018

OR

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00702

 

HERCULES CAPITAL, INC.

(Exact Name of Registrant as Specified in its Charter)

 

 

Maryland

 

743113410

(State or Jurisdiction of

Incorporation or Organization)

 

(IRS Employer

Identification No.)

 

400 Hamilton Ave., Suite 310

Palo Alto, California

(Address of Principal Executive Offices)

 

94301

(Zip Code)

 

(650) 289-3060

(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 periods that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes      No  

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

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a 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

 

 

 

 

 

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 a 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  

On April 30, 2018, there were 85,899,098 shares outstanding of the Registrant’s common stock, $0.001 par value.

 

 

 

 


 

HERCULES CAPITAL, INC.

FORM 10-Q TABLE OF CONTENTS

 

PART I. FINANCIAL INFORMATION

  

3

 

Item 1.

 

 

Consolidated Financial Statements

  

3

 

 

 

Consolidated Statement of Assets and Liabilities as of March 31, 2018 and December 31, 2017 (unaudited)

  

3

 

 

 

Consolidated Statement of Operations for the three months ended March 31, 2018 and 2017 (unaudited)

  

5

 

 

 

Consolidated Statement of Changes in Net Assets for the three months ended March 31, 2018 and 2017 (unaudited)

  

6

 

 

 

Consolidated Statement of Cash Flows for the three months ended March 31, 2018 and 2017 (unaudited)

  

7

 

 

 

Consolidated Schedule of Investments as of March 31, 2018 (unaudited)

  

9

 

 

 

Consolidated Schedule of Investments as of December 31, 2017 (unaudited)

  

24

 

 

 

Notes to Consolidated Financial Statements (unaudited)

  

39

Item 2.

 

 

Management’s Discussion and Analysis of Financial Condition and Results of Operations

  

71

Item 3.

 

 

Quantitative and Qualitative Disclosures About Market Risk

  

89

Item 4.

 

 

Controls and Procedures

  

90

 

PART II. OTHER INFORMATION

  

91

 

Item 1.

 

Legal Proceedings

  

91

Item 1A.

 

 

Risk Factors

 

91

Item 2.

 

 

Unregistered Sales of Equity Securities and Use of Proceeds

  

92

Item 3.

 

 Defaults Upon Senior Securities

  

92

Item 4.

 

 

Mine Safety Disclosures

  

92

Item 5.

 

 

Other Information

  

92

Item 6.

 

 

Exhibits and Financial Statement Schedules

  

94

 

SIGNATURES

  

97

 

 

 

 

2


 

PART I: FINANCIAL INFORMATION

In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Capital, Inc. and its wholly owned subsidiaries and its affiliated securitization trusts on or after February 25, 2016 and “Hercules Technology Growth Capital, Inc.” and its wholly owned subsidiaries and its affiliated securitization trusts prior to February 25, 2016, unless the context otherwise requires.

 

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENT OF ASSETS AND LIABILITIES

(unaudited)

(dollars in thousands, except per share data)

 

 

 

March 31, 2018

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

Non-control/Non-affiliate investments (cost of $1,427,863 and $1,506,454, respectively)

 

$

1,398,640

 

 

$

1,491,458

 

Control investments (cost of $60,992 and $25,419, respectively)

 

 

54,413

 

 

 

19,461

 

Affiliate investments (cost of $87,423 and $87,956, respectively)

 

 

30,525

 

 

 

31,295

 

Total investments in securities, at value (cost of $1,576,278 and $1,619,829, respectively)

 

 

1,483,578

 

 

 

1,542,214

 

Cash and cash equivalents

 

 

118,228

 

 

 

91,309

 

Restricted cash

 

 

3,632

 

 

 

3,686

 

Interest receivable

 

 

11,087

 

 

 

12,262

 

Other assets

 

 

3,187

 

 

 

5,244

 

Total assets

 

$

1,619,712

 

 

$

1,654,715

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

Accounts payable and accrued liabilities

 

$

18,789

 

 

$

26,896

 

SBA Debentures, net (principal of $190,200 and $190,200, respectively) (1)

 

 

188,299

 

 

 

188,141

 

2022 Notes, net (principal of $150,000 and $150,000, respectively) (1)

 

 

147,698

 

 

 

147,572

 

2024 Notes, net (principal of $183,510 and $183,510, respectively) (1)

 

 

179,161

 

 

 

179,001

 

2021 Asset-Backed Notes, net (principal of $33,575 and $49,153, respectively) (1)

 

 

33,156

 

 

 

48,650

 

2022 Convertible Notes, net (principal of $230,000 and $230,000, respectively) (1)

 

 

223,878

 

 

 

223,488

 

Total liabilities

 

$

790,981

 

 

$

813,748

 

 

 

 

 

 

 

 

 

 

Net assets consist of:

 

 

 

 

 

 

 

 

Common stock, par value

 

 

85

 

 

 

85

 

Capital in excess of par value

 

 

916,738

 

 

 

908,501

 

Unrealized depreciation on investments (2)

 

 

(94,957

)

 

 

(79,760

)

Accumulated undistributed realized gains (losses) on investments

 

 

(25,294

)

 

 

(20,374

)

Undistributed net investment income

 

 

32,159

 

 

 

32,515

 

Total net assets

 

$

828,731

 

 

$

840,967

 

Total liabilities and net assets

 

$

1,619,712

 

 

$

1,654,715

 

 

 

 

 

 

 

 

 

 

Shares of common stock outstanding ($0.001 par value, 200,000,000 authorized)

 

 

85,239

 

 

 

84,424

 

Net asset value per share

 

$

9.72

 

 

$

9.96

 

 

(1)

The Company’s SBA Debentures, 2022 Notes, 2024 Notes, 2021 Asset-Backed Notes and 2022 Convertible Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. See “Note 4 – Borrowings”.

(2)

Amounts include $2.3 million and $2.1 million in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, and estimated taxes payable as of March 31, 2018 and December 31, 2017, respectively.

 

See notes to consolidated financial statements.

3


 

The following table presents the assets and liabilities of our consolidated securitization trust for the 2021 Asset-Backed Notes (see Note 4), which is a variable interest entity (“VIE”). The assets of our securitization VIE can only be used to settle obligations of our consolidated securitization VIE, these liabilities are only the obligations of our consolidated securitization VIE, and the creditors (or beneficial interest holders) do not have recourse to our general credit. These assets and liabilities are included in the Consolidated Statement of Assets and Liabilities above.

 

(Dollars in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

Assets

 

 

 

 

 

 

 

 

Restricted Cash

 

$

3,632

 

 

$

3,686

 

Total investments in securities, at value (cost of $117,441 and $146,208, respectively)

 

 

112,826

 

 

 

144,513

 

Total assets

 

$

116,458

 

 

$

148,199

 

 

 

 

 

 

 

 

 

 

Liabilities

 

 

 

 

 

 

 

 

2021 Asset-Backed Notes, net (principal of $33,575 and $49,153, respectively) (1)

 

$

33,156

 

 

$

48,650

 

Total liabilities

 

$

33,156

 

 

$

48,650

 

 

(1)

The Company’s 2021 Asset-Backed Notes are presented net of the associated debt issuance costs. See “Note 4 – Borrowings”.

See notes to consolidated financial statements.

4


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENT OF OPERATIONS

(unaudited)

(in thousands, except per share data)  

 

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

Investment income:

 

 

 

 

 

 

 

Interest income

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

$

41,834

 

 

$

42,345

 

Control investments

 

586

 

 

 

514

 

Affiliate investments

 

561

 

 

 

2

 

Total interest income

 

42,981

 

 

 

42,861

 

Fee income

 

 

 

 

 

 

 

Commitment, facility and loan fee income:

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

2,440

 

 

 

2,934

 

Control investments

 

 

 

 

5

 

Affiliate investments

 

108

 

 

 

 

Total commitment, facility and loan fee income

 

2,548

 

 

 

2,939

 

One-time fee income:

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

3,171

 

 

 

565

 

Total one-time fee income

 

3,171

 

 

 

565

 

Total fee income

 

5,719

 

 

 

3,504

 

Total investment income

 

48,700

 

 

 

46,365

 

Operating expenses:

 

 

 

 

 

 

 

Interest

 

9,386

 

 

 

9,607

 

Loan fees

 

1,175

 

 

 

2,838

 

General and administrative

 

4,009

 

 

 

4,064

 

Employee compensation:

 

 

 

 

 

 

 

Compensation and benefits

 

5,758

 

 

 

5,345

 

Stock-based compensation

 

2,309

 

 

 

1,833

 

Total employee compensation

 

8,067

 

 

 

7,178

 

Total operating expenses

 

22,637

 

 

 

23,687

 

Net investment income

 

26,063

 

 

 

22,678

 

Net realized gain (loss) on investments

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

(3,512

)

 

 

3,288

 

Control investments

 

(1,408

)

 

 

(51

)

Total net realized gain (loss) on investments

 

(4,920

)

 

 

3,237

 

Net change in unrealized appreciation (depreciation) on investments

 

 

 

 

 

 

 

Non-control/Non-affiliate investments

 

(14,340

)

 

 

(32,155

)

Control investments

 

(620

)

 

 

213

 

Affiliate investments

 

(237

)

 

 

439

 

Total net unrealized appreciation (depreciation) on investments

 

(15,197

)

 

 

(31,503

)

Total net realized and unrealized gain (loss)

 

(20,117

)

 

 

(28,266

)

Net increase (decrease) in net assets resulting from operations

$

5,946

 

 

$

(5,588

)

 

 

 

 

 

 

 

 

Net investment income before investment gains and losses per common share:

 

 

 

 

 

 

 

Basic

$

0.31

 

 

$

0.28

 

Change in net assets resulting from operations per common share:

 

 

 

 

 

 

 

Basic

$

0.07

 

 

$

(0.07

)

Diluted

$

0.07

 

 

$

(0.07

)

Weighted average shares outstanding

 

 

 

 

 

 

 

Basic

 

84,596

 

 

 

81,420

 

Diluted

 

84,666

 

 

 

81,420

 

Distributions declared per common share:

 

 

 

 

 

 

 

Basic

$

0.31

 

 

$

0.31

 

See notes to consolidated financial statements.

5


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENT OF CHANGES IN NET ASSETS

(unaudited)

(dollars and shares in thousands)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Accumulated

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

Undistributed

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital in

 

 

Appreciation

 

 

Realized

 

 

Undistributed

 

 

 

 

 

 

Common Stock

 

 

excess

 

 

(Depreciation)

 

 

Gains (Losses)

 

 

Net Investment

 

 

Net

 

 

Shares

 

 

Par Value

 

 

of par value

 

 

on Investments

 

 

on Investments

 

 

Income

 

 

Assets

 

Balance at December 31, 2016

 

79,555

 

 

$

80

 

 

$

839,657

 

 

$

(89,025

)

 

$

14,314

 

 

$

22,918

 

 

$

787,944

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

(31,503

)

 

 

3,237

 

 

 

22,678

 

 

 

(5,588

)

Public offering, net of offering expenses

 

3,309

 

 

 

3

 

 

 

46,945

 

 

 

 

 

 

 

 

 

 

 

 

46,948

 

Issuance of common stock due to stock option exercises

 

24

 

 

 

 

 

 

181

 

 

 

 

 

 

 

 

 

 

 

 

181

 

Retired shares from net issuance

 

(16

)

 

 

 

 

 

(140

)

 

 

 

 

 

 

 

 

 

 

 

(140

)

Issuance of common stock under restricted stock plan

 

4

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

(101

)

 

 

 

 

 

(1,433

)

 

 

 

 

 

 

 

 

 

 

 

(1,433

)

Distributions reinvested in common stock

 

26

 

 

 

 

 

 

388

 

 

 

 

 

 

 

 

 

 

 

 

388

 

Issuance of Convertible Notes

 

 

 

 

 

 

 

3,413

 

 

 

 

 

 

 

 

 

 

 

 

3,413

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(25,667

)

 

 

(25,667

)

Stock-based compensation (1)

 

 

 

 

 

 

 

1,850

 

 

 

 

 

 

 

 

 

 

 

 

1,850

 

Balance at March 31, 2017

 

82,801

 

 

$

83

 

 

$

890,861

 

 

$

(120,528

)

 

$

17,551

 

 

$

19,929

 

 

$

807,896

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at December 31, 2017

 

84,424

 

 

$

85

 

 

$

908,501

 

 

$

(79,760

)

 

$

(20,374

)

 

$

32,515

 

 

$

840,967

 

Net increase (decrease) in net assets resulting from operations

 

 

 

 

 

 

 

 

 

 

(15,197

)

 

 

(4,920

)

 

 

26,063

 

 

 

5,946

 

Public offering, net of offering expenses

 

478

 

 

 

 

 

 

5,952

 

 

 

 

 

 

 

 

 

 

 

 

5,952

 

Issuance of common stock due to stock option exercises

 

38

 

 

 

 

 

 

432

 

 

 

 

 

 

 

 

 

 

 

 

432

 

Retired shares from net issuance

 

(36

)

 

 

 

 

 

(446

)

 

 

 

 

 

 

 

 

 

 

 

(446

)

Issuance of common stock under restricted stock plan

 

336

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Retired shares for restricted stock vesting

 

(36

)

 

 

 

 

 

(446

)

 

 

 

 

 

 

 

 

 

 

 

(446

)

Distributions reinvested in common stock

 

35

 

 

 

 

 

 

426

 

 

 

 

 

 

 

 

 

 

 

 

426

 

Distributions

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(26,419

)

 

 

(26,419

)

Stock-based compensation (1)

 

 

 

 

 

 

 

2,319

 

 

 

 

 

 

 

 

 

 

 

 

2,319

 

Balance at March 31, 2018

 

85,239

 

 

$

85

 

 

$

916,738

 

 

$

(94,957

)

 

$

(25,294

)

 

$

32,159

 

 

$

828,731

 

 

(1)

Stock-based compensation includes $10 and $17 of restricted stock and option expense related to director compensation for the three months ended March 31, 2018 and 2017, respectively.

 

See notes to consolidated financial statements.

6


 

HERCULES CAPITAL, INC.

CONSOLIDATED STATEMENT OF CASH FLOWS

(unaudited)

(dollars in thousands)

 

 

For the Three Months Ended March 31,

 

 

2018

 

 

2017

 

Cash flows from operating activities:

 

 

 

 

 

 

 

Net increase (decrease) in net assets resulting from operations

$

5,946

 

 

$

(5,588

)

Adjustments to reconcile net increase in net assets resulting from

operations to net cash provided by (used in) operating activities:

 

 

 

 

 

 

 

Purchase of investments

 

(236,285

)

 

 

(153,665

)

Principal and fee payments received on investments

 

280,181

 

 

 

141,798

 

Proceeds from the sale of investments

 

1,582

 

 

 

11,995

 

Net unrealized depreciation (appreciation) on investments

 

15,197

 

 

 

31,503

 

Net realized loss (gain) on investments

 

4,920

 

 

 

(3,237

)

Accretion of paid-in-kind principal

 

(2,507

)

 

 

(2,199

)

Accretion of loan discounts

 

(763

)

 

 

(1,924

)

Accretion of loan discount on Convertible Notes

 

168

 

 

 

112

 

Accretion of loan exit fees

 

(4,407

)

 

 

(6,574

)

Change in deferred loan origination revenue

 

631

 

 

 

284

 

Unearned fees related to unfunded commitments

 

321

 

 

 

976

 

Amortization of debt fees and issuance costs

 

840

 

 

 

2,508

 

Depreciation

 

46

 

 

 

52

 

Stock-based compensation and amortization of restricted stock grants (1)

 

2,319

 

 

 

1,850

 

Change in operating assets and liabilities:

 

 

 

 

 

 

 

Interest and fees receivable

 

1,175

 

 

 

130

 

Prepaid expenses and other assets

 

1,870

 

 

 

(1,061

)

Accounts payable

 

(194

)

 

 

1

 

Accrued liabilities

 

(8,025

)

 

 

(5,255

)

Net cash provided by (used in) operating activities

 

63,015

 

 

 

11,706

 

 

 

 

 

 

 

 

 

Cash flows from investing activities:

 

 

 

 

 

 

 

Purchases of capital equipment

 

(72

)

 

 

(39

)

Net cash provided by (used in) investing activities

 

(72

)

 

 

(39

)

 

 

 

 

 

 

 

 

Cash flows from financing activities:

 

 

 

 

 

 

 

Issuance of common stock, net

 

5,952

 

 

 

46,948

 

Retirement of employee shares

 

(460

)

 

 

(1,392

)

Distributions paid

 

(25,993

)

 

 

(25,279

)

Issuance of 2022 Convertible Notes

 

 

 

 

230,000

 

Issuance of 2024 Notes

 

 

 

 

5,637

 

Repayments of 2019 Notes

 

 

 

 

(110,365

)

Repayments of 2021 Asset-Backed Notes

 

(15,577

)

 

 

(7,794

)

Borrowings of credit facilities

 

 

 

 

8,497

 

Repayments of credit facilities

 

 

 

 

(13,513

)

Cash paid for debt issuance costs

 

 

 

 

(4,456

)

Fees paid for credit facilities and debentures

 

 

 

 

(252

)

Net cash provided by (used in) financing activities

 

(36,078

)

 

 

128,031

 

Net increase (decrease) in cash, cash equivalents and restricted cash

 

26,865

 

 

 

139,698

 

Cash, cash equivalents and restricted cash at beginning of period

 

94,995

 

 

 

21,366

 

Cash, cash equivalents and restricted cash at end of period

$

121,860

 

 

$

161,064

 

 

 

 

 

 

 

 

 

Supplemental non-cash investing and financing activities:

 

 

 

 

 

 

 

Distributions reinvested

 

426

 

 

 

388

 

 

(1)

Stock-based compensation includes $10 and $17 of restricted stock and option expense related to director compensation for the three months ended March 31, 2018 and 2017, respectively.


See notes to consolidated financial statements.

7


 

The following table presents a reconciliation of cash, cash equivalents and restricted cash reported within the Consolidated Statement of Assets and Liabilities that sum to the total of the same such amounts in the Consolidated Statement of Cash Flows:

 

 

For the Three Months Ended March 31,

 

(Dollars in thousands)

2018

 

 

2017

 

Cash and cash equivalents

$

118,228

 

 

$

148,140

 

Restricted cash

 

3,632

 

 

 

12,924

 

Total cash, cash equivalents and restricted cash presented in the Consolidated Statements of Cash Flows

$

121,860

 

 

$

161,064

 

See “Note 2 – Summary of Significant Accounting Policies” and “Note 11- Recent Accounting Pronouncements” for a description of restricted cash and cash equivalents.

See notes to consolidated financial statements.

8


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exicure, Inc. (12)

 

Biotechnology Tools

 

Senior Secured

 

September 2019

 

Interest rate PRIME + 6.45%

or Floor rate of 9.95%, 3.85% Exit Fee

 

$

4,999

 

 

$

5,135

 

 

$

5,151

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

5,135

 

 

 

5,151

 

Subtotal: Biotechnology Tools (0.62%)*

 

 

 

 

 

 

 

 

 

 

 

 

5,135

 

 

 

5,151

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OpenPeak, Inc. (8)

 

Communications & Networking

 

Senior Secured

 

April 2018

 

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

 

$

11,464

 

 

 

8,228

 

 

 

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

8,228

 

 

 

 

Subtotal: Communications & Networking (0.00%)*

 

 

 

 

 

 

 

 

 

 

 

 

8,228

 

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gadget Guard (p.k.a. Antenna79) (15)

 

Consumer & Business Products

 

Senior Secured

 

December 2018

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%

 

$

1,000

 

 

 

1,000

 

 

 

1,000

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

 

 

1,000

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gadget Guard (p.k.a. Antenna79) (15)

 

Consumer & Business Products

 

Senior Secured

 

December 2019

 

Interest rate PRIME + 7.45%

or Floor rate of 10.95%, 2.95% Exit Fee

 

$

18,043

 

 

 

18,245

 

 

 

18,133

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

18,245

 

 

 

18,133

 

Subtotal: Consumer & Business Products (2.31%)*

 

 

 

 

 

 

 

 

 

 

 

 

19,245

 

 

 

19,133

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

 

Diversified Financial Services

 

Unsecured

 

March 2023

 

Interest rate FIXED 14.50%

 

$

10,000

 

 

 

9,802

 

 

 

9,802

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

9,802

 

 

 

9,802

 

Subtotal: Diversified Financial Services (1.18%)*

 

 

 

 

 

 

 

 

 

 

 

 

9,802

 

 

 

9,802

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agile Therapeutics, Inc. (11)

 

Drug Delivery

 

Senior Secured

 

December 2018

 

Interest rate PRIME + 4.75%

or Floor rate of 9.00%, 3.70% Exit Fee

 

$

9,272

 

 

 

9,746

 

 

 

9,747

 

Pulmatrix Inc. (9)(11)

 

Drug Delivery

 

Senior Secured

 

July 2018

 

Interest rate PRIME + 6.25%

or Floor rate of 9.50%, 3.50% Exit Fee

 

$

2,540

 

 

 

2,764

 

 

 

2,764

 

ZP Opco, Inc (p.k.a. Zosano Pharma) (11)

 

Drug Delivery

 

Senior Secured

 

December 2018

 

Interest rate PRIME + 2.70%

or Floor rate of 7.95%, 2.87% Exit Fee

 

$

4,789

 

 

 

5,108

 

 

 

5,108

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

17,618

 

 

 

17,619

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (10)(11)(15)

 

Drug Delivery

 

Senior Secured

 

March 2020

 

Interest rate PRIME + 6.05%

or Floor rate of 9.55%, 11.69% Exit Fee

 

$

16,791

 

 

 

17,275

 

 

 

17,199

 

Antares Pharma Inc. (10)(15)

 

Drug Delivery

 

Senior Secured

 

July 2022

 

Interest rate PRIME + 4.50%

or Floor rate of 9.25%, 4.25% Exit Fee

 

$

25,000

 

 

 

25,079

 

 

 

24,970

 

Edge Therapeutics, Inc. (12)

 

Drug Delivery

 

Senior Secured

 

August 2020

 

Interest rate PRIME + 4.65%

or Floor rate of 9.15%, 4.95% Exit Fee

 

$

20,000

 

 

 

20,401

 

 

 

20,167

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

62,755

 

 

 

62,336

 

Subtotal: Drug Delivery (9.65%)*

 

 

 

 

 

 

 

 

 

 

 

 

80,373

 

 

 

79,955

 

 

 

 

See notes to consolidated financial statements.

9


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands) 

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CytRx Corporation (11)(15)

 

Drug Discovery & Development

 

Senior Secured

 

August 2018

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%, 7.09% Exit Fee

 

$

8,946

 

 

$

10,393

 

 

$

10,393

 

Epirus Biopharmaceuticals, Inc. (8)

 

Drug Discovery & Development

 

Senior Secured

 

April 2018

 

Interest rate PRIME + 4.70%

or Floor rate of 7.95%, 3.00% Exit Fee

 

$

2,277

 

 

 

2,561

 

 

 

 

Genocea Biosciences, Inc. (11)

 

Drug Discovery & Development

 

Senior Secured

 

January 2019

 

Interest rate PRIME + 2.25%

or Floor rate of 7.25%, 4.95% Exit Fee

 

$

13,316

 

 

 

14,005

 

 

 

14,005

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

26,959

 

 

 

24,398

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auris Medical Holding, AG (5)(10)

 

Drug Discovery & Development

 

Senior Secured

 

January 2020

 

Interest rate PRIME + 6.05%

or Floor rate of 9.55%, 5.75% Exit Fee

 

$

8,836

 

 

 

9,199

 

 

 

9,204

 

Aveo Pharmaceuticals, Inc. (10)(13)

 

Drug Discovery & Development

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 4.70%

or Floor rate of 9.45%, 5.40% Exit Fee

 

$

10,000

 

 

 

9,936

 

 

 

9,818

 

 

 

Drug Discovery & Development

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 4.70%

or Floor rate of 9.45%, 3.00% Exit Fee

 

$

10,000

 

 

 

9,990

 

 

 

9,948

 

Total Aveo Pharmaceuticals, Inc.

 

 

 

 

 

 

 

$

20,000

 

 

 

19,926

 

 

 

19,766

 

Axovant Sciences Ltd. (5)(10)

 

Drug Discovery & Development

 

Senior Secured

 

March 2021

 

Interest rate PRIME + 6.80%

or Floor rate of 10.55%

 

$

55,000

 

 

 

53,783

 

 

 

53,670

 

Brickell Biotech, Inc. (12)

 

Drug Discovery & Development

 

Senior Secured

 

September 2019

 

Interest rate PRIME + 5.70%

or Floor rate of 9.20%, 7.49% Exit Fee

 

$

5,834

 

 

 

6,178

 

 

 

6,166

 

Chemocentryx, Inc. (10)(15)(17)

 

Drug Discovery & Development

 

Senior Secured

 

December 2021

 

Interest rate PRIME + 3.30%

or Floor rate of 8.05%, 6.25% Exit Fee

 

$

5,000

 

 

 

4,973

 

 

 

4,973

 

Mesoblast (5)(10)

 

Drug Discovery & Development

 

Senior Secured

 

March 2022

 

Interest rate PRIME + 4.95%

or Floor rate of 9.45%, 6.95% Exit Fee

 

$

35,000

 

 

 

34,682

 

 

 

34,682

 

Metuchen Pharmaceuticals LLC (12)(14)

 

Drug Discovery & Development

 

Senior Secured

 

October 2020

 

Interest rate PRIME + 7.25%

or Floor rate of 10.75%,

PIK Interest 1.35%, 2.25% Exit Fee

 

$

25,648

 

 

 

25,923

 

 

 

25,793

 

Motif BioSciences Inc. (15)

 

Drug Discovery & Development

 

Senior Secured

 

September 2021

 

Interest rate PRIME + 5.50%

or Floor rate of 10.00%, 2.15% Exit Fee

 

$

15,000

 

 

 

14,711

 

 

 

14,711

 

Myovant Sciences, Ltd. (5)(10)(13)

 

Drug Discovery & Development

 

Senior Secured

 

May 2021

 

Interest rate PRIME + 4.00%

or Floor rate of 8.25%, 6.55% Exit Fee

 

$

40,000

 

 

 

39,445

 

 

 

39,444

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) (15)

 

Drug Discovery & Development

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 2.75%

or Floor rate of 8.50%, 4.50% Exit Fee

 

$

40,000

 

 

 

40,347

 

 

 

39,931

 

 

 

Drug Discovery & Development

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 2.75%

or Floor rate of 8.50%, 4.50% Exit Fee

 

$

10,000

 

 

 

10,094

 

 

 

9,984

 

 

 

Drug Discovery & Development

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 2.75%

or Floor rate of 8.50%, 2.25% Exit Fee

 

$

10,000

 

 

 

9,996

 

 

 

9,904

 

Total Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.)

 

 

 

 

 

 

 

$

60,000

 

 

 

60,437

 

 

 

59,819

 

Stealth Bio Therapeutics Corp. (5)(10)(12)

 

Drug Discovery & Development

 

Senior Secured

 

January 2021

 

Interest rate PRIME + 5.50%

or Floor rate of 9.50%, 5.00% Exit Fee

 

$

20,000

 

 

 

19,910

 

 

 

19,672

 

Tricida, Inc. (15)

 

Drug Discovery & Development

 

Senior Secured

 

March 2022

 

Interest rate PRIME + 3.35%

or Floor rate of 8.35%, 11.14% Exit Fee

 

$

25,000

 

 

 

24,607

 

 

 

24,607

 

uniQure B.V. (5)(10)(11)

 

Drug Discovery & Development

 

Senior Secured

 

May 2020

 

Interest rate PRIME + 3.00%

or Floor rate of 8.25%, 5.48% Exit Fee

 

$

20,000

 

 

 

20,668

 

 

 

20,579

 

Verastem, Inc. (12)

 

Drug Discovery & Development

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

4,980

 

 

 

4,942

 

 

 

Drug Discovery & Development

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

5,016

 

 

 

4,978

 

 

 

Drug Discovery & Development

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

4,978

 

 

 

4,939

 

Total Verastem, Inc.

 

 

 

 

 

 

 

$

15,000

 

 

 

14,974

 

 

 

14,859

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

349,416

 

 

 

347,945

 

Subtotal: Drug Discovery & Development (44.93%)*

 

 

 

 

 

 

 

 

 

 

 

 

376,375

 

 

 

372,343

 

 

 

 

See notes to consolidated financial statements.

10


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 DEVICES INC. (15)

 

Electronics & Computer Hardware

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 4.00%

or Floor rate of 8.25%, 4.25% Exit Fee

 

$

10,000

 

 

$

10,061

 

 

$

9,864

 

Glo AB (5)(10)(14)

 

Electronics & Computer Hardware

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 6.20%

or Floor rate of 10.45%,

PIK Interest 1.75%, 2.95% Exit Fee

 

$

12,030

 

 

 

11,933

 

 

 

11,933

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

21,994

 

 

 

21,797

 

Subtotal: Electronics & Computer Hardware (2.63%)*

 

 

 

 

 

 

 

 

 

 

 

 

21,994

 

 

 

21,797

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medsphere Systems Corporation (14)(15)

 

Healthcare Services, Other

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 4.75%

or Floor rate of 9.00%,

PIK Interest 1.75%

 

$

17,685

 

 

 

17,536

 

 

 

17,536

 

 

 

Healthcare Services, Other

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 4.75%

or Floor rate of 9.00%,

PIK Interest 1.75%

 

$

5,031

 

 

 

4,990

 

 

 

4,990

 

Total Medsphere Systems Corporation

 

 

 

 

 

 

 

$

22,716

 

 

 

22,526

 

 

 

22,526

 

Oak Street Health (12)(17)

 

Healthcare Services, Other

 

Senior Secured

 

September 2021

 

Interest rate PRIME + 5.00%

or Floor rate of 9.75%, 5.95% Exit Fee

 

$

20,000

 

 

 

20,083

 

 

 

19,836

 

PH Group Holdings (13)

 

Healthcare Services, Other

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 7.45%

or Floor rate of 10.95%

 

$

20,000

 

 

 

19,896

 

 

 

19,703

 

 

 

Healthcare Services, Other

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 7.45%

or Floor rate of 10.95%

 

$

10,000

 

 

 

9,934

 

 

 

9,794

 

Total PH Group Holdings

 

 

 

 

 

 

 

$

30,000

 

 

 

29,830

 

 

 

29,497

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

72,439

 

 

 

71,859

 

Subtotal: Healthcare Services, Other (8.67%)*

 

 

 

 

 

 

 

 

 

 

 

 

72,439

 

 

 

71,859

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MDX Medical, Inc. (14)(15)(19)

 

Information Services

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 4.00%

or Floor rate of 8.25%,

PIK Interest 1.70%

 

$

15,100

 

 

 

14,702

 

 

 

14,410

 

Netbase Solutions, Inc. (13)(14)

 

Information Services

 

Senior Secured

 

August 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.00%,

PIK Interest 2.00%, 3.00% Exit Fee

 

$

9,096

 

 

 

8,855

 

 

 

8,815

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

23,557

 

 

 

23,225

 

Subtotal: Information Services (2.80%)*

 

 

 

 

 

 

 

 

 

 

 

 

23,557

 

 

 

23,225

 

 

 

 

See notes to consolidated financial statements.

11


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

The Faction Group

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2019

 

Interest rate PRIME + 4.75%

or Floor rate of 8.25%

 

$

2,000

 

 

$

2,000

 

 

$

2,000

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

2,000

 

 

 

2,000

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AppDirect, Inc. (19)

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2022

 

Interest rate PRIME + 5.70%

or Floor rate of 9.95%, 3.45% Exit Fee

 

$

10,000

 

 

 

9,918

 

 

 

9,918

 

Aria Systems, Inc. (11)(14)

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 3.20%

or Floor rate of 6.95%,

PIK Interest 1.95%, 1.75% Exit Fee

 

$

2,113

 

 

 

2,124

 

 

 

1,240

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 5.20%

or Floor rate of 8.95%,

PIK Interest 1.95%, 1.75% Exit Fee

 

$

18,924

 

 

 

19,019

 

 

 

11,108

 

Total Aria Systems, Inc.

 

 

 

 

 

 

 

$

21,037

 

 

 

21,143

 

 

 

12,348

 

Art.com, Inc. (14)(15)

 

Internet Consumer & Business Services

 

Senior Secured

 

April 2021

 

Interest rate PRIME + 5.40%

or Floor rate of 10.15%,

PIK Interest 1.70%, 1.50% Exit Fee

 

$

10,000

 

 

 

9,812

 

 

 

9,812

 

Greenphire Inc. (17)

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2021

 

Interest rate 3-month LIBOR + 8.00%

or Floor rate of 9.00%

 

$

3,658

 

 

 

3,658

 

 

 

3,658

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2021

 

Interest rate PRIME + 3.75%

or Floor rate of 7.00%

 

$

1,500

 

 

 

1,500

 

 

 

1,500

 

Total Greenphire Inc.

 

 

 

 

 

 

 

$

5,158

 

 

 

5,158

 

 

 

5,158

 

Intent Media, Inc. (14)(15)

 

Internet Consumer & Business Services

 

Senior Secured

 

May 2019

 

Interest rate PRIME + 5.25%

or Floor rate of 8.75%,

PIK Interest 1.00%, 2.00% Exit Fee

 

$

5,063

 

 

 

5,053

 

 

 

5,056

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

May 2019

 

Interest rate PRIME + 5.50%

or Floor rate of 9.00%,

PIK Interest 2.35%, 2.00% Exit Fee

 

$

2,032

 

 

 

2,014

 

 

 

2,014

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

May 2019

 

Interest rate PRIME + 5.50%

or Floor rate of 9.00%,

PIK Interest 2.50%, 2.00% Exit Fee

 

$

2,034

 

 

 

2,016

 

 

 

2,016

 

Total Intent Media, Inc.

 

 

 

 

 

 

 

$

9,129

 

 

 

9,083

 

 

 

9,086

 

Interactions Corporation (19)

 

Internet Consumer & Business Services

 

Senior Secured

 

March 2021

 

Interest rate 3-month LIBOR + 8.60%

or Floor rate of 9.85%, 1.75% Exit Fee

 

$

25,000

 

 

 

25,032

 

 

 

25,032

 

LogicSource (15)

 

Internet Consumer & Business Services

 

Senior Secured

 

October 2019

 

Interest rate PRIME + 6.25%

or Floor rate of 9.75%, 5.00% Exit Fee

 

$

5,645

 

 

 

5,935

 

 

 

5,933

 

Snagajob.com, Inc. (13)(14)

 

Internet Consumer & Business Services

 

Senior Secured

 

July 2020

 

Interest rate PRIME + 5.15%

or Floor rate of 9.15%,

PIK Interest 1.95%, 2.55% Exit Fee

 

$

41,223

 

 

 

41,010

 

 

 

41,166

 

Tectura Corporation (7)(8)(9)(14)

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2021

 

Interest rate FIXED 6.00%,

PIK Interest 3.00%

 

$

20,450

 

 

 

20,450

 

 

 

17,095

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2021

 

PIK Interest 8.00%

 

$

10,680

 

 

 

240

 

 

 

 

Total Tectura Corporation

 

 

 

 

 

 

 

$

31,130

 

 

 

20,690

 

 

 

17,095

 

The Faction Group

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2021

 

Interest rate 3-month LIBOR + 9.25%

or Floor rate of 10.25%

 

$

8,000

 

 

 

8,000

 

 

 

8,000

 

Wheels Up Partners LLC

 

Internet Consumer & Business Services

 

Senior Secured

 

July 2022

 

Interest rate 3-month LIBOR + 8.55%

or Floor rate of 9.55%

 

$

22,406

 

 

 

22,191

 

 

 

22,191

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

177,972

 

 

 

165,739

 

Subtotal: Internet Consumer & Business Services (20.24%)*

 

 

 

 

 

 

 

 

 

 

 

 

179,972

 

 

 

167,739

 

 

See notes to consolidated financial statements.

12


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bustle (14)(15)

 

Media/Content/Info

 

Senior Secured

 

June 2021

 

Interest rate PRIME + 4.10%

or Floor rate of 8.35%,

PIK Interest 1.95%, 1.95% Exit Fee

 

$

15,089

 

 

$

15,032

 

 

$

15,032

 

FanDuel, Inc. (9)(12)(14)

 

Media/Content/Info

 

Senior Secured

 

November 2019

 

Interest rate PRIME + 7.25%

or Floor rate of 10.75%, 10.41% Exit Fee

 

$

19,354

 

 

 

20,072

 

 

 

19,941

 

 

 

Media/Content/Info

 

Convertible Debt

 

September 2020

 

PIK Interest 25.00%

 

$

1,000

 

 

 

1,000

 

 

 

1,000

 

Total FanDuel, Inc.

 

 

 

 

 

 

 

$

20,354

 

 

 

21,072

 

 

 

20,941

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

36,104

 

 

 

35,973

 

Subtotal: Media/Content/Info (4.34%)*

 

 

 

 

 

 

 

 

 

 

 

 

36,104

 

 

 

35,973

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aspire Bariatrics, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

October 2018

 

Interest rate PRIME + 4.00%

or Floor rate of 9.25%, 6.85% Exit Fee

 

$

1,793

 

 

 

2,148

 

 

 

839

 

Quanterix Corporation (11)

 

Medical Devices & Equipment

 

Senior Secured

 

March 2019

 

Interest rate PRIME + 2.75%

or Floor rate of 8.00%, 4.00% Exit Fee

 

$

8,591

 

 

 

8,569

 

 

 

8,569

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

10,717

 

 

 

9,408

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Intuity Medical, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

June 2021

 

Interest rate PRIME + 5.00%

or Floor rate of 9.25%, 4.95% Exit Fee

 

$

17,500

 

 

 

17,132

 

 

 

17,132

 

Micell Technologies, Inc. (12)

 

Medical Devices & Equipment

 

Senior Secured

 

August 2019

 

Interest rate PRIME + 7.25%

or Floor rate of 10.50%, 5.00% Exit Fee

 

$

4,715

 

 

 

5,030

 

 

 

4,981

 

Quanta Fluid Solutions (5)(10)(11)

 

Medical Devices & Equipment

 

Senior Secured

 

April 2020

 

Interest rate PRIME + 8.05%

or Floor rate of 11.55%, 5.00% Exit Fee

 

$

8,848

 

 

 

9,220

 

 

 

9,150

 

Sebacia, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

July 2020

 

Interest rate PRIME + 4.35%

or Floor rate of 8.85%, 6.05% Exit Fee

 

$

8,000

 

 

 

7,988

 

 

 

7,979

 

Tela Bio, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 4.95%

or Floor rate of 9.45%, 3.15% Exit Fee

 

$

5,000

 

 

 

5,004

 

 

 

4,989

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

44,374

 

 

 

44,231

 

Subtotal: Medical Devices & Equipment (6.47%)*

 

 

 

 

 

 

 

 

 

 

 

 

55,091

 

 

 

53,639

 

 

 

 

See notes to consolidated financial statements.

13


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clickfox, Inc. (13)

 

Software

 

Senior Secured

 

May 2018

 

Interest rate PRIME + 8.00%

or Floor rate of 11.50%, 12.01% Exit Fee

 

$

2,592

 

 

$

4,012

 

 

$

4,012

 

Digital Train Limited (15)

 

Software

 

Unsecured

 

July 2018

 

Interest rate 12-month LIBOR + 2.50%

 

$

5,671

 

 

 

5,671

 

 

 

4,073

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

9,683

 

 

 

8,085

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Banker's Toolbox, Inc (18)

 

Software

 

Senior Secured

 

March 2023

 

Interest rate 3-month LIBOR + 7.94%

or Floor rate of 8.94%

 

$

16,500

 

 

 

16,139

 

 

 

16,139

 

Clarabridge, Inc. (12)(14)

 

Software

 

Senior Secured

 

April 2021

 

Interest rate PRIME + 4.80%

or Floor rate of 8.55%, PIK Interest 3.25%

 

$

41,226

 

 

 

41,205

 

 

 

41,164

 

Emma, Inc.

 

Software

 

Senior Secured

 

September 2022

 

Interest rate daily LIBOR + 7.75%

or Floor rate of 8.75%

 

$

50,000

 

 

 

48,629

 

 

 

47,785

 

Evernote Corporation (14)(15)(17)(19)

 

Software

 

Senior Secured

 

October 2020

 

Interest rate PRIME + 5.45%

or Floor rate of 8.95%

 

$

6,000

 

 

 

5,976

 

 

 

6,065

 

 

 

Software

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%, PIK Interest 1.25%

 

$

4,035

 

 

 

4,013

 

 

 

3,988

 

Total Evernote Corporation

 

 

 

 

 

 

 

$

10,035

 

 

 

9,989

 

 

 

10,053

 

Fuze, Inc. (13)(14)(15)(19)

 

Software

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 3.70%

or Floor rate of 7.95%,

PIK Interest 1.55%, 3.55% Exit Fee

 

$

50,528

 

 

 

50,776

 

 

 

50,413

 

Impact Radius Holdings, Inc. (14)(17)

 

Software

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 4.25%

or Floor rate of 8.75%,

PIK Interest 1.55%, 1.75% Exit Fee

 

$

10,073

 

 

 

10,091

 

 

 

9,945

 

Insurance Technologies Corp. (17)

 

Software

 

Senior Secured

 

March 2023

 

Interest rate 3-month LIBOR + 7.75%

or Floor rate of 8.75%

 

$

12,500

 

 

 

12,250

 

 

 

12,250

 

Lightbend, Inc. (14)(15)

 

Software

 

Senior Secured

 

August 2021

 

Interest rate PRIME + 4.25%

or Floor rate of 8.50%, PIK Interest 2.00%

 

$

11,009

 

 

 

10,806

 

 

 

10,806

 

Lithium Technologies, Inc. (17)

 

Software

 

Senior Secured

 

October 2022

 

Interest rate 1-month LIBOR + 8.00%

or Floor rate of 9.00%

 

$

12,000

 

 

 

11,751

 

 

 

11,751

 

Microsystems Holding Company, LLC (19)

 

Software

 

Senior Secured

 

July 2022

 

Interest rate 3-month LIBOR + 8.25%

or Floor rate of 9.25%

 

$

12,000

 

 

 

11,829

 

 

 

11,829

 

OneLogin, Inc. (14)(15)

 

Software

 

Senior Secured

 

August 2019

 

Interest rate PRIME + 6.45%

or Floor rate of 9.95%, PIK Interest 3.25%

 

$

16,012

 

 

 

15,953

 

 

 

16,113

 

PerfectServe, Inc.

 

Software

 

Senior Secured

 

April 2021

 

Interest rate 3-month LIBOR + 9.00%

or Floor rate of 10.00%, 2.50% Exit Fee

 

$

16,000

 

 

 

16,057

 

 

 

16,057

 

 

 

Software

 

Senior Secured

 

April 2021

 

Interest rate 3-month LIBOR + 9.00%

or Floor rate of 10.00%, 2.50% Exit Fee

 

$

4,000

 

 

 

4,013

 

 

 

4,013

 

Total PerfectServe, Inc.

 

 

 

 

 

 

 

$

20,000

 

 

 

20,070

 

 

 

20,070

 

Pollen, Inc. (15)

 

Software

 

Senior Secured

 

April 2019

 

Interest rate PRIME + 4.25%

or Floor rate of 8.50%, 4.00% Exit Fee

 

$

7,000

 

 

 

7,023

 

 

 

7,000

 

Poplicus, Inc. (8)(14)

 

Software

 

Senior Secured

 

May 2022

 

Interest rate FIXED 6.00%,

PIK Interest 3.00%

 

$

1,250

 

 

 

1,250

 

 

 

 

Quid, Inc. (14)(15)

 

Software

 

Senior Secured

 

October 2019

 

Interest rate PRIME + 4.75%

or Floor rate of 8.25%,

PIK Interest 2.25%, 3.00% Exit Fee

 

$

8,350

 

 

 

8,480

 

 

 

8,494

 

RapidMiner, Inc. (14)

 

Software

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 5.50%

or Floor rate of 9.75%, PIK Interest 1.65%

 

$

7,030

 

 

 

7,004

 

 

 

7,004

 

Regent Education (14)

 

Software

 

Senior Secured

 

January 2021

 

Interest rate FIXED 10.00%,

PIK Interest 2.00%, 6.35% Exit Fee

 

$

3,302

 

 

 

3,316

 

 

 

3,316

 

Signpost, Inc. (14)

 

Software

 

Senior Secured

 

February 2020

 

Interest rate PRIME + 4.15%

or Floor rate of 8.15%,

PIK Interest 1.75%, 3.75% Exit Fee

 

$

15,578

 

 

 

15,742

 

 

 

15,612

 

Vela Trading Technologies (18)

 

Software

 

Senior Secured

 

July 2022

 

Interest rate daily LIBOR + 9.50%

or Floor rate of 10.50%

 

$

20,000

 

 

 

19,518

 

 

 

19,143

 

Wrike, Inc. (14)(17)(19)

 

Software

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%,

PIK Interest 2.00%, 3.00% Exit Fee

 

$

10,215

 

 

 

10,062

 

 

 

10,043

 

ZocDoc (19)

 

Software

 

Senior Secured

 

April 2021

 

Interest rate 3-month LIBOR + 9.50%

or Floor rate of 10.50%, 1.00% Exit Fee

 

$

20,000

 

 

 

20,026

 

 

 

20,026

 

 

 

Software

 

Senior Secured

 

November 2021

 

Interest rate 3-month LIBOR + 9.50%

or Floor rate of 10.50%, 1.00% Exit Fee

 

$

10,000

 

 

 

10,012

 

 

 

10,012

 

Total ZocDoc

 

 

 

 

 

 

 

$

30,000

 

 

 

30,038

 

 

 

30,038

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

361,921

 

 

 

358,968

 

Subtotal: Software (44.29%)*

 

 

 

 

 

 

 

 

 

 

 

 

371,604

 

 

 

367,053

 

 

 

See notes to consolidated financial statements.

14


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transmedics, Inc. (13)

 

Surgical Devices

 

Senior Secured

 

February 2020

 

Interest rate PRIME + 5.30%

or Floor rate of 9.55%, 6.70% Exit Fee

 

$

7,608

 

 

$

7,927

 

 

$

7,912

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

7,927

 

 

 

7,912

 

Subtotal: Surgical Devices (0.95%)*

 

 

 

 

 

 

 

 

 

 

 

 

7,927

 

 

 

7,912

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Kinestral Technologies, Inc.

 

Sustainable and Renewable Technology

 

Senior Secured

 

October 2018

 

Interest rate 3-month LIBOR + 7.75%

or Floor rate of 8.75%, 3.23% Exit Fee

 

$

2,707

 

 

 

2,739

 

 

 

2,739

 

Rive Technology, Inc. (15)

 

Sustainable and Renewable Technology

 

Senior Secured

 

January 2019

 

Interest rate PRIME + 6.20%

or Floor rate of 9.45%, 4.00% Exit Fee

 

$

3,318

 

 

 

3,583

 

 

 

3,583

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

6,322

 

 

 

6,322

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ChargePoint Inc. (19)

 

Sustainable and Renewable Technology

 

Senior Secured

 

August 2020

 

Interest rate 3-month LIBOR + 8.75%

or Floor rate of 9.75%, 2.00% Exit Fee

 

$

17,576

 

 

 

17,630

 

 

 

17,630

 

FuelCell Energy, Inc. (12)

 

Sustainable and Renewable Technology

 

Senior Secured

 

April 2020

 

Interest rate PRIME + 5.40%

or Floor rate of 9.90%, 6.68% Exit Fee

 

$

13,091

 

 

 

12,827

 

 

 

12,824

 

 

 

Sustainable and Renewable Technology

 

Senior Secured

 

April 2020

 

Interest rate PRIME + 5.40%

or Floor rate of 9.90%, 8.50% Exit Fee

 

$

11,909

 

 

 

13,452

 

 

 

13,452

 

Total FuelCell Energy, Inc.

 

 

 

 

 

 

 

$

25,000

 

 

 

26,279

 

 

 

26,276

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)

 

Sustainable and Renewable Technology

 

Senior Secured

 

August 2019

 

Interest rate PRIME + 8.70%

or Floor rate of 12.95%, 4.50% Exit Fee

 

$

12,000

 

 

 

11,770

 

 

 

11,683

 

Metalysis Limited (5)(10)

 

Sustainable and Renewable Technology

 

Senior Secured

 

March 2021

 

Interest rate PRIME + 5.00%

or Floor rate of 9.25%, 6.95% Exit Fee

 

$

7,500

 

 

 

7,418

 

 

 

7,418

 

Proterra, Inc. (11)(14)(17)

 

Sustainable and Renewable Technology

 

Senior Secured

 

November 2020

 

Interest rate PRIME + 3.70%

or Floor rate of 7.95%,

PIK Interest 1.75%, 5.95% Exit Fee

 

$

25,146

 

 

 

26,185

 

 

 

26,197

 

 

 

Sustainable and Renewable Technology

 

Senior Secured

 

November 2020

 

Interest rate PRIME + 3.70%

or Floor rate of 7.95%,

PIK Interest 1.75%, 7.00% Exit Fee

 

$

5,029

 

 

 

5,224

 

 

 

5,219

 

Total Proterra, Inc.

 

 

 

 

 

 

 

$

30,175

 

 

 

31,409

 

 

 

31,416

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

94,506

 

 

 

94,423

 

Subtotal: Sustainable and Renewable Technology (12.16%)*

 

 

 

 

 

 

 

 

 

 

 

 

100,828

 

 

 

100,745

 

Total: Debt Investments (161.25%)*

 

 

 

 

 

 

 

 

 

 

 

 

1,368,674

 

 

 

1,336,326

 

 

 

 

See notes to consolidated financial statements.

15


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NuGEN Technologies, Inc. (15)

 

Biotechnology Tools

 

Equity

 

Common Stock

 

 

55,780

 

 

$

500

 

 

$

 

Subtotal: Biotechnology Tools (0.00%)*

 

 

 

 

 

 

 

 

 

 

500

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achilles Technology Management Co II, Inc. (7)(15)

 

Communications & Networking

 

Equity

 

Common Stock

 

 

100

 

 

 

3,100

 

 

 

117

 

GlowPoint, Inc. (4)

 

Communications & Networking

 

Equity

 

Common Stock

 

 

114,192

 

 

 

102

 

 

 

25

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Equity

 

Preferred Series A

 

 

1,000,000

 

 

 

1,000

 

 

 

6,060

 

Subtotal: Communications & Networking (0.75%)*

 

 

 

 

 

 

 

 

 

 

4,202

 

 

 

6,202

 

 

Diagnostic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Singulex, Inc.

 

Diagnostic

 

Equity

 

Common Stock

 

 

937,998

 

 

 

750

 

 

 

911

 

Subtotal: Diagnostic (0.11%)*

 

 

 

 

 

 

 

 

 

 

750

 

 

 

911

 

 

Diversified Financial Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gibraltar Business Capital, LLC (7)

 

Diversified Financial Services

 

Equity

 

Preferred Series A

 

 

10,602,752

 

 

 

25,538

 

 

 

25,538

 

 

 

Diversified Financial Services

 

Equity

 

Common Stock

 

 

830,000

 

 

 

1,861

 

 

 

1,861

 

Total Gibraltar Business Capital, LLC

 

 

 

 

 

 

 

 

11,432,752

 

 

 

27,399

 

 

 

27,399

 

Subtotal: Diversified Financial Services (3.31%)*

 

 

 

 

 

 

 

 

 

 

27,399

 

 

 

27,399

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (4)(10)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

54,240

 

 

 

108

 

 

 

114

 

BioQ Pharma Incorporated (15)

 

Drug Delivery

 

Equity

 

Preferred Series D

 

 

165,000

 

 

 

500

 

 

 

891

 

Edge Therapeutics, Inc. (4)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

49,965

 

 

 

309

 

 

 

59

 

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

125,000

 

 

 

1,500

 

 

 

1,038

 

Subtotal: Drug Delivery (0.25%)*

 

 

 

 

 

 

 

 

 

 

2,417

 

 

 

2,102

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aveo Pharmaceuticals, Inc. (4)(10)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

1,901,791

 

 

 

1,715

 

 

 

5,558

 

Axovant Sciences Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

129,827

 

 

 

1,269

 

 

 

172

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

119,087

 

 

 

1,000

 

 

 

511

 

Dare Biosciences, Inc. (p.k.a. Cerulean Pharma, Inc.) (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

13,550

 

 

 

1,000

 

 

 

11

 

Dicerna Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

142,858

 

 

 

1,000

 

 

 

1,365

 

Dynavax Technologies (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

20,000

 

 

 

550

 

 

 

398

 

Epirus Biopharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

200,000

 

 

 

1,000

 

 

 

 

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

223,463

 

 

 

2,000

 

 

 

235

 

Insmed, Incorporated (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

70,771

 

 

 

1,000

 

 

 

1,230

 

Melinta Therapeutics (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

51,821

 

 

 

2,000

 

 

 

384

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

76,362

 

 

 

2,744

 

 

 

992

 

Rocket Pharmaceuticals, Ltd (p.k.a. Inotek Pharmaceuticals Corporation) (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

944

 

 

 

1,500

 

 

 

18

 

Subtotal: Drug Discovery & Development (1.31%)*

 

 

 

 

 

 

 

 

 

 

16,778

 

 

 

10,874

 

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identiv, Inc. (4)

 

Electronics & Computer Hardware

 

Equity

 

Common Stock

 

 

6,700

 

 

 

34

 

 

 

25

 

Subtotal: Electronics & Computer Hardware (0.00%)*

 

 

 

 

 

 

 

 

 

 

34

 

 

 

25

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DocuSign, Inc.

 

Information Services

 

Equity

 

Common Stock

 

 

385,000

 

 

 

6,081

 

 

 

8,379

 

Subtotal: Information Services (1.01%)*

 

 

 

 

 

 

 

 

 

 

6,081

 

 

 

8,379

 

 

See notes to consolidated financial statements.

16


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blurb, Inc. (15)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series B

 

 

220,653

 

 

$

175

 

 

$

80

 

Brigade Group, Inc. (p.k.a. Philotic, Inc.)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

9,023

 

 

 

93

 

 

 

 

Lightspeed POS, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series C

 

 

230,030

 

 

 

250

 

 

 

257

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series D

 

 

198,677

 

 

 

250

 

 

 

235

 

Total Lightspeed POS, Inc.

 

 

 

 

 

 

 

 

428,707

 

 

 

500

 

 

 

492

 

OfferUp, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A

 

 

286,080

 

 

 

1,663

 

 

 

1,889

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A-1

 

 

108,710

 

 

 

632

 

 

 

718

 

Total OfferUp, Inc.

 

 

 

 

 

 

 

 

394,790

 

 

 

2,295

 

 

 

2,607

 

Oportun (p.k.a. Progress Financial)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series G

 

 

218,351

 

 

 

250

 

 

 

416

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series H

 

 

87,802

 

 

 

250

 

 

 

233

 

Total Oportun (p.k.a. Progress Financial)

 

 

 

 

 

 

306,153

 

 

 

500

 

 

 

649

 

RazorGator Interactive Group, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series AA

 

 

34,783

 

 

 

15

 

 

 

 

Tectura Corporation (7)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series BB

 

 

1,000,000

 

 

 

 

 

 

 

Subtotal: Internet Consumer & Business Services (0.46%)*

 

 

 

 

 

 

 

 

 

 

3,578

 

 

 

3,828

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pinterest, Inc.

 

Media/Content/Info

 

Equity

 

Preferred Series Seed

 

 

620,000

 

 

 

4,085

 

 

 

4,389

 

Subtotal: Media/Content/Info (0.53%)*

 

 

 

 

 

 

 

 

 

 

4,085

 

 

 

4,389

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AtriCure, Inc. (4)(15)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

7,536

 

 

 

266

 

 

 

155

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Equity

 

Preferred Series AA

 

 

221,893

 

 

 

1,500

 

 

 

 

Gelesis, Inc. (15)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

198,202

 

 

 

 

 

 

996

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-1

 

 

191,210

 

 

 

425

 

 

 

1,056

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-2

 

 

191,626

 

 

 

500

 

 

 

1,009

 

Total Gelesis, Inc.

 

 

 

 

 

 

 

 

581,038

 

 

 

925

 

 

 

3,061

 

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

136,798

 

 

 

250

 

 

 

209

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series F

 

 

73,971

 

 

 

155

 

 

 

171

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series G

 

 

163,934

 

 

 

500

 

 

 

442

 

Total Medrobotics Corporation

 

 

 

 

 

 

 

 

374,703

 

 

 

905

 

 

 

822

 

Optiscan Biomedical, Corp. (6)(15)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

6,185,567

 

 

 

3,000

 

 

 

345

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series C

 

 

1,927,309

 

 

 

655

 

 

 

100

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series D

 

 

55,103,923

 

 

 

5,257

 

 

 

3,193

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

31,199,131

 

 

 

2,609

 

 

 

2,618

 

Total Optiscan Biomedical, Corp.

 

 

 

 

 

 

 

 

94,415,930

 

 

 

11,521

 

 

 

6,256

 

Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

232,061

 

 

 

527

 

 

 

667

 

Quanterix Corporation (4)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

84,778

 

 

 

1,000

 

 

 

1,445

 

Subtotal: Medical Devices & Equipment (1.50%)*

 

 

 

 

 

 

 

 

 

 

16,644

 

 

 

12,406

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CapLinked, Inc.

 

Software

 

Equity

 

Preferred Series A-3

 

 

53,614

 

 

 

51

 

 

 

87

 

Druva, Inc.

 

Software

 

Equity

 

Preferred Series 2

 

 

458,841

 

 

 

1,000

 

 

 

1,073

 

 

 

Software

 

Equity

 

Preferred Series 3

 

 

93,620

 

 

 

300

 

 

 

313

 

Total Druva, Inc.

 

 

 

 

 

 

 

 

552,461

 

 

 

1,300

 

 

 

1,386

 

ForeScout Technologies, Inc. (4)

 

Software

 

Equity

 

Common Stock

 

 

199,842

 

 

 

529

 

 

 

6,483

 

HighRoads, Inc.

 

Software

 

Equity

 

Common Stock

 

 

190

 

 

 

307

 

 

 

 

NewVoiceMedia Limited (5)(10)

 

Software

 

Equity

 

Preferred Series E

 

 

669,173

 

 

 

963

 

 

 

1,392

 

Palantir Technologies

 

Software

 

Equity

 

Preferred Series E

 

 

727,696

 

 

 

5,431

 

 

 

4,923

 

 

 

Software

 

Equity

 

Preferred Series G

 

 

326,797

 

 

 

2,211

 

 

 

2,211

 

Total Palantir Technologies

 

 

 

 

 

 

 

 

1,054,493

 

 

 

7,642

 

 

 

7,134

 

Sprinklr, Inc.

 

Software

 

Equity

 

Common Stock

 

 

700,000

 

 

 

3,749

 

 

 

3,752

 

WildTangent, Inc. (15)

 

Software

 

Equity

 

Preferred Series 3

 

 

100,000

 

 

 

402

 

 

 

172

 

Subtotal: Software (2.46%)*

 

 

 

 

 

 

 

 

 

 

14,943

 

 

 

20,406

 

 

See notes to consolidated financial statements.

17


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Equity

 

Preferred Series B

 

 

219,298

 

 

$

250

 

 

$

48

 

 

 

Surgical Devices

 

Equity

 

Preferred Series C

 

 

656,538

 

 

 

282

 

 

 

65

 

 

 

Surgical Devices

 

Equity

 

Preferred Series D

 

 

1,991,157

 

 

 

711

 

 

 

822

 

 

 

Surgical Devices

 

Equity

 

Preferred Series E

 

 

2,786,367

 

 

 

429

 

 

 

542

 

Total Gynesonics, Inc.

 

 

 

 

 

 

 

 

5,653,360

 

 

 

1,672

 

 

 

1,477

 

Transmedics, Inc.

 

Surgical Devices

 

Equity

 

Preferred Series B

 

 

88,961

 

 

 

1,100

 

 

 

427

 

 

 

Surgical Devices

 

Equity

 

Preferred Series C

 

 

119,999

 

 

 

300

 

 

 

340

 

 

 

Surgical Devices

 

Equity

 

Preferred Series D

 

 

260,000

 

 

 

650

 

 

 

1,071

 

 

 

Surgical Devices

 

Equity

 

Preferred Series F

 

 

100,200

 

 

 

500

 

 

 

561

 

Total Transmedics, Inc.

 

 

 

 

 

 

 

 

569,160

 

 

 

2,550

 

 

 

2,399

 

Subtotal: Surgical Devices (0.47%)*

 

 

 

 

 

 

 

 

 

 

4,222

 

 

 

3,876

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

 

Sustainable and Renewable Technology

 

Equity

 

Common Stock

 

 

192

 

 

 

761

 

 

 

 

Modumetal, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series C

 

 

3,107,520

 

 

 

500

 

 

 

360

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series 5

 

 

99,280

 

 

 

500

 

 

 

527

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Equity

 

Common Stock

 

 

288

 

 

 

61,502

 

 

 

12,315

 

Subtotal: Sustainable and Renewable Technology (1.59%)*

 

 

 

 

 

 

 

 

 

 

63,263

 

 

 

13,202

 

Total: Equity Investments (13.76%)*

 

 

 

 

 

 

 

 

 

 

164,896

 

 

 

113,999

 

 

See notes to consolidated financial statements.

18


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Warrant Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Labcyte, Inc. (15)

 

Biotechnology Tools

 

Warrant

 

Preferred Series C

 

 

1,127,624

 

 

$

323

 

 

$

494

 

Subtotal: Biotechnology Tools (0.06%)*

 

 

 

 

 

 

 

 

 

 

323

 

 

 

494

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

3,328

 

 

 

 

 

 

16

 

 

 

Communications & Networking

 

Warrant

 

Preferred Series A

 

 

135,000

 

 

 

95

 

 

 

550

 

Total Peerless Network Holdings, Inc.

 

 

 

 

 

 

138,328

 

 

 

95

 

 

 

566

 

Spring Mobile Solutions, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

2,834,375

 

 

 

417

 

 

 

 

Subtotal: Communications & Networking (0.07%)*

 

 

 

 

 

 

 

 

 

 

512

 

 

 

566

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gadget Guard (p.k.a Antenna79) (15)

 

Consumer & Business Products

 

Warrant

 

Common Stock

 

 

1,662,441

 

 

 

228

 

 

 

 

Intelligent Beauty, Inc. (15)

 

Consumer & Business Products

 

Warrant

 

Preferred Series B

 

 

190,234

 

 

 

230

 

 

 

233

 

The Neat Company (15)

 

Consumer & Business Products

 

Warrant

 

Preferred Series C-1

 

 

540,540

 

 

 

365

 

 

 

 

Subtotal: Consumer & Business Products (0.03%)*

 

 

 

 

 

 

 

 

 

 

823

 

 

 

233

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (4)(10)(15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

176,730

 

 

 

786

 

 

 

66

 

Agile Therapeutics, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

180,274

 

 

 

730

 

 

 

44

 

BioQ Pharma Incorporated

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

459,183

 

 

 

1

 

 

 

1,155

 

Celsion Corporation (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

13,927

 

 

 

428

 

 

 

 

Dance Biopharm, Inc. (15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

110,882

 

 

 

74

 

 

 

 

Edge Therapeutics, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

78,595

 

 

 

390

 

 

 

25

 

Kaleo, Inc. (p.k.a. Intelliject, Inc.)

 

Drug Delivery

 

Warrant

 

Preferred Series B

 

 

82,500

 

 

 

594

 

 

 

1,076

 

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

70,833

 

 

 

285

 

 

 

71

 

Pulmatrix Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

25,150

 

 

 

116

 

 

 

 

ZP Opco, Inc (p.k.a. Zosano Pharma) (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

3,618

 

 

 

266

 

 

 

 

Subtotal: Drug Delivery (0.29%)*

 

 

 

 

 

 

 

 

 

 

3,670

 

 

 

2,437

 

 

See notes to consolidated financial statements.

19


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADMA Biologics, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

89,750

 

 

$

295

 

 

$

31

 

Audentes Therapeutics, Inc (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,914

 

 

 

62

 

 

 

142

 

Auris Medical Holding, AG (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

15,672

 

 

 

249

 

 

 

2

 

Brickell Biotech, Inc.

 

Drug Discovery & Development

 

Warrant

 

Preferred Series C

 

 

26,086

 

 

 

119

 

 

 

65

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

22,328

 

 

 

70

 

 

 

25

 

Chroma Therapeutics, Ltd. (5)(10)

 

Drug Discovery & Development

 

Warrant

 

Preferred Series D

 

 

325,261

 

 

 

490

 

 

 

 

Cleveland BioLabs, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

7,813

 

 

 

105

 

 

 

1

 

Concert Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

132,069

 

 

 

545

 

 

 

1,091

 

CTI BioPharma Corp. (p.k.a. Cell Therapeutics, Inc.) (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

29,239

 

 

 

165

 

 

 

 

CytRx Corporation (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

105,694

 

 

 

160

 

 

 

48

 

Dare Biosciences, Inc. (p.k.a. Cerulean Pharma, Inc.) (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

17,190

 

 

 

369

 

 

 

 

Dicerna Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

200

 

 

 

28

 

 

 

 

Epirus Biopharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

64,194

 

 

 

276

 

 

 

 

Evofem Biosciences, Inc (p.k.a Neothetics, Inc.) (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

7,806

 

 

 

266

 

 

 

28

 

Fortress Biotech, Inc. (p.k.a. Coronado Biosciences, Inc.) (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,009

 

 

 

142

 

 

 

43

 

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,725

 

 

 

266

 

 

 

3

 

Immune Pharmaceuticals (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

10,742

 

 

 

164

 

 

 

 

Melinta Therapeutics (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

40,545

 

 

 

626

 

 

 

1

 

Motif BioSciences Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,452

 

 

 

282

 

 

 

254

 

Myovant Sciences, Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,710

 

 

 

460

 

 

 

831

 

Neuralstem, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

5,783

 

 

 

77

 

 

 

 

Ology Bioservices, Inc. (p.k.a. Nanotherapeutics, Inc.) (15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

171,389

 

 

 

838

 

 

 

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

75,214

 

 

 

178

 

 

 

82

 

Savara Inc. (p.k.a. Mast Therapeutics, Inc.) (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

32,467

 

 

 

203

 

 

 

93

 

Sorrento Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

306,748

 

 

 

889

 

 

 

704

 

Stealth Bio Therapeutics Corp. (5)(10)

 

Drug Discovery & Development

 

Warrant

 

Preferred Series A

 

 

650,000

 

 

 

158

 

 

 

150

 

Tricida, Inc. (15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

212,765

 

 

 

223

 

 

 

217

 

uniQure B.V. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

37,174

 

 

 

218

 

 

 

334

 

XOMA Corporation (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,063

 

 

 

279

 

 

 

9

 

Subtotal: Drug Discovery & Development (0.50%)*

 

 

 

 

 

 

 

 

 

 

8,202

 

 

 

4,154

 

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 DEVICES INC. (15)

 

Electronics & Computer Hardware

 

Warrant

 

Preferred Series D

 

 

79,856

 

 

 

100

 

 

 

84

 

Clustrix, Inc.

 

Electronics & Computer Hardware

 

Warrant

 

Common Stock

 

 

50,000

 

 

 

12

 

 

 

 

Subtotal: Electronics & Computer Hardware (0.01%)*

 

 

 

 

 

 

 

 

 

 

112

 

 

 

84

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chromadex Corporation (4)(15)

 

Healthcare Services, Other

 

Warrant

 

Common Stock

 

 

139,673

 

 

 

157

 

 

 

182

 

Subtotal: Healthcare Services, Other (0.02%)*

 

 

 

 

 

 

 

 

 

 

157

 

 

 

182

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INMOBI Inc. (5)(10)

 

Information Services

 

Warrant

 

Common Stock

 

 

65,587

 

 

 

82

 

 

 

 

InXpo, Inc. (15)

 

Information Services

 

Warrant

 

Preferred Series C-1

 

 

898,134

 

 

 

49

 

 

 

34

 

MDX Medical, Inc. (15)

 

Information Services

 

Warrant

 

Common Stock

 

 

2,812,500

 

 

 

283

 

 

 

185

 

Netbase Solutions, Inc.

 

Information Services

 

Warrant

 

Preferred Series 1

 

 

60,000

 

 

 

356

 

 

 

373

 

RichRelevance, Inc. (15)

 

Information Services

 

Warrant

 

Preferred Series E

 

 

112,612

 

 

 

98

 

 

 

 

Subtotal: Information Services (0.07%)*

 

 

 

 

 

 

 

 

 

 

868

 

 

 

592

 

 

See notes to consolidated financial statements.

20


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aria Systems, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G

 

 

231,535

 

 

$

73

 

 

$

 

Art.com, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

311,005

 

 

 

66

 

 

 

66

 

Blurb, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

234,280

 

 

 

636

 

 

 

27

 

ClearObject, Inc. (p.k.a. CloudOne, Inc.)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series E

 

 

968,992

 

 

 

19

 

 

 

211

 

Faction Holdings, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

8,703

 

 

 

234

 

 

 

437

 

Intent Media, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

140,077

 

 

 

168

 

 

 

200

 

Interactions Corporation

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G-3

 

 

68,187

 

 

 

204

 

 

 

413

 

Just Fabulous, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

206,184

 

 

 

1,102

 

 

 

1,812

 

Lightspeed POS, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

245,610

 

 

 

20

 

 

 

99

 

LogicSource (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

79,625

 

 

 

30

 

 

 

28

 

Oportun (p.k.a. Progress Financial)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G

 

 

174,562

 

 

 

78

 

 

 

192

 

ShareThis, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

493,502

 

 

 

547

 

 

 

 

Snagajob.com, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

1,800,000

 

 

 

782

 

 

 

1,406

 

Tapjoy, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series D

 

 

748,670

 

 

 

316

 

 

 

15

 

TraceLink, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A-2

 

 

283,353

 

 

 

1,833

 

 

 

2,029

 

Subtotal: Internet Consumer & Business Services (0.84%)*

 

 

 

 

 

 

 

 

 

 

6,108

 

 

 

6,935

 

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FanDuel, Inc.

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

15,570

 

 

 

 

 

 

 

 

 

Media/Content/Info

 

Warrant

 

Preferred Series A

 

 

4,648

 

 

 

730

 

 

 

1,875

 

Total FanDuel, Inc.

 

 

 

 

 

 

 

 

20,218

 

 

 

730

 

 

 

1,875

 

Machine Zone, Inc.

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

1,552,710

 

 

 

1,958

 

 

 

3,242

 

Rhapsody International, Inc. (15)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

715,755

 

 

 

385

 

 

 

37

 

WP Technology, Inc. (Wattpad, Inc.) (5)(10)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

255,818

 

 

 

4

 

 

 

24

 

Zoom Media Group, Inc.

 

Media/Content/Info

 

Warrant

 

Preferred Series A

 

 

1,204

 

 

 

348

 

 

 

29

 

Subtotal: Media/Content/Info (0.63%)*

 

 

 

 

 

 

 

 

 

 

3,425

 

 

 

5,207

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amedica Corporation (4)(15)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

8,603

 

 

 

459

 

 

 

 

Aspire Bariatrics, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series B-1

 

 

112,858

 

 

 

455

 

 

 

 

Avedro, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series AA

 

 

300,000

 

 

 

401

 

 

 

300

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series AA

 

 

155,325

 

 

 

362

 

 

 

 

Gelesis, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

74,784

 

 

 

78

 

 

 

248

 

InspireMD, Inc. (4)(5)(10)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

1,124

 

 

 

242

 

 

 

 

Intuity Medical, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series 4

 

 

1,819,078

 

 

 

294

 

 

 

394

 

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

455,539

 

 

 

370

 

 

 

264

 

Micell Technologies, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D-2

 

 

84,955

 

 

 

262

 

 

 

154

 

NetBio, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

7,841

 

 

 

408

 

 

 

43

 

NinePoint Medical, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

587,840

 

 

 

170

 

 

 

104

 

Optiscan Biomedical, Corp. (6)(15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

10,535,275

 

 

 

1,252

 

 

 

271

 

Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

500,000

 

 

 

402

 

 

 

532

 

Quanterix Corporation (4)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

66,039

 

 

 

204

 

 

 

326

 

Sebacia, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D

 

 

778,301

 

 

 

133

 

 

 

159

 

SonaCare Medical, LLC (p.k.a. US HIFU, LLC)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

6,464

 

 

 

188

 

 

 

 

Strata Skin Sciences, Inc. (p.k.a. MELA Sciences, Inc.) (4)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

13,864

 

 

 

401

 

 

 

 

Tela Bio, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series B

 

 

387,930

 

 

 

62

 

 

 

128

 

ViewRay, Inc. (4)(15)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

128,231

 

 

 

333

 

 

 

206

 

Subtotal: Medical Devices & Equipment (0.38%)*

 

 

 

 

 

 

 

 

 

 

6,476

 

 

 

3,129

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation (15)

 

Semiconductors

 

Warrant

 

Preferred Series C

 

 

360,000

 

 

 

160

 

 

 

434

 

 

 

Semiconductors

 

Warrant

 

Preferred Series D-2

 

 

750,000

 

 

 

99

 

 

 

648

 

Total Achronix Semiconductor Corporation

 

 

 

 

 

 

1,110,000

 

 

 

259

 

 

 

1,082

 

Aquantia Corp. (4)

 

Semiconductors

 

Warrant

 

Common Stock

 

 

19,683

 

 

 

4

 

 

 

41

 

Avnera Corporation

 

Semiconductors

 

Warrant

 

Preferred Series E

 

 

141,567

 

 

 

46

 

 

 

219

 

Subtotal: Semiconductors (0.16%)*

 

 

 

 

 

 

 

 

 

 

309

 

 

 

1,342

 

 

See notes to consolidated financial statements.

21


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actifio, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

73,584

 

 

$

249

 

 

$

65

 

 

 

Software

 

Warrant

 

Preferred Series F

 

 

31,673

 

 

 

343

 

 

 

79

 

Total Actifio, Inc.

 

 

 

 

 

 

 

 

105,257

 

 

 

592

 

 

 

144

 

Braxton Technologies, LLC

 

Software

 

Warrant

 

Preferred Series A

 

 

168,750

 

 

 

188

 

 

 

 

CareCloud Corporation (15)

 

Software

 

Warrant

 

Preferred Series B

 

 

413,433

 

 

 

258

 

 

 

44

 

Clickfox, Inc. (15)

 

Software

 

Warrant

 

Preferred Series B

 

 

1,038,563

 

 

 

330

 

 

 

35

 

 

 

Software

 

Warrant

 

Preferred Series C

 

 

592,019

 

 

 

730

 

 

 

38

 

 

 

Software

 

Warrant

 

Preferred Series C-A

 

 

2,218,214

 

 

 

230

 

 

 

1,441

 

Total Clickfox, Inc.

 

 

 

 

 

 

 

 

3,848,796

 

 

 

1,290

 

 

 

1,514

 

DNAnexus, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

909,091

 

 

 

97

 

 

 

62

 

Evernote Corporation (15)

 

Software

 

Warrant

 

Common Stock

 

 

62,500

 

 

 

106

 

 

 

218

 

Fuze, Inc. (15)

 

Software

 

Warrant

 

Preferred Series F

 

 

256,158

 

 

 

89

 

 

 

5

 

Lightbend, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C-1

 

 

391,778

 

 

 

79

 

 

 

75

 

Mattersight Corporation (4)

 

Software

 

Warrant

 

Common Stock

 

 

357,143

 

 

 

538

 

 

 

88

 

Message Systems, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C

 

 

503,718

 

 

 

334

 

 

 

464

 

Mobile Posse, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C

 

 

396,430

 

 

 

130

 

 

 

155

 

Neos, Inc. (15)

 

Software

 

Warrant

 

Common Stock

 

 

221,150

 

 

 

22

 

 

 

 

NewVoiceMedia Limited (5)(10)

 

Software

 

Warrant

 

Preferred Series E

 

 

225,586

 

 

 

33

 

 

 

142

 

OneLogin, Inc. (15)

 

Software

 

Warrant

 

Common Stock

 

 

228,972

 

 

 

150

 

 

 

172

 

PerfectServe, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

129,073

 

 

 

720

 

 

 

1,089

 

Poplicus, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

132,168

 

 

 

 

 

 

 

Quid, Inc. (15)

 

Software

 

Warrant

 

Preferred Series D

 

 

71,576

 

 

 

1

 

 

 

6

 

RapidMiner, Inc.

 

Software

 

Warrant

 

Preferred Series C-1

 

 

4,982

 

 

 

24

 

 

 

32

 

RedSeal Inc. (15)

 

Software

 

Warrant

 

Preferred Series C-Prime

 

 

640,603

 

 

 

66

 

 

 

38

 

Signpost, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

324,005

 

 

 

314

 

 

 

108

 

Wrike, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

698,760

 

 

 

462

 

 

 

1,273

 

Subtotal: Software (0.68%)*

 

 

 

 

 

 

 

 

 

 

5,493

 

 

 

5,629

 

 

Specialty Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alimera Sciences, Inc. (4)

 

Specialty Pharmaceuticals

 

Warrant

 

Common Stock

 

 

1,717,709

 

 

 

861

 

 

 

256

 

Subtotal: Specialty Pharmaceuticals (0.03%)*

 

 

 

 

 

 

 

 

 

 

861

 

 

 

256

 

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Warrant

 

Preferred Series C

 

 

180,480

 

 

 

75

 

 

 

16

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series D

 

 

1,575,965

 

 

 

320

 

 

 

307

 

Total Gynesonics, Inc.

 

 

 

 

 

 

 

 

1,756,445

 

 

 

395

 

 

 

323

 

Transmedics, Inc.

 

Surgical Devices

 

Warrant

 

Preferred Series B

 

 

40,436

 

 

 

225

 

 

 

16

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series D

 

 

175,000

 

 

 

100

 

 

 

474

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series F

 

 

50,544

 

 

 

38

 

 

 

62

 

Total Transmedics, Inc.

 

 

 

 

 

 

 

 

265,980

 

 

 

363

 

 

 

552

 

Subtotal: Surgical Devices (0.11%)*

 

 

 

 

 

 

 

 

 

 

758

 

 

 

875

 

 

See notes to consolidated financial statements.

22


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

March 31, 2018

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Series

 

Shares

 

 

Cost(3)

 

 

Value(4)

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agrivida, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

471,327

 

 

$

120

 

 

$

 

American Superconductor Corporation (4)

 

Sustainable and Renewable Technology

 

Warrant

 

Common Stock

 

 

58,823

 

 

 

39

 

 

 

41

 

Calera, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

44,529

 

 

 

513

 

 

 

 

EcoMotors, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series B

 

 

437,500

 

 

 

308

 

 

 

 

Fluidic, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

61,804

 

 

 

102

 

 

 

 

Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

 

Sustainable and Renewable Technology

 

Warrant

 

Common Stock

 

 

5,310

 

 

 

181

 

 

 

 

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 2-A

 

 

63

 

 

 

50

 

 

 

 

Total Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

 

 

 

 

 

 

5,373

 

 

 

231

 

 

 

 

Fulcrum Bioenergy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C-1

 

 

280,897

 

 

 

275

 

 

 

457

 

GreatPoint Energy, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D-1

 

 

393,212

 

 

 

548

 

 

 

 

Kinestral Technologies, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series A

 

 

325,000

 

 

 

155

 

 

 

92

 

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series B

 

 

131,883

 

 

 

63

 

 

 

27

 

Total Kinestral Technologies, Inc.

 

 

 

 

 

 

 

 

456,883

 

 

 

218

 

 

 

119

 

Polyera Corporation (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

311,609

 

 

 

338

 

 

 

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 4

 

 

477,517

 

 

 

41

 

 

 

518

 

Rive Technology, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series E

 

 

234,477

 

 

 

12

 

 

 

3

 

Stion Corporation (6)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series Seed

 

 

2,154

 

 

 

1,378

 

 

 

 

TAS Energy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series AA

 

 

428,571

 

 

 

299

 

 

 

 

Tendril Networks

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 3-A

 

 

1,019,793

 

 

 

189

 

 

 

 

Subtotal: Sustainable and Renewable Technology (0.14%)*

 

 

 

 

 

 

 

 

 

 

4,611

 

 

 

1,138

 

Total: Warrant Investments (4.01%)*

 

 

 

 

 

 

 

 

 

 

42,708

 

 

 

33,253

 

Total Investments in Securities (179.02%)*

 

 

 

 

 

 

 

 

 

$

1,576,278

 

 

$

1,483,578

 

 

*

Value as a percent of net assets

(1)

Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)

Interest rate PRIME represents 4.75% at March 31, 2018. Daily LIBOR, 1-month LIBOR, 3-month LIBOR and 12-month LIBOR represent 1.70%, 1.88%, 2.31% and

2.66%, respectively, at March 31, 2018.

(3)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $26.2 million, $128.1 million and $101.8 million respectively. The tax cost of investments is $1.6 billion.

(4)

Except for warrants in 41 publicly traded companies and common stock in 20 publicly traded companies, all investments are restricted at March 31, 2018 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s board of directors (the “Board of Directors”). No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(5)

Non-U.S. company or the company’s principal place of business is outside the United States.

(6)

Affiliate investment as defined under the Investment Company Act of 1940, as amended, (the “1940 Act”) in which Hercules owns at least 5% but generally less than 25% of the company’s voting securities.

(7)

Control investment as defined under the 1940 Act in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation on its board.

(8)

Debt is on non-accrual status at March 31, 2018, and is therefore considered non-income producing. Note that at March 31, 2018, only the $10.7 million PIK, or payment-in-kind, loan is on non-accrual for the Company’s debt investment in Tectura Corporation.

(9)

Denotes that all or a portion of the debt investment is convertible debt.

(10)

Indicates assets that the Company deems not “qualifying assets” under section 55(a) of 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.

(11)

Denotes that all or a portion of the debt investment secures the notes offered in the Debt Securitization (as defined in Note 4).

(12)

Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in Note 4).

(13)

Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in Note 4).

(14)

Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.

(15)

Denotes that all or a portion of the investment in this portfolio company is held by Hercules Technology II, L.P., or HT II, or Hercules Technology III, L.P., or HT III, the Company’s wholly owned small business investment companies, or SBIC, subsidiaries.

(16)

Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total assets at March 31, 2018.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company at March 31, 2018. Refer to Note 10.

(18)   Denotes unitranche debt with first lien “last-out” senior secured position and security interest in all assets of the portfolio company whereby the “last-out” portion will be subordinated to the “first-out” portion in a liquidation, sale or other disposition.

(19)   Denotes second lien senior secured debt.

 


See notes to consolidated financial statements.

23


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Debt Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Exicure, Inc. (12)

 

Biotechnology Tools

 

Senior Secured

 

September 2019

 

Interest rate PRIME + 6.45%

or Floor rate of 9.95%, 3.85% Exit Fee

 

$

4,999

 

 

$

5,115

 

 

$

5,146

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

5,115

 

 

 

5,146

 

Subtotal: Biotechnology Tools (0.61%)*

 

 

 

 

 

 

 

 

 

 

 

 

5,115

 

 

 

5,146

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

OpenPeak, Inc. (8)

 

Communications & Networking

 

Senior Secured

 

April 2018

 

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

 

$

11,464

 

 

 

8,228

 

 

 

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

8,228

 

 

 

 

Subtotal: Communications & Networking (0.00%)*

 

 

 

 

 

 

 

 

 

 

 

 

8,228

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antenna79 (p.k.a. Pong Research Corporation) (15)

 

Consumer & Business Products

 

Senior Secured

 

December 2018

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%

 

$

1,000

 

 

 

1,000

 

 

 

1,000

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

1,000

 

 

 

1,000

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antenna79 (p.k.a. Pong Research Corporation) (15)

 

Consumer & Business Products

 

Senior Secured

 

December 2019

 

Interest rate PRIME + 7.45%

or Floor rate of 10.95%, 2.95% Exit Fee

 

$

18,440

 

 

 

18,580

 

 

 

18,571

 

Second Time Around (Simplify Holdings, LLC) (7)(8)(15)

 

Consumer & Business Products

 

Senior Secured

 

February 2019

 

Interest rate PRIME + 7.25%

or Floor rate of 10.75%, 4.75% Exit Fee

 

$

1,746

 

 

 

1,781

 

 

 

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

20,361

 

 

 

18,571

 

Subtotal: Consumer & Business Products (2.33%)*

 

 

 

 

 

 

 

 

 

 

 

 

21,361

 

 

 

19,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agile Therapeutics, Inc. (11)

 

Drug Delivery

 

Senior Secured

 

December 2018

 

Interest rate PRIME + 4.75%

or Floor rate of 9.00%, 3.70% Exit Fee

 

$

10,888

 

 

 

11,292

 

 

 

11,292

 

Pulmatrix Inc. (9)(11)

 

Drug Delivery

 

Senior Secured

 

July 2018

 

Interest rate PRIME + 6.25%

or Floor rate of 9.50%, 3.50% Exit Fee

 

$

3,259

 

 

 

3,455

 

 

 

3,455

 

ZP Opco, Inc (p.k.a. Zosano Pharma) (11)

 

Drug Delivery

 

Senior Secured

 

December 2018

 

Interest rate PRIME + 2.70%

or Floor rate of 7.95%, 2.87% Exit Fee

 

$

6,316

 

 

 

6,609

 

 

 

6,609

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

21,356

 

 

 

21,356

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (10)(11)(15)

 

Drug Delivery

 

Senior Secured

 

March 2020

 

Interest rate PRIME + 6.05%

or Floor rate of 9.55%, 11.69% Exit Fee

 

$

18,653

 

 

 

18,925

 

 

 

18,875

 

Antares Pharma Inc. (10)(15)

 

Drug Delivery

 

Senior Secured

 

July 2022

 

Interest rate PRIME + 4.50%

or Floor rate of 9.00%, 4.25% Exit Fee

 

$

25,000

 

 

 

25,006

 

 

 

24,958

 

Edge Therapeutics, Inc. (12)

 

Drug Delivery

 

Senior Secured

 

February 2020

 

Interest rate PRIME + 4.65%

or Floor rate of 9.15%, 4.95% Exit Fee

 

$

20,000

 

 

 

20,377

 

 

 

20,331

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

64,308

 

 

 

64,164

 

Subtotal: Drug Delivery (10.17%)*

 

 

 

 

 

 

 

 

 

 

 

 

85,664

 

 

 

85,520

 

 

See notes to consolidated financial statements.

24


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CytRx Corporation (11)(15)

 

Drug Discovery & Development

 

Senior Secured

 

August 2018

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%, 7.09% Exit Fee

 

$

9,986

 

 

$

11,172

 

 

$

11,172

 

Epirus Biopharmaceuticals, Inc. (8)

 

Drug Discovery & Development

 

Senior Secured

 

April 2018

 

Interest rate PRIME + 4.70%

or Floor rate of 7.95%, 3.00% Exit Fee

 

$

3,027

 

 

 

3,310

 

 

 

340

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

14,482

 

 

 

11,512

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Auris Medical Holding, AG (5)(10)

 

Drug Discovery & Development

 

Senior Secured

 

January    2020

 

Interest rate PRIME + 6.05%

or Floor rate of 9.55%, 5.75% Exit Fee

 

$

10,341

 

 

 

10,610

 

 

 

10,563

 

Aveo Pharmaceuticals, Inc. (10)(13)

 

Drug Discovery & Development

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 4.70%

or Floor rate of 9.45%, 5.40% Exit Fee

 

$

10,000

 

 

 

10,345

 

 

 

10,344

 

 

 

Drug Discovery & Development

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 4.70%

or Floor rate of 9.45%, 3.00% Exit Fee

 

$

10,000

 

 

 

9,918

 

 

 

9,915

 

Total Aveo Pharmaceuticals, Inc.

 

 

 

 

 

 

 

$

20,000

 

 

 

20,263

 

 

 

20,259

 

Axovant Sciences Ltd. (5)(10)

 

Drug Discovery & Development

 

Senior Secured

 

March 2021

 

Interest rate PRIME + 6.80%

or Floor rate of 10.55%

 

$

55,000

 

 

 

53,631

 

 

 

53,448

 

Brickell Biotech, Inc. (12)

 

Drug Discovery & Development

 

Senior Secured

 

September 2019

 

Interest rate PRIME + 5.70%

or Floor rate of 9.20%, 6.75% Exit Fee

 

$

6,090

 

 

 

6,380

 

 

 

6,361

 

Chemocentryx, Inc. (10)(15)(17)

 

Drug Discovery & Development

 

Senior Secured

 

December 2021

 

Interest rate PRIME + 3.30%

or Floor rate of 8.05%, 6.25% Exit Fee

 

$

5,000

 

 

 

4,947

 

 

 

4,947

 

Genocea Biosciences, Inc. (11)

 

Drug Discovery & Development

 

Senior Secured

 

January 2019

 

Interest rate PRIME + 2.25%

or Floor rate of 7.25%, 4.95% Exit Fee

 

$

13,851

 

 

 

14,482

 

 

 

14,385

 

Insmed, Incorporated (11)

 

Drug Discovery & Development

 

Senior Secured

 

October 2020

 

Interest rate PRIME + 4.75%

or Floor rate of 9.25%, 4.86% Exit Fee

 

$

55,000

 

 

 

55,425

 

 

 

54,963

 

Metuchen Pharmaceuticals LLC (12)(14)

 

Drug Discovery & Development

 

Senior Secured

 

October 2020

 

Interest rate PRIME + 7.25%

or Floor rate of 10.75%,

PIK Interest 1.35%, 2.25% Exit Fee

 

$

25,561

 

 

 

25,721

 

 

 

25,643

 

Motif BioSciences Inc. (15)

 

Drug Discovery & Development

 

Senior Secured

 

September 2021

 

Interest rate PRIME + 5.50%

or Floor rate of 10.00%, 2.15% Exit Fee

 

$

15,000

 

 

 

14,651

 

 

 

14,651

 

Myovant Sciences, Ltd. (5)(10)(13)(17)

 

Drug Discovery & Development

 

Senior Secured

 

May 2021

 

Interest rate PRIME + 4.00%

or Floor rate of 8.25%, 6.55% Exit Fee

 

$

25,000

 

 

 

24,704

 

 

 

24,704

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) (15)

 

Drug Discovery & Development

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 2.75%

or Floor rate of 8.50%, 4.50% Exit Fee

 

$

40,000

 

 

 

40,144

 

 

 

39,829

 

 

 

Drug Discovery & Development

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 2.75%

or Floor rate of 8.50%, 4.50% Exit Fee

 

$

10,000

 

 

 

10,040

 

 

 

9,958

 

 

 

Drug Discovery & Development

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 2.75%

or Floor rate of 8.50%, 2.25% Exit Fee

 

$

10,000

 

 

 

9,964

 

 

 

9,895

 

Total Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.)

 

 

 

$

60,000

 

 

 

60,148

 

 

 

59,682

 

PhaseRx, Inc. (15)

 

Drug Discovery & Development

 

Senior Secured

 

December 2019

 

Interest rate PRIME + 5.75%

or Floor rate of 9.25%, 5.85% Exit Fee

 

$

4,694

 

 

 

4,842

 

 

 

1,917

 

Stealth Bio Therapeutics Corp. (5)(10)(12)

 

Drug Discovery & Development

 

Senior Secured

 

January 2021

 

Interest rate PRIME + 5.50%

or Floor rate of 9.50%, 5.00% Exit Fee

 

$

15,000

 

 

 

14,898

 

 

 

14,847

 

uniQure B.V. (5)(10)(11)

 

Drug Discovery & Development

 

Senior Secured

 

May 2020

 

Interest rate PRIME + 3.00%

or Floor rate of 8.25%, 5.48% Exit Fee

 

$

20,000

 

 

 

20,579

 

 

 

20,543

 

Verastem, Inc. (12)(17)

 

Drug Discovery & Development

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

4,957

 

 

 

4,910

 

 

 

Drug Discovery & Development

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

4,996

 

 

 

4,949

 

 

 

Drug Discovery & Development

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.50%, 4.50% Exit Fee

 

$

5,000

 

 

 

4,953

 

 

 

4,907

 

Total Verastem, Inc.

 

 

 

 

 

 

 

$

15,000

 

 

 

14,906

 

 

 

14,766

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

346,187

 

 

 

341,679

 

Subtotal: Drug Discovery & Development (42.00%)*

 

 

 

 

 

 

 

 

 

 

 

 

360,669

 

 

 

353,191

 

 

See notes to consolidated financial statements.

25


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 DEVICES INC. (15)

 

Electronics & Computer Hardware

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 4.00%

or Floor rate of 8.25%, 4.25% Exit Fee

 

$

10,000

 

 

$

10,014

 

 

$

9,887

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

10,014

 

 

 

9,887

 

Subtotal: Electronics & Computer Hardware (1.18%)*

 

 

 

 

 

 

 

 

 

 

 

 

10,014

 

 

 

9,887

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medsphere Systems Corporation (14)(15)

 

Healthcare Services, Other

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 4.75%

or Floor rate of 9.00%,

PIK Interest 1.75%

 

$

17,607

 

 

 

17,437

 

 

 

17,437

 

 

 

Healthcare Services, Other

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 4.75%

or Floor rate of 9.00%,

PIK Interest 1.75%

 

$

5,009

 

 

 

4,963

 

 

 

4,963

 

Total Medsphere Systems Corporation

 

 

 

 

 

 

 

$

22,616

 

 

 

22,400

 

 

 

22,400

 

Oak Street Health (12)

 

Healthcare Services, Other

 

Senior Secured

 

September 2021

 

Interest rate PRIME + 5.00%

or Floor rate of 9.75%, 5.95% Exit Fee

 

$

20,000

 

 

 

19,965

 

 

 

19,965

 

PH Group Holdings (13)

 

Healthcare Services, Other

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 7.45%

or Floor rate of 10.95%

 

$

20,000

 

 

 

19,878

 

 

 

19,803

 

 

 

Healthcare Services, Other

 

Senior Secured

 

September 2020

 

Interest rate PRIME + 7.45%

or Floor rate of 10.95%

 

$

10,000

 

 

 

9,922

 

 

 

9,840

 

Total PH Group Holdings

 

 

 

 

 

 

 

$

30,000

 

 

 

29,800

 

 

 

29,643

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

72,165

 

 

 

72,008

 

Subtotal: Healthcare Services, Other (8.56%)*

 

 

 

 

 

 

 

 

 

 

 

 

72,165

 

 

 

72,008

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

MDX Medical, Inc. (14)(15)(17)

 

Information Services

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 4.25%

or Floor rate of 8.25%,

PIK Interest 1.70%

 

$

7,568

 

 

 

7,369

 

 

 

7,327

 

Netbase Solutions, Inc. (13)(14)

 

Information Services

 

Senior Secured

 

August 2020

 

Interest rate PRIME + 6.00%

or Floor rate of 10.00%,

PIK Interest 2.00%, 3.00% Exit Fee

 

$

9,051

 

 

 

8,730

 

 

 

8,730

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

16,099

 

 

 

16,057

 

Subtotal: Information Services (1.91%)*

 

 

 

 

 

 

 

 

 

 

 

 

16,099

 

 

 

16,057

 

 

See notes to consolidated financial statements.

26


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AppDirect, Inc.

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2022

 

Interest rate PRIME + 5.70%

or Floor rate of 9.95%, 3.45% Exit Fee

 

$

10,000

 

 

$

9,885

 

 

$

9,885

 

Aria Systems, Inc. (11)(14)

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 3.20%

or Floor rate of 6.95%,

PIK Interest 1.95%, 1.50% Exit Fee

 

$

2,103

 

 

 

2,104

 

 

 

1,803

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 5.20%

or Floor rate of 8.95%,

PIK Interest 1.95%, 1.50% Exit Fee

 

$

18,832

 

 

 

18,839

 

 

 

16,144

 

Total Aria Systems, Inc.

 

 

 

 

 

 

 

$

20,935

 

 

 

20,943

 

 

 

17,947

 

Greenphire Inc.

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2021

 

Interest rate 3-month LIBOR + 8.00%

or Floor rate of 9.00%

 

$

3,883

 

 

 

3,883

 

 

 

3,883

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2021

 

Interest rate PRIME + 3.75%

or Floor rate of 7.00%

 

$

1,000

 

 

 

1,000

 

 

 

1,000

 

Total Greenphire Inc.

 

 

 

 

 

 

 

$

4,883

 

 

 

4,883

 

 

 

4,883

 

Intent Media, Inc. (14)(15)

 

Internet Consumer & Business Services

 

Senior Secured

 

May 2019

 

Interest rate PRIME + 5.25%

or Floor rate of 8.75%,

PIK Interest 1.00%, 2.00% Exit Fee

 

$

5,050

 

 

 

5,011

 

 

 

5,027

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

May 2019

 

Interest rate PRIME + 5.50%

or Floor rate of 9.00%,

PIK Interest 2.35%, 2.00% Exit Fee

 

$

2,020

 

 

 

1,987

 

 

 

1,991

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

May 2019

 

Interest rate PRIME + 5.50%

or Floor rate of 9.00%,

PIK Interest 2.50%, 2.00% Exit Fee

 

$

2,022

 

 

 

1,988

 

 

 

1,992

 

Total Intent Media, Inc.

 

 

 

 

 

 

 

$

9,092

 

 

 

8,986

 

 

 

9,010

 

Interactions Corporation

 

Internet Consumer & Business Services

 

Senior Secured

 

March 2021

 

Interest rate 3-month LIBOR + 8.60%

or Floor rate of 9.85%, 1.75% Exit Fee

 

$

25,000

 

 

 

25,013

 

 

 

25,013

 

LogicSource (15)

 

Internet Consumer & Business Services

 

Senior Secured

 

October 2019

 

Interest rate PRIME + 6.25%

or Floor rate of 9.75%, 5.00% Exit Fee

 

$

6,452

 

 

 

6,701

 

 

 

6,726

 

Snagajob.com, Inc. (13)(14)

 

Internet Consumer & Business Services

 

Senior Secured

 

July 2020

 

Interest rate PRIME + 5.15%

or Floor rate of 9.15%,

PIK Interest 1.95%, 2.55% Exit Fee

 

$

41,023

 

 

 

40,633

 

 

 

41,036

 

Tectura Corporation (7)(8)(9)(14)

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2021

 

Interest rate FIXED 6.00%,

PIK Interest 3.00%

 

$

20,298

 

 

 

20,298

 

 

 

19,219

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

June 2021

 

PIK Interest 8.00%

 

$

11,015

 

 

 

240

 

 

 

 

Total Tectura Corporation

 

 

 

 

 

 

 

$

31,313

 

 

 

20,538

 

 

 

19,219

 

The Faction Group

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2021

 

Interest rate 3-month LIBOR + 9.25%

or Floor rate of 10.25%

 

$

8,000

 

 

 

8,000

 

 

 

8,000

 

 

 

Internet Consumer & Business Services

 

Senior Secured

 

January 2019

 

Interest rate PRIME + 4.75%

or Floor rate of 8.25%

 

$

2,000

 

 

 

2,000

 

 

 

2,000

 

Total The Faction Group

 

 

 

 

 

 

 

$

10,000

 

 

 

10,000

 

 

 

10,000

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

147,582

 

 

 

143,719

 

Subtotal: Internet Consumer & Business Services (17.09%)*

 

 

 

 

 

 

 

 

 

 

147,582

 

 

 

143,719

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Machine Zone, Inc. (14)(16)

 

Media/Content/Info

 

Senior Secured

 

May 2018

 

Interest rate PRIME + 2.50%

or Floor rate of 6.75%,

PIK Interest 3.00%

 

$

106,986

 

 

 

106,641

 

 

 

106,641

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

106,641

 

 

 

106,641

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Bustle (14)(15)

 

Media/Content/Info

 

Senior Secured

 

June 2021

 

Interest rate PRIME + 4.10%

or Floor rate of 8.35%,

PIK Interest 1.95%, 1.95% Exit Fee

 

$

15,016

 

 

 

14,935

 

 

 

14,935

 

FanDuel, Inc. (9)(12)(14)

 

Media/Content/Info

 

Senior Secured

 

November 2019

 

Interest rate PRIME + 7.25%

or Floor rate of 10.75%, 10.41% Exit Fee

 

$

19,354

 

 

 

19,762

 

 

 

19,695

 

 

 

Media/Content/Info

 

Convertible Debt

 

September 2020

 

PIK Interest 25.00%

 

$

1,000

 

 

 

1,000

 

 

 

1,000

 

Total FanDuel, Inc.

 

 

 

 

 

 

 

$

20,354

 

 

 

20,762

 

 

 

20,695

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

35,697

 

 

 

35,630

 

Subtotal: Media/Content/Info (16.92%)*

 

 

 

 

 

 

 

 

 

 

 

 

142,338

 

 

 

142,271

 

 

See notes to consolidated financial statements.

27


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amedica Corporation (9)(15)

 

Medical Devices & Equipment

 

Senior Secured

 

January 2018

 

Interest rate PRIME + 7.70%

or Floor rate of 10.95%, 8.25% Exit Fee

 

$

605

 

 

$

2,255

 

 

$

2,255

 

Aspire Bariatrics, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

October 2018

 

Interest rate PRIME + 4.00%

or Floor rate of 9.25%, 5.42% Exit Fee

 

$

2,527

 

 

 

2,848

 

 

 

2,848

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

5,103

 

 

 

5,103

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

IntegenX, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 6.05%

or Floor rate of 10.05%, 6.75% Exit Fee

 

$

12,500

 

 

 

13,042

 

 

 

12,991

 

 

 

Medical Devices & Equipment

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 6.05%

or Floor rate of 10.05%, 6.75% Exit Fee

 

$

2,500

 

 

 

2,599

 

 

 

2,598

 

 

 

Medical Devices & Equipment

 

Senior Secured

 

June 2019

 

Interest rate PRIME + 6.05%

or Floor rate of 10.05%, 9.75% Exit Fee

 

$

2,500

 

 

 

2,618

 

 

 

2,601

 

Total IntegenX, Inc.

 

 

 

 

 

 

 

$

17,500

 

 

 

18,259

 

 

 

18,190

 

Intuity Medical, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

June 2021

 

Interest rate PRIME + 5.00%

or Floor rate of 9.25%, 4.95% Exit Fee

 

$

17,500

 

 

 

17,013

 

 

 

17,013

 

Micell Technologies, Inc. (12)

 

Medical Devices & Equipment

 

Senior Secured

 

August 2019

 

Interest rate PRIME + 7.25%

or Floor rate of 10.50%, 5.00% Exit Fee

 

$

5,469

 

 

 

5,744

 

 

 

5,708

 

Quanta Fluid Solutions (5)(10)(11)

 

Medical Devices & Equipment

 

Senior Secured

 

April 2020

 

Interest rate PRIME + 8.05%

or Floor rate of 11.55%, 5.00% Exit Fee

 

$

10,117

 

 

 

10,432

 

 

 

10,386

 

Quanterix Corporation (11)

 

Medical Devices & Equipment

 

Senior Secured

 

March 2019

 

Interest rate PRIME + 2.75%

or Floor rate of 8.00%, 4.00% Exit Fee

 

$

9,043

 

 

 

9,477

 

 

 

9,477

 

Sebacia, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

July 2020

 

Interest rate PRIME + 4.35%

or Floor rate of 8.85%, 6.05% Exit Fee

 

$

8,000

 

 

 

7,927

 

 

 

7,919

 

Tela Bio, Inc. (15)

 

Medical Devices & Equipment

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 4.95%

or Floor rate of 9.45%, 3.15% Exit Fee

 

$

5,000

 

 

 

4,991

 

 

 

4,973

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

73,843

 

 

 

73,666

 

Subtotal: Medical Devices & Equipment (9.37%)*

 

 

 

 

 

 

 

 

 

 

 

 

78,946

 

 

 

78,769

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation (15)(17)

 

Semiconductors

 

Senior Secured

 

August 2020

 

Interest rate PRIME + 7.00%

or Floor rate of 11.00%, 12.50% Exit Fee

 

$

5,000

 

 

 

5,084

 

 

 

5,100

 

 

 

Semiconductors

 

Senior Secured

 

February 2019

 

Interest rate PRIME + 6.00%

or Floor rate of 10.00%

 

$

4,274

 

 

 

4,274

 

 

 

4,273

 

Total Achronix Semiconductor Corporation

 

 

 

 

 

 

 

$

9,274

 

 

 

9,358

 

 

 

9,373

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

9,358

 

 

 

9,373

 

Subtotal: Semiconductors (1.11%)*

 

 

 

 

 

 

 

 

 

 

 

 

9,358

 

 

 

9,373

 

 

See notes to consolidated financial statements.

28


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clickfox, Inc. (13)

 

Software

 

Senior Secured

 

May 2018

 

Interest rate PRIME + 8.00%

or Floor rate of 11.50%, 12.01% Exit Fee

 

$

6,378

 

 

$

7,671

 

 

$

7,671

 

Digital Train Limited (p.k.a. Jumpstart Games, Inc.) (15)

 

Software

 

Senior Secured

 

July 2018

 

Interest rate 12-month LIBOR + 2.50%

 

$

5,671

 

 

 

5,671

 

 

 

4,073

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

13,342

 

 

 

11,744

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Clarabridge, Inc. (12)(14)

 

Software

 

Senior Secured

 

April 2021

 

Interest rate PRIME + 4.80%

or Floor rate of 8.55%,

PIK Interest 3.25%

 

$

40,893

 

 

 

40,870

 

 

 

41,063

 

Emma, Inc.

 

Software

 

Senior Secured

 

September 2022

 

Interest rate daily LIBOR + 7.75%

or Floor rate of 8.75%

 

$

50,000

 

 

 

48,565

 

 

 

48,565

 

Evernote Corporation (14)(15)(17)

 

Software

 

Senior Secured

 

October 2020

 

Interest rate PRIME + 5.45%

or Floor rate of 8.95%

 

$

6,000

 

 

 

5,974

 

 

 

6,100

 

 

 

Software

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%,

PIK Interest 1.25%

 

$

4,023

 

 

 

3,999

 

 

 

3,992

 

Total Evernote Corporation

 

 

 

 

 

 

 

$

10,023

 

 

 

9,973

 

 

 

10,092

 

Fuze, Inc. (13)(14)(15)

 

Software

 

Senior Secured

 

July 2021

 

Interest rate PRIME + 3.70%

or Floor rate of 7.95%,

PIK Interest 1.55%, 3.55% Exit Fee

 

$

50,332

 

 

 

50,464

 

 

 

50,420

 

Impact Radius Holdings, Inc. (14)(17)

 

Software

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 4.25%

or Floor rate of 8.75%,

PIK Interest 1.55%, 1.75% Exit Fee

 

$

7,544

 

 

 

7,552

 

 

 

7,498

 

Lithium Technologies, Inc. (17)

 

Software

 

Senior Secured

 

October 2022

 

Interest rate 1-month LIBOR + 8.00%

or Floor rate of 9.00%

 

$

12,000

 

 

 

11,740

 

 

 

11,740

 

Microsystems Holding Company, LLC

 

Software

 

Senior Secured

 

July 2022

 

Interest rate 3-month LIBOR + 8.25%

or Floor rate of 9.25%

 

$

12,000

 

 

 

11,821

 

 

 

11,821

 

OneLogin, Inc. (14)(15)

 

Software

 

Senior Secured

 

August 2019

 

Interest rate PRIME + 6.45%

or Floor rate of 9.95%,

PIK Interest 3.25%

 

$

15,883

 

 

 

15,811

 

 

 

16,071

 

PerfectServe, Inc.

 

Software

 

Senior Secured

 

April 2021

 

Interest rate 3-month LIBOR + 9.00%

or Floor rate of 10.00%, 2.50% Exit Fee

 

$

16,000

 

 

 

16,023

 

 

 

16,023

 

 

 

Software

 

Senior Secured

 

April 2021

 

Interest rate 3-month LIBOR + 9.00%

or Floor rate of 10.00%, 2.50% Exit Fee

 

$

4,000

 

 

 

4,005

 

 

 

4,005

 

Total PerfectServe, Inc.

 

 

 

 

 

 

 

$

20,000

 

 

 

20,028

 

 

 

20,028

 

Pollen, Inc. (15)

 

Software

 

Senior Secured

 

April 2019

 

Interest rate PRIME + 4.25%

or Floor rate of 8.50%, 4.00% Exit Fee

 

$

7,000

 

 

 

6,964

 

 

 

6,964

 

Poplicus, Inc. (8)(14)

 

Software

 

Senior Secured

 

May 2022

 

Interest rate FIXED 6.00%,

PIK Interest 3.00%

 

$

1,250

 

 

 

1,250

 

 

 

 

Quid, Inc. (14)(15)

 

Software

 

Senior Secured

 

October 2019

 

Interest rate PRIME + 4.75%

or Floor rate of 8.25%,

PIK Interest 2.25%, 3.00% Exit Fee

 

$

8,303

 

 

 

8,397

 

 

 

8,430

 

RapidMiner, Inc. (14)

 

Software

 

Senior Secured

 

December 2020

 

Interest rate PRIME + 5.50%

or Floor rate of 9.75%,

PIK Interest 1.65%

 

$

7,001

 

 

 

6,971

 

 

 

6,971

 

Regent Education (14)

 

Software

 

Senior Secured

 

January 2021

 

Interest rate FIXED 10.00%,

PIK Interest 2.00%, 6.35% Exit Fee

 

$

3,285

 

 

 

3,291

 

 

 

3,291

 

Signpost, Inc. (14)

 

Software

 

Senior Secured

 

February 2020

 

Interest rate PRIME + 4.15%

or Floor rate of 8.15%,

PIK Interest 1.75%, 3.75% Exit Fee

 

$

15,510

 

 

 

15,603

 

 

 

15,685

 

Vela Trading Technologies

 

Software

 

Senior Secured

 

July 2022

 

Interest rate daily LIBOR + 9.50%

or Floor rate of 10.50%

 

$

20,000

 

 

 

19,495

 

 

 

19,557

 

Wrike, Inc. (14)(17)

 

Software

 

Senior Secured

 

February 2021

 

Interest rate PRIME + 6.00%

or Floor rate of 9.50%,

PIK Interest 2.00%, 3.00% Exit Fee

 

$

10,165

 

 

 

9,971

 

 

 

10,007

 

ZocDoc

 

Software

 

Senior Secured

 

April 2021

 

Interest rate 3-month LIBOR + 9.50%

or Floor rate of 10.50%, 1.00% Exit Fee

 

$

20,000

 

 

 

20,011

 

 

 

20,011

 

 

 

Software

 

Senior Secured

 

November 2021

 

Interest rate 3-month LIBOR + 9.50%

or Floor rate of 10.50%, 1.00% Exit Fee

 

$

10,000

 

 

 

10,005

 

 

 

10,005

 

Total ZocDoc

 

 

 

 

 

 

 

$

30,000

 

 

 

30,016

 

 

 

30,016

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

318,782

 

 

 

318,219

 

Subtotal: Software (39.24%)*

 

 

 

 

 

 

 

 

 

 

 

 

332,124

 

 

 

329,963

 

 

See notes to consolidated financial statements.

29


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment(1)

 

Maturity Date

 

Interest Rate and Floor(2)

 

Principal Amount

 

 

Cost(3)

 

 

Value(4)

 

Specialty Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Jaguar Animal Health, Inc. (11)

 

Specialty Pharmaceuticals

 

Senior Secured

 

August 2018

 

Interest rate PRIME + 5.65%

or Floor rate of 9.90%, 7.00% Exit Fee

 

$

1,089

 

 

$

1,496

 

 

$

1,496

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

1,496

 

 

 

1,496

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alimera Sciences, Inc. (11)(14)

 

Specialty Pharmaceuticals

 

Senior Secured

 

November 2020

 

Interest rate PRIME + 7.50%

or Floor rate of 11.00%,

PIK Interest 1.00%, 4.00% Exit Fee

 

$

35,398

 

 

 

35,517

 

 

 

35,517

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

35,517

 

 

 

35,517

 

Subtotal: Specialty Pharmaceuticals (4.40%)*

 

 

 

 

 

 

 

 

 

 

 

 

37,013

 

 

 

37,013

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transmedics, Inc. (13)

 

Surgical Devices

 

Senior Secured

 

February 2020

 

Interest rate PRIME + 5.30%

or Floor rate of 9.55%, 6.70% Exit Fee

 

$

8,500

 

 

 

8,756

 

 

 

8,757

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

8,756

 

 

 

8,757

 

Subtotal: Surgical Devices (1.04%)*

 

 

 

 

 

 

 

 

 

 

 

 

8,756

 

 

 

8,757

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FuelCell Energy, Inc. (12)

 

Sustainable and Renewable Technology

 

Senior Secured

 

October 2018

 

Interest rate PRIME + 5.50%

or Floor rate of 9.50%, 8.50% Exit Fee

 

$

16,806

 

 

 

18,190

 

 

 

18,190

 

Kinestral Technologies Inc.

 

Sustainable and Renewable Technology

 

Senior Secured

 

October 2018

 

Interest rate 3-month LIBOR + 7.75%

or Floor rate of 8.75%, 3.23% Exit Fee

 

$

3,867

 

 

 

3,882

 

 

 

3,882

 

Subtotal: Under 1 Year Maturity

 

 

 

 

 

 

 

 

 

 

 

 

22,072

 

 

 

22,072

 

1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ChargePoint Inc.

 

Sustainable and Renewable Technology

 

Senior Secured

 

August 2020

 

Interest rate 3-month LIBOR + 8.75%

or Floor rate of 9.75%, 2.00% Exit Fee

 

$

19,394

 

 

 

19,416

 

 

 

19,416

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Senior Secured

 

August 2019

 

Interest rate PRIME + 8.70%

or Floor rate of 12.95%, 4.50% Exit Fee

 

$

14,000

 

 

 

13,604

 

 

 

13,604

 

Proterra, Inc. (11)(14)(17)

 

Sustainable and Renewable Technology

 

Senior Secured

 

November 2020

 

Interest rate PRIME + 3.70%

or Floor rate of 7.95%,

PIK Interest 1.75%, 5.95% Exit Fee

 

$

25,036

 

 

 

25,997

 

 

 

26,097

 

 

 

Sustainable and Renewable Technology

 

Senior Secured

 

November 2020

 

Interest rate PRIME + 3.70%

or Floor rate of 7.95%,

PIK Interest 1.75%, 7.00% Exit Fee

 

$

5,007

 

 

 

5,173

 

 

 

5,190

 

Total Proterra, Inc.

 

 

 

 

 

 

 

$

30,043

 

 

 

31,170

 

 

 

31,287

 

Rive Technology, Inc. (15)

 

Sustainable and Renewable Technology

 

Senior Secured

 

January 2019

 

Interest rate PRIME + 6.20%

or Floor rate of 9.45%, 4.00% Exit Fee

 

$

4,258

 

 

 

4,498

 

 

 

4,515

 

Tendril Networks (12)

 

Sustainable and Renewable Technology

 

Senior Secured

 

June 2019

 

Interest rate FIXED 9.25%, 8.50% Exit Fee

 

$

13,156

 

 

 

13,863

 

 

 

13,845

 

Subtotal: 1-5 Years Maturity

 

 

 

 

 

 

 

 

 

 

 

 

82,551

 

 

 

82,667

 

Subtotal: Sustainable and Renewable Technology (12.45%)*

 

 

 

 

 

 

 

 

 

 

104,623

 

 

 

104,739

 

Total: Debt Investments (168.38%)*

 

 

 

 

 

 

 

 

 

 

 

 

1,440,055

 

 

 

1,415,984

 

 

See notes to consolidated financial statements.

30


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Equity Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

NuGEN Technologies, Inc. (15)

 

Biotechnology Tools

 

Equity

 

Common Stock

 

 

55,780

 

 

$

500

 

 

$

 

Subtotal: Biotechnology Tools (0.00%)*

 

 

 

 

 

 

 

 

 

 

500

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achilles Technology Management Co II, Inc. (7)(15)

 

Communications & Networking

 

Equity

 

Common Stock

 

 

100

 

 

 

3,100

 

 

 

242

 

GlowPoint, Inc. (4)

 

Communications & Networking

 

Equity

 

Common Stock

 

 

114,192

 

 

 

102

 

 

 

41

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Equity

 

Preferred Series A

 

 

1,000,000

 

 

 

1,000

 

 

 

5,865

 

Subtotal: Communications & Networking (0.73%)*

 

 

 

 

 

 

 

 

 

 

4,202

 

 

 

6,148

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Diagnostic

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Singulex, Inc.

 

Diagnostic

 

Equity

 

Common Stock

 

 

937,998

 

 

 

750

 

 

 

720

 

Subtotal: Diagnostic (0.09%)*

 

 

 

 

 

 

 

 

 

 

750

 

 

 

720

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (4)(10)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

54,240

 

 

 

108

 

 

 

109

 

BioQ Pharma Incorporated (15)

 

Drug Delivery

 

Equity

 

Preferred Series D

 

 

165,000

 

 

 

500

 

 

 

826

 

Edge Therapeutics, Inc. (4)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

49,965

 

 

 

309

 

 

 

468

 

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Equity

 

Common Stock

 

 

125,000

 

 

 

1,500

 

 

 

1,275

 

Subtotal: Drug Delivery (0.32%)*

 

 

 

 

 

 

 

 

 

 

2,417

 

 

 

2,678

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aveo Pharmaceuticals, Inc. (4)(10)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

1,901,791

 

 

 

1,715

 

 

 

5,315

 

Axovant Sciences Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

129,827

 

 

 

1,270

 

 

 

707

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

119,087

 

 

 

1,000

 

 

 

381

 

Dare Biosciences, Inc. (p.k.a. Cerulean Pharma, Inc.) (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

13,550

 

 

 

1,000

 

 

 

29

 

Dicerna Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

142,858

 

 

 

1,000

 

 

 

1,290

 

Dynavax Technologies (4)(10)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

20,000

 

 

 

550

 

 

 

374

 

Epirus Biopharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

200,000

 

 

 

1,000

 

 

 

 

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

223,463

 

 

 

2,000

 

 

 

259

 

Inotek Pharmaceuticals Corporation (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

3,778

 

 

 

1,500

 

 

 

10

 

Insmed, Incorporated (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

70,771

 

 

 

1,000

 

 

 

2,154

 

Melinta Therapeutics (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

43,840

 

 

 

2,000

 

 

 

693

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) (4)

 

Drug Discovery & Development

 

Equity

 

Common Stock

 

 

76,362

 

 

 

2,743

 

 

 

1,367

 

Subtotal: Drug Discovery & Development (1.50%)*

 

 

 

 

 

 

 

 

 

 

16,778

 

 

 

12,579

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Identiv, Inc. (4)

 

Electronics & Computer Hardware

 

Equity

 

Common Stock

 

 

6,700

 

 

 

34

 

 

 

22

 

Subtotal: Electronics & Computer Hardware (0.00%)*

 

 

 

 

 

 

 

 

 

 

34

 

 

 

22

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

DocuSign, Inc.

 

Information Services

 

Equity

 

Common Stock

 

 

385,000

 

 

 

6,081

 

 

 

8,011

 

Subtotal: Information Services (0.95%)*

 

 

 

 

 

 

 

 

 

 

6,081

 

 

 

8,011

 

 

See notes to consolidated financial statements.

31


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Blurb, Inc. (15)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series B

 

 

220,653

 

 

$

175

 

 

$

46

 

Brigade Group, Inc. (p.k.a. Philotic, Inc.)

 

Internet Consumer & Business Services

 

Equity

 

Common Stock

 

 

9,023

 

 

 

93

 

 

 

 

Lightspeed POS, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series C

 

 

230,030

 

 

 

250

 

 

 

233

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series D

 

 

198,677

 

 

 

250

 

 

 

213

 

Total Lightspeed POS, Inc.

 

 

 

 

 

 

 

 

428,707

 

 

 

500

 

 

 

446

 

OfferUp, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A

 

 

286,080

 

 

 

1,663

 

 

 

2,236

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series A-1

 

 

108,710

 

 

 

632

 

 

 

850

 

Total OfferUp, Inc.

 

 

394,790

 

 

 

2,295

 

 

 

3,086

 

Oportun (p.k.a. Progress Financial)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series G

 

 

218,351

 

 

 

250

 

 

 

451

 

 

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series H

 

 

87,802

 

 

 

250

 

 

 

255

 

Total Oportun (p.k.a. Progress Financial)

 

 

306,153

 

 

 

500

 

 

 

706

 

RazorGator Interactive Group, Inc.

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series AA

 

 

34,783

 

 

 

15

 

 

 

49

 

Tectura Corporation (7)

 

Internet Consumer & Business Services

 

Equity

 

Preferred Series BB

 

 

1,000,000

 

 

 

 

 

 

 

Subtotal: Internet Consumer & Business Services (0.52%)*

 

 

 

 

 

 

 

 

 

 

3,578

 

 

 

4,333

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Pinterest, Inc.

 

Media/Content/Info

 

Equity

 

Preferred Series Seed

 

 

620,000

 

 

 

4,085

 

 

 

5,055

 

Subtotal: Media/Content/Info (0.60%)*

 

 

 

 

 

 

 

 

 

 

4,085

 

 

 

5,055

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AtriCure, Inc. (4)(15)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

7,536

 

 

 

266

 

 

 

138

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Equity

 

Preferred Series AA

 

 

221,893

 

 

 

1,500

 

 

 

 

Gelesis, Inc. (15)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

198,202

 

 

 

 

 

 

879

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-1

 

 

191,210

 

 

 

425

 

 

 

939

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series A-2

 

 

191,626

 

 

 

500

 

 

 

894

 

Total Gelesis, Inc.

 

 

581,038

 

 

 

925

 

 

 

2,712

 

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

136,798

 

 

 

250

 

 

 

302

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series F

 

 

73,971

 

 

 

155

 

 

 

225

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series G

 

 

163,934

 

 

 

500

 

 

 

532

 

Total Medrobotics Corporation

 

 

374,703

 

 

 

905

 

 

 

1,059

 

Optiscan Biomedical, Corp. (6)(15)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

6,185,567

 

 

 

3,000

 

 

 

402

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series C

 

 

1,927,309

 

 

 

655

 

 

 

114

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series D

 

 

55,103,923

 

 

 

5,257

 

 

 

4,232

 

 

 

Medical Devices & Equipment

 

Equity

 

Preferred Series E

 

 

15,638,888

 

 

 

1,307

 

 

 

1,457

 

Total Optiscan Biomedical, Corp.

 

 

78,855,687

 

 

 

10,219

 

 

 

6,205

 

Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)

 

Medical Devices & Equipment

 

Equity

 

Preferred Series B

 

 

232,061

 

 

 

527

 

 

 

596

 

Quanterix Corporation (4)

 

Medical Devices & Equipment

 

Equity

 

Common Stock

 

 

84,778

 

 

 

1,000

 

 

 

1,820

 

Subtotal: Medical Devices & Equipment (1.49%)*

 

 

 

 

 

 

 

 

 

 

15,342

 

 

 

12,530

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

CapLinked, Inc.

 

Software

 

Equity

 

Preferred Series A-3

 

 

53,614

 

 

 

51

 

 

 

90

 

Druva, Inc.

 

Software

 

Equity

 

Preferred Series 2

 

 

458,841

 

 

 

1,000

 

 

 

1,044

 

 

 

Software

 

Equity

 

Preferred Series 3

 

 

93,620

 

 

 

300

 

 

 

312

 

Total Druva, Inc.

 

 

552,461

 

 

 

1,300

 

 

 

1,356

 

ForeScout Technologies, Inc. (4)

 

Software

 

Equity

 

Common Stock

 

 

199,844

 

 

 

529

 

 

 

6,373

 

HighRoads, Inc.

 

Software

 

Equity

 

Common Stock

 

 

190

 

 

 

307

 

 

 

 

NewVoiceMedia Limited (5)(10)

 

Software

 

Equity

 

Preferred Series E

 

 

669,173

 

 

 

963

 

 

 

1,544

 

Palantir Technologies

 

Software

 

Equity

 

Preferred Series E

 

 

727,696

 

 

 

5,431

 

 

 

4,923

 

 

 

Software

 

Equity

 

Preferred Series G

 

 

326,797

 

 

 

2,211

 

 

 

2,211

 

Total Palantir Technologies

 

 

1,054,493

 

 

 

7,642

 

 

 

7,134

 

Sprinklr, Inc.

 

Software

 

Equity

 

Common Stock

 

 

700,000

 

 

 

3,749

 

 

 

4,600

 

WildTangent, Inc. (15)

 

Software

 

Equity

 

Preferred Series 3

 

 

100,000

 

 

 

402

 

 

 

179

 

Subtotal: Software (2.53%)*

 

 

 

 

 

 

 

 

 

 

 

 

14,943

 

 

 

21,276

 

 

See notes to consolidated financial statements.

32


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Equity

 

Preferred Series B

 

 

219,298

 

 

$

250

 

 

$

44

 

 

 

Surgical Devices

 

Equity

 

Preferred Series C

 

 

656,538

 

 

 

282

 

 

 

60

 

 

 

Surgical Devices

 

Equity

 

Preferred Series D

 

 

1,991,157

 

 

 

712

 

 

 

795

 

 

 

Surgical Devices

 

Equity

 

Preferred Series E

 

 

2,786,367

 

 

 

429

 

 

 

521

 

Total Gynesonics, Inc.

 

 

5,653,360

 

 

 

1,673

 

 

 

1,420

 

Transmedics, Inc.

 

Surgical Devices

 

Equity

 

Preferred Series B

 

 

88,961

 

 

 

1,100

 

 

 

376

 

 

 

Surgical Devices

 

Equity

 

Preferred Series C

 

 

119,999

 

 

 

300

 

 

 

309

 

 

 

Surgical Devices

 

Equity

 

Preferred Series D

 

 

260,000

 

 

 

650

 

 

 

957

 

 

 

Surgical Devices

 

Equity

 

Preferred Series F

 

 

100,200

 

 

 

500

 

 

 

531

 

Total Transmedics, Inc.

 

 

569,160

 

 

 

2,550

 

 

 

2,173

 

Subtotal: Surgical Devices (0.43%)*

 

 

 

 

 

 

 

 

 

 

4,223

 

 

 

3,593

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

 

Sustainable and Renewable Technology

 

Equity

 

Common Stock

 

 

19,250

 

 

 

761

 

 

 

 

Modumetal, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series C

 

 

3,107,520

 

 

 

500

 

 

 

477

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Equity

 

Preferred Series 5

 

 

99,280

 

 

 

500

 

 

 

539

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) (6)

 

Sustainable and Renewable Technology

 

Equity

 

Common Stock

 

 

288

 

 

 

61,502

 

 

 

11,400

 

Subtotal: Sustainable and Renewable Technology (1.48%)*

 

 

 

 

 

 

 

 

 

 

63,263

 

 

 

12,416

 

Total: Equity Investments (10.63%)*

 

 

 

 

 

 

136,196

 

 

 

89,361

 

 

See notes to consolidated financial statements.

33


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Warrant Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Biotechnology Tools

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Labcyte, Inc. (15)

 

Biotechnology Tools

 

Warrant

 

Preferred Series C

 

 

1,127,624

 

 

$

323

 

 

$

458

 

Subtotal: Biotechnology Tools (0.05%)*

 

 

 

 

 

 

 

 

 

 

323

 

 

 

458

 

Communications & Networking

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

PeerApp, Inc.

 

Communications & Networking

 

Warrant

 

Preferred Series B

 

 

298,779

 

 

 

61

 

 

 

 

Peerless Network Holdings, Inc.

 

Communications & Networking

 

Warrant

 

Preferred Series A

 

 

135,000

 

 

 

95

 

 

 

501

 

Spring Mobile Solutions, Inc.

 

Communications & Networking

 

Warrant

 

Common Stock

 

 

2,834,375

 

 

 

418

 

 

 

 

Subtotal: Communications & Networking (0.06%)*

 

 

 

 

 

 

 

 

 

 

574

 

 

 

501

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Consumer & Business Products

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Antenna79 (p.k.a. Pong Research Corporation) (15)

 

Consumer & Business Products

 

Warrant

 

Common Stock

 

 

1,662,441

 

 

 

228

 

 

 

 

Intelligent Beauty, Inc. (15)

 

Consumer & Business Products

 

Warrant

 

Preferred Series B

 

 

190,234

 

 

 

230

 

 

 

221

 

The Neat Company (15)

 

Consumer & Business Products

 

Warrant

 

Preferred Series C-1

 

 

540,540

 

 

 

365

 

 

 

 

Subtotal: Consumer & Business Products (0.03%)*

 

 

 

 

 

 

 

 

 

 

823

 

 

 

221

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Drug Delivery

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

AcelRx Pharmaceuticals, Inc. (4)(10)(15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

176,730

 

 

 

786

 

 

 

61

 

Agile Therapeutics, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

180,274

 

 

 

730

 

 

 

65

 

BioQ Pharma Incorporated

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

459,183

 

 

 

1

 

 

 

968

 

Celsion Corporation (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

13,927

 

 

 

428

 

 

 

 

Dance Biopharm, Inc. (15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

110,882

 

 

 

74

 

 

 

 

Edge Therapeutics, Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

78,595

 

 

 

390

 

 

 

230

 

Kaleo, Inc. (p.k.a. Intelliject, Inc.)

 

Drug Delivery

 

Warrant

 

Preferred Series B

 

 

82,500

 

 

 

594

 

 

 

1,540

 

Neos Therapeutics, Inc. (4)(15)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

70,833

 

 

 

285

 

 

 

148

 

Pulmatrix Inc. (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

25,150

 

 

 

116

 

 

 

4

 

ZP Opco, Inc (p.k.a. Zosano Pharma) (4)

 

Drug Delivery

 

Warrant

 

Common Stock

 

 

72,379

 

 

 

266

 

 

 

 

Subtotal: Drug Delivery (0.36%)*

 

 

 

 

 

 

 

 

 

 

3,670

 

 

 

3,016

 

 

See notes to consolidated financial statements.

34


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Drug Discovery & Development

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

ADMA Biologics, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

89,750

 

 

$

295

 

 

$

12

 

Anthera Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

5,022

 

 

 

984

 

 

 

 

Audentes Therapeutics, Inc (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,914

 

 

 

62

 

 

 

147

 

Auris Medical Holding, AG (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

156,726

 

 

 

249

 

 

 

19

 

Brickell Biotech, Inc.

 

Drug Discovery & Development

 

Warrant

 

Preferred Series C

 

 

26,086

 

 

 

119

 

 

 

93

 

Cerecor, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

22,328

 

 

 

70

 

 

 

15

 

Chroma Therapeutics, Ltd. (5)(10)

 

Drug Discovery & Development

 

Warrant

 

Preferred Series D

 

 

325,261

 

 

 

490

 

 

 

 

Cleveland BioLabs, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

7,813

 

 

 

105

 

 

 

3

 

Concert Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

132,069

 

 

 

545

 

 

 

1,344

 

CTI BioPharma Corp. (p.k.a. Cell Therapeutics, Inc.) (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

29,239

 

 

 

165

 

 

 

2

 

CytRx Corporation (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

105,694

 

 

 

160

 

 

 

58

 

Dare Biosciences, Inc. (p.k.a. Cerulean Pharma, Inc.) (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

17,190

 

 

 

369

 

 

 

 

Dicerna Pharmaceuticals, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

200

 

 

 

28

 

 

 

 

Epirus Biopharmaceuticals, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

64,194

 

 

 

276

 

 

 

 

Fortress Biotech, Inc. (p.k.a. Coronado Biosciences, Inc.) (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,009

 

 

 

142

 

 

 

29

 

Genocea Biosciences, Inc. (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,725

 

 

 

266

 

 

 

4

 

Immune Pharmaceuticals (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

10,742

 

 

 

164

 

 

 

 

Melinta Therapeutics (4)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

31,655

 

 

 

626

 

 

 

12

 

Motif BioSciences Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

73,452

 

 

 

282

 

 

 

414

 

Myovant Sciences, Ltd. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

49,800

 

 

 

283

 

 

 

128

 

Neothetics, Inc. (p.k.a. Lithera, Inc) (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

46,838

 

 

 

266

 

 

 

53

 

Neuralstem, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

5,783

 

 

 

77

 

 

 

 

Ology Bioservices, Inc. (p.k.a. Nanotherapeutics, Inc.) (15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

171,389

 

 

 

838

 

 

 

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.) (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

75,214

 

 

 

178

 

 

 

212

 

PhaseRx, Inc. (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

63,000

 

 

 

125

 

 

 

 

Savara Inc. (p.k.a. Mast Therapeutics, Inc.) (4)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

32,467

 

 

 

203

 

 

 

8

 

Sorrento Therapeutics, Inc. (4)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

306,748

 

 

 

889

 

 

 

453

 

Stealth Bio Therapeutics Corp. (5)(10)

 

Drug Discovery & Development

 

Warrant

 

Preferred Series A

 

 

487,500

 

 

 

116

 

 

 

107

 

uniQure B.V. (4)(5)(10)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

37,174

 

 

 

218

 

 

 

240

 

XOMA Corporation (4)(10)(15)

 

Drug Discovery & Development

 

Warrant

 

Common Stock

 

 

9,063

 

 

 

279

 

 

 

50

 

Subtotal: Drug Discovery & Development (0.40%)*

 

 

 

 

 

 

 

 

 

 

8,869

 

 

 

3,403

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Electronics & Computer Hardware

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

908 DEVICES INC. (15)

 

Electronics & Computer Hardware

 

Warrant

 

Preferred Series D

 

 

79,856

 

 

 

100

 

 

 

73

 

Clustrix, Inc.

 

Electronics & Computer Hardware

 

Warrant

 

Common Stock

 

 

50,000

 

 

 

12

 

 

 

 

Subtotal: Electronics & Computer Hardware (0.01%)*

 

 

 

 

 

 

 

 

 

 

112

 

 

 

73

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Healthcare Services, Other

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Chromadex Corporation (4)(15)

 

Healthcare Services, Other

 

Warrant

 

Common Stock

 

 

139,673

 

 

 

157

 

 

 

329

 

Subtotal: Healthcare Services, Other (0.04%)*

 

 

 

 

 

 

 

 

 

 

157

 

 

 

329

 

 

See notes to consolidated financial statements.

35


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Information Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

INMOBI Inc. (5)(10)

 

Information Services

 

Warrant

 

Common Stock

 

 

65,587

 

 

$

82

 

 

$

 

InXpo, Inc. (15)

 

Information Services

 

Warrant

 

Preferred Series C

 

 

648,400

 

 

 

98

 

 

 

21

 

 

 

Information Services

 

Warrant

 

Preferred Series C-1

 

 

1,165,183

 

 

 

74

 

 

 

37

 

Total InXpo, Inc.

 

 

1,813,583

 

 

 

172

 

 

 

58

 

MDX Medical, Inc. (15)

 

Information Services

 

Warrant

 

Common Stock

 

 

2,250,000

 

 

 

246

 

 

 

129

 

Netbase Solutions, Inc.

 

Information Services

 

Warrant

 

Preferred Series 1

 

 

60,000

 

 

 

356

 

 

 

363

 

RichRelevance, Inc. (15)

 

Information Services

 

Warrant

 

Preferred Series E

 

 

112,612

 

 

 

98

 

 

 

 

Subtotal: Information Services (0.07%)*

 

 

 

 

 

 

 

 

 

 

954

 

 

 

550

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Internet Consumer & Business Services

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Aria Systems, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G

 

 

231,535

 

 

 

73

 

 

 

 

Blurb, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

234,280

 

 

 

636

 

 

 

9

 

ClearObject, Inc. (p.k.a. CloudOne, Inc.)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series E

 

 

968,992

 

 

 

18

 

 

 

154

 

The Faction Group

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

8,703

 

 

 

234

 

 

 

234

 

Intent Media, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Common Stock

 

 

140,077

 

 

 

168

 

 

 

207

 

Interactions Corporation

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G-3

 

 

68,187

 

 

 

204

 

 

 

204

 

Just Fabulous, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series B

 

 

206,184

 

 

 

1,102

 

 

 

2,627

 

Lightspeed POS, Inc. (5)(10)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

245,610

 

 

 

20

 

 

 

93

 

LogicSource (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

79,625

 

 

 

30

 

 

 

36

 

Oportun (p.k.a. Progress Financial)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series G

 

 

174,562

 

 

 

78

 

 

 

196

 

ShareThis, Inc. (15)

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series C

 

 

493,502

 

 

 

547

 

 

 

 

Snagajob.com, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A

 

 

1,800,000

 

 

 

782

 

 

 

1,257

 

Tapjoy, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series D

 

 

748,670

 

 

 

316

 

 

 

7

 

TraceLink, Inc.

 

Internet Consumer & Business Services

 

Warrant

 

Preferred Series A-2

 

 

283,353

 

 

 

1,833

 

 

 

1,833

 

Subtotal: Internet Consumer & Business Services (0.82%)*

 

 

 

 

 

 

 

 

 

 

6,041

 

 

 

6,857

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Media/Content/Info

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

FanDuel, Inc.

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

15,570

 

 

 

 

 

 

 

 

 

Media/Content/Info

 

Warrant

 

Preferred Series A

 

 

4,648

 

 

 

730

 

 

 

1,875

 

Total FanDuel, Inc.

 

 

20,218

 

 

 

730

 

 

 

1,875

 

Machine Zone, Inc. (16)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

1,552,710

 

 

 

1,958

 

 

 

3,743

 

Rhapsody International, Inc. (15)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

715,755

 

 

 

385

 

 

 

4

 

WP Technology, Inc. (Wattpad, Inc.) (5)(10)

 

Media/Content/Info

 

Warrant

 

Common Stock

 

 

255,818

 

 

 

4

 

 

 

17

 

Zoom Media Group, Inc.

 

Media/Content/Info

 

Warrant

 

Preferred Series A

 

 

1,204

 

 

 

348

 

 

 

33

 

Subtotal: Media/Content/Info (0.67%)*

 

 

 

 

 

 

 

 

 

 

3,425

 

 

 

5,672

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Medical Devices & Equipment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amedica Corporation (4)(15)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

8,603

 

 

 

459

 

 

 

1

 

Aspire Bariatrics, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series B-1

 

 

112,858

 

 

 

455

 

 

 

65

 

Avedro, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series AA

 

 

300,000

 

 

 

401

 

 

 

275

 

Flowonix Medical Incorporated

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series AA

 

 

155,325

 

 

 

362

 

 

 

 

Gelesis, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

74,784

 

 

 

78

 

 

 

216

 

InspireMD, Inc. (4)(5)(10)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

39,364

 

 

 

242

 

 

 

 

IntegenX, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series C

 

 

547,752

 

 

 

15

 

 

 

 

Intuity Medical, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series 4

 

 

1,819,078

 

 

 

294

 

 

 

294

 

Medrobotics Corporation (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series E

 

 

455,539

 

 

 

370

 

 

 

411

 

Micell Technologies, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D-2

 

 

84,955

 

 

 

262

 

 

 

150

 

NetBio, Inc.

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

7,841

 

 

 

408

 

 

 

56

 

NinePoint Medical, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A-1

 

 

587,840

 

 

 

170

 

 

 

82

 

Optiscan Biomedical, Corp. (6)(15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D

 

 

10,535,275

 

 

 

1,252

 

 

 

86

 

Outset Medical, Inc. (p.k.a. Home Dialysis Plus, Inc.)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

500,000

 

 

 

402

 

 

 

430

 

Quanterix Corporation (4)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

66,039

 

 

 

205

 

 

 

536

 

Sebacia, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series D

 

 

778,301

 

 

 

133

 

 

 

127

 

SonaCare Medical, LLC (p.k.a. US HIFU, LLC)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series A

 

 

6,464

 

 

 

188

 

 

 

 

Strata Skin Sciences, Inc. (p.k.a. MELA Sciences, Inc.) (4)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

13,864

 

 

 

401

 

 

 

 

Tela Bio, Inc. (15)

 

Medical Devices & Equipment

 

Warrant

 

Preferred Series B

 

 

387,930

 

 

 

62

 

 

 

153

 

ViewRay, Inc. (4)(15)

 

Medical Devices & Equipment

 

Warrant

 

Common Stock

 

 

128,231

 

 

 

333

 

 

 

414

 

Subtotal: Medical Devices & Equipment (0.39%)*

 

 

 

 

 

 

 

 

 

 

6,492

 

 

 

3,296

 

 

See notes to consolidated financial statements.

36


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Semiconductors

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achronix Semiconductor Corporation (15)

 

Semiconductors

 

Warrant

 

Preferred Series C

 

 

360,000

 

 

$

160

 

 

$

308

 

 

 

Semiconductors

 

Warrant

 

Preferred Series D-2

 

 

750,000

 

 

 

99

 

 

 

519

 

Total Achronix Semiconductor Corporation

 

 

1,110,000

 

 

 

259

 

 

 

827

 

Aquantia Corp. (4)

 

Semiconductors

 

Warrant

 

Common Stock

 

 

19,683

 

 

 

4

 

 

 

11

 

Avnera Corporation

 

Semiconductors

 

Warrant

 

Preferred Series E

 

 

141,567

 

 

 

46

 

 

 

195

 

Subtotal: Semiconductors (0.12%)*

 

 

 

 

 

 

 

 

 

 

309

 

 

 

1,033

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Software

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Actifio, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

73,584

 

 

 

249

 

 

 

84

 

 

 

Software

 

Warrant

 

Preferred Series F

 

 

31,673

 

 

 

343

 

 

 

79

 

Total Actifio, Inc.

 

 

105,257

 

 

 

592

 

 

 

163

 

Braxton Technologies, LLC

 

Software

 

Warrant

 

Preferred Series A

 

 

168,750

 

 

 

188

 

 

 

 

CareCloud Corporation (15)

 

Software

 

Warrant

 

Preferred Series B

 

 

413,433

 

 

 

258

 

 

 

113

 

Clickfox, Inc. (15)

 

Software

 

Warrant

 

Preferred Series B

 

 

1,038,563

 

 

 

330

 

 

 

129

 

 

 

Software

 

Warrant

 

Preferred Series C

 

 

592,019

 

 

 

730

 

 

 

179

 

 

 

Software

 

Warrant

 

Preferred Series C-A

 

 

2,218,214

 

 

 

230

 

 

 

4,458

 

Total Clickfox, Inc.

 

 

3,848,796

 

 

 

1,290

 

 

 

4,766

 

DNAnexus, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

909,091

 

 

 

97

 

 

 

97

 

Evernote Corporation (15)

 

Software

 

Warrant

 

Common Stock

 

 

62,500

 

 

 

106

 

 

 

175

 

Fuze, Inc. (15)

 

Software

 

Warrant

 

Preferred Series F

 

 

256,158

 

 

 

89

 

 

 

53

 

Mattersight Corporation (4)

 

Software

 

Warrant

 

Common Stock

 

 

357,143

 

 

 

538

 

 

 

168

 

Message Systems, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C

 

 

503,718

 

 

 

334

 

 

 

639

 

Mobile Posse, Inc. (15)

 

Software

 

Warrant

 

Preferred Series C

 

 

396,430

 

 

 

130

 

 

 

353

 

Neos, Inc. (15)

 

Software

 

Warrant

 

Common Stock

 

 

221,150

 

 

 

22

 

 

 

 

NewVoiceMedia Limited (5)(10)

 

Software

 

Warrant

 

Preferred Series E

 

 

225,586

 

 

 

33

 

 

 

190

 

OneLogin, Inc. (15)

 

Software

 

Warrant

 

Common Stock

 

 

228,972

 

 

 

150

 

 

 

227

 

PerfectServe, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

129,073

 

 

 

720

 

 

 

720

 

Poplicus, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

132,168

 

 

 

 

 

 

 

Quid, Inc. (15)

 

Software

 

Warrant

 

Preferred Series D

 

 

71,576

 

 

 

1

 

 

 

7

 

RapidMiner, Inc.

 

Software

 

Warrant

 

Preferred Series C-1

 

 

4,982

 

 

 

23

 

 

 

23

 

RedSeal Inc. (15)

 

Software

 

Warrant

 

Preferred Series C-Prime

 

 

640,603

 

 

 

66

 

 

 

44

 

Signpost, Inc.

 

Software

 

Warrant

 

Preferred Series C

 

 

324,005

 

 

 

314

 

 

 

106

 

Wrike, Inc.

 

Software

 

Warrant

 

Common Stock

 

 

698,760

 

 

 

462

 

 

 

1,040

 

Subtotal: Software (1.06%)*

 

 

 

 

 

 

 

 

 

 

5,413

 

 

 

8,884

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Specialty Pharmaceuticals

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Alimera Sciences, Inc. (4)

 

Specialty Pharmaceuticals

 

Warrant

 

Common Stock

 

 

1,717,709

 

 

 

861

 

 

 

488

 

Subtotal: Specialty Pharmaceuticals (0.06%)*

 

 

 

 

 

 

 

 

 

 

861

 

 

 

488

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Surgical Devices

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gynesonics, Inc. (15)

 

Surgical Devices

 

Warrant

 

Preferred Series C

 

 

180,480

 

 

 

75

 

 

 

15

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series D

 

 

1,575,965

 

 

 

320

 

 

 

291

 

Total Gynesonics, Inc.

 

 

1,756,445

 

 

 

395

 

 

 

306

 

Transmedics, Inc.

 

Surgical Devices

 

Warrant

 

Preferred Series B

 

 

40,436

 

 

 

225

 

 

 

16

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series D

 

 

175,000

 

 

 

100

 

 

 

429

 

 

 

Surgical Devices

 

Warrant

 

Preferred Series F

 

 

50,544

 

 

 

38

 

 

 

60

 

Total Transmedics, Inc.

 

 

265,980

 

 

 

363

 

 

 

505

 

Subtotal: Surgical Devices (0.10%)*

 

 

 

 

 

 

 

 

 

 

758

 

 

 

811

 

 


See notes to consolidated financial statements.

37


 

HERCULES CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2017

(unaudited)

(dollars in thousands)

 

Portfolio Company

 

Sub-Industry

 

Type of

Investment (1)

 

Series

 

Shares

 

 

Cost (3)

 

 

Value (4)

 

Sustainable and Renewable Technology

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Agrivida, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

471,327

 

 

$

120

 

 

$

88

 

Alphabet Energy, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 1B

 

 

13,667

 

 

 

82

 

 

 

 

American Superconductor Corporation (4)

 

Sustainable and Renewable Technology

 

Warrant

 

Common Stock

 

 

58,823

 

 

 

39

 

 

 

7

 

Brightsource Energy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 1

 

 

116,666

 

 

 

104

 

 

 

 

Calera, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

44,529

 

 

 

513

 

 

 

 

EcoMotors, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series B

 

 

437,500

 

 

 

308

 

 

 

 

Fluidic, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D

 

 

61,804

 

 

 

102

 

 

 

 

Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

 

Sustainable and Renewable Technology

 

Warrant

 

Common Stock

 

 

530,811

 

 

 

181

 

 

 

 

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 2-A

 

 

6,229

 

 

 

50

 

 

 

 

Total Flywheel Building Intelligence, Inc. (p.k.a. SCIEnergy, Inc.)

 

 

537,040

 

 

 

231

 

 

 

 

Fulcrum Bioenergy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C-1

 

 

280,897

 

 

 

275

 

 

 

357

 

GreatPoint Energy, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series D-1

 

 

393,212

 

 

 

548

 

 

 

 

Kinestral Technologies, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series A

 

 

325,000

 

 

 

155

 

 

 

155

 

 

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series B

 

 

131,883

 

 

 

63

 

 

 

63

 

Total Kinestral Technologies, Inc.

 

 

456,883

 

 

 

218

 

 

 

218

 

Polyera Corporation (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series C

 

 

311,609

 

 

 

338

 

 

 

 

Proterra, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 4

 

 

477,517

 

 

 

41

 

 

 

599

 

Rive Technology, Inc. (15)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series E

 

 

234,477

 

 

 

12

 

 

 

8

 

Stion Corporation (6)

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series Seed

 

 

2,154

 

 

 

1,378

 

 

 

 

TAS Energy, Inc.

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series AA

 

 

428,571

 

 

 

299

 

 

 

 

Tendril Networks

 

Sustainable and Renewable Technology

 

Warrant

 

Preferred Series 3-A

 

 

1,019,793

 

 

 

189

 

 

 

 

Subtotal: Sustainable and Renewable Technology (0.15%)*

 

 

 

 

 

 

 

 

 

 

4,797

 

 

 

1,277

 

Total: Warrant Investments (4.38%)*

 

 

 

 

 

 

43,578

 

 

 

36,869

 

Total Investments in Securities (183.39%)*

 

 

 

 

 

$

1,619,829

 

 

$

1,542,214

 

 

*

Value as a percent of net assets

(1)

Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)

Interest rate PRIME represents 4.50% at December 31, 2017. Daily LIBOR, 1-month LIBOR, 3-month LIBOR and 12-month LIBOR represent 1.44%, 1.57%, 1.69% and 2.11%, respectively, at December 31, 2017.

(3)

Gross unrealized appreciation, gross unrealized depreciation, and net unrealized depreciation for federal income tax purposes totaled $32.5 million, $119.7 million and $87.2 million respectively. The tax cost of investments is $1.6 billion.

(4)

Except for warrants in 43 publicly traded companies and common stock in 20 publicly traded companies, all investments are restricted at December 31, 2017 and were valued at fair value using Level 3 significant unobservable inputs as determined in good faith by the Company’s board of directors (the “Board of Directors”). No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(5)

Non-U.S. company or the company’s principal place of business is outside the United States.

(6)

Affiliate investment as defined under the Investment Company Act of 1940, as amended, (the “1940 Act”) in which Hercules owns at least 5% but generally less than 25% of the company’s voting securities.

(7)

Control investment as defined under the 1940 Act in which Hercules owns at least 25% of the company’s voting securities or has greater than 50% representation on its board.

(8)

Debt is on non-accrual status at December 31, 2017 and is therefore considered non-income producing. Note that at December 31, 2017, only the $11.0 million PIK, or payment-in-kind, loan is on non-accrual for the Company’s debt investment in Tectura Corporation.

(9)

Denotes that all or a portion of the debt investment is convertible debt.

(10)

Indicates assets that the Company deems not “qualifying assets” under section 55(a) of 1940 Act. Qualifying assets must represent at least 70% of the Company’s total assets at the time of acquisition of any additional non-qualifying assets.

(11)

Denotes that all or a portion of the debt investment secures the notes offered in the Debt Securitization (as defined in Note 4).

(12)

Denotes that all or a portion of the debt investment is pledged as collateral under the Wells Facility (as defined in Note 4).

(13)

Denotes that all or a portion of the debt investment is pledged as collateral under the Union Bank Facility (as defined in Note 4).

(14)

Denotes that all or a portion of the debt investment principal includes accumulated PIK interest and is net of repayments.

(15)

Denotes that all or a portion of the investment in this portfolio company is held by Hercules Technology II, L.P., or HT II, or Hercules Technology III, L.P., or HT III, the Company’s wholly owned small business investment companies, or SBIC, subsidiaries.

(16)

Denotes that the fair value of the Company’s total investments in this portfolio company represent greater than 5% of the Company’s total assets at December 31, 2017.

(17)

Denotes that there is an unfunded contractual commitment available at the request of this portfolio company at December 31, 2017. Refer to Note 10.

 

 

See notes to consolidated financial statements.

38


 

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

 

1. Description of Business and Basis of Presentation

Hercules Capital, Inc. (the “Company”) is a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. The Company sources its investments through its principal office located in Palo Alto, CA, as well as through its additional offices in Boston, MA, New York, NY, Washington, DC, Hartford, CT, and San Diego, CA. The Company was incorporated under the General Corporation Law of the State of Maryland in December 2003.

 

The Company is an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). From incorporation through December 31, 2005, the Company was subject to tax as a corporation under Subchapter C of the Internal Revenue Code of 1986, as amended (the “Code”). Effective January 1, 2006, the Company elected to be treated for tax purposes as a regulated investment company, or RIC, under Subchapter M of the Code (see Note 5). As an investment company, the Company follows accounting and reporting guidance as set forth in Topic 946 (“Financial Services – Investment Companies”) of the Financial Accounting Standards Board’s (“FASB”) Accounting Standards Codification, as amended (“ASC”).

 

Hercules Technology II, L.P. (“HT II”), Hercules Technology III, L.P. (“HT III”), and Hercules Technology IV, L.P. (“HT IV”), are Delaware limited partnerships that were formed in January 2005, September 2009 and December 2010, respectively. HT II and HT III were licensed to operate as small business investment companies (“SBICs”) under the authority of the Small Business Administration (“SBA”) on September 27, 2006 and May 26, 2010, respectively. As SBICs, HT II and HT III are subject to a variety of regulations concerning, among other things, the size and nature of the companies in which they may invest and the structure of those investments. HT IV was formed in anticipation of receiving an additional SBIC license; however, the Company has not received such license, and HT IV currently has no material assets or liabilities. The Company also formed Hercules Technology SBIC Management, LLC, or (“HTM”), a limited liability company in November 2003. HTM is a wholly owned subsidiary of the Company and serves as the limited partner and general partner of HT II and HT III (see Note 4 to the Company’s consolidated financial statements).

HT II and HT III hold approximately $113.1million and $285.8 million in assets, respectively, and they accounted for approximately 5.7% and 14.4% of the Company’s total assets, respectively, prior to consolidation at March 31, 2018.

 

The Company also established wholly owned subsidiaries, all of which are structured as Delaware corporations and limited liability companies, to hold portfolio companies organized as limited liability companies, or LLCs (or other forms of pass-through entities). By investing through these wholly owned subsidiaries, the Company is able to benefit from the tax treatment of these entities and create a tax structure that is more advantageous with respect to the Company’s RIC status. These taxable subsidiaries are consolidated for financial reporting purposes and in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”), and the portfolio investments held by these taxable subsidiaries are included in the Company’s consolidated financial statements and recorded at fair value. These taxable subsidiaries are not consolidated with Hercules for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments.

 

The consolidated financial statements include the accounts of the Company, its subsidiaries and its consolidated securitization VIE. All significant inter-company accounts and transactions have been eliminated in consolidation. As provided under Regulation S-X and ASC 946, the Company will not consolidate its investment in a portfolio company other than an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Rather, an investment company’s interest in portfolio companies that are not investment companies should be measured at fair value in accordance with ASC Topic 946.

 

The accompanying consolidated interim financial statements have been prepared in conformity with U.S. GAAP for interim financial information, and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim periods have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the full fiscal year. Therefore, the interim unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the period ended December 31, 2017. The year-end Consolidated Statement of Assets and Liabilities data was derived from audited financial statements, but does not include all disclosures required by U.S. GAAP.

 

Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein.

39


 

 

2. Summary of Significant Accounting Policies

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries and all VIEs of which the Company is the primary beneficiary. All intercompany accounts and transactions have been eliminated in consolidation.

A VIE is an entity that either (i) has insufficient equity to permit the entity to finance its activities without additional subordinated financial support or (ii) has equity investors who lack the characteristics of a controlling financial interest. The primary beneficiary of a VIE is the party with both the power to direct the activities of the VIE that most significantly impact the VIE’s economic performance and the obligation to absorb the losses or the right to receive benefits that could be significant to the VIE.

To assess whether the Company has the power to direct the activities of a VIE that most significantly impact its economic performance, the Company considers all the facts and circumstances including its role in establishing the VIE and its ongoing rights and responsibilities. This assessment includes identifying the activities that most significantly impact the VIE’s economic performance and identifying which party, if any, has power over those activities. In general, the party that makes the most significant decisions affecting the VIE is determined to have the power to direct the activities of a VIE. To assess whether the Company has the obligation to absorb the losses or the right to receive benefits that could potentially be significant to the VIE, the Company considers all of its economic interests, including debt and equity interests, servicing rights and fee arrangements, and any other variable interests in the VIE. If the Company determines that it is the party with the power to make the most significant decisions affecting the VIE, and the Company has a potentially significant interest in the VIE, then it consolidates the VIE.

The Company performs periodic reassessments, usually quarterly, of whether it is the primary beneficiary of a VIE. The reassessment process considers whether the Company has acquired or divested the power to direct the activities of the VIE through changes in governing documents or other circumstances. The Company also reconsiders whether entities previously determined not to be VIEs have become VIEs, based on certain events, and therefore are subject to the VIE consolidation framework.

As of the date of this report, the only VIE consolidated by the Company is its securitization VIE formed in conjunction with the issuance of the 2021 Asset-Backed Notes (as defined herein). See “Note 4 – Borrowings”.

Reclassification

Certain balances from prior years have been reclassified in order to conform to the current year presentation.

Valuation of Investments

The most significant estimate inherent in the preparation of the Company’s consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

At March 31, 2018, approximately 91.6% of the Company’s total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board of Directors. The Company’s investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 and measured in accordance with ASC Topic 820 (“Fair Value Measurements”). The Company’s debt securities are primarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there is no known or accessible market or market indexes for these investment securities to be traded or exchanged. As such, the Company values substantially all of its investments at fair value as determined in good faith pursuant to a consistent valuation policy by the Company’s Board of Directors in accordance with the provisions of ASC Topic 820 and the 1940 Act. Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of the Company’s investments determined in good faith by its Board of Directors may differ significantly from the value that would have been used had a readily available market existed for such investments, and the differences could be material.

The Company may from time to time engage an independent valuation firm to provide the Company with valuation assistance with respect to certain portfolio investments. The Company engages independent valuation firms on a discretionary basis. Specifically, on a quarterly basis, the Company will identify portfolio investments with respect to which an independent valuation firm will assist in valuing. The Company selects these portfolio investments based on a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, credit quality and the time lapse since the last valuation of the portfolio investment by an independent valuation firm.

40


 

The Company intends to continue to engage an independent valuation firm to provide management with assistance regarding the Company’s determination of the fair value of selected portfolio investments each quarter unless directed by the Board of Directors to cancel such valuation services. The scope of services rendered by an independent valuation firm is at the discretion of the Board of Directors. The Company’s Board of Directors is ultimately, and solely, responsible for determining the fair value of the Company’s investments in good faith.

With respect to investments for which market quotations are not readily available or when such market quotations are deemed not to represent fair value, the Company’s Board of Directors has approved a multi-step valuation process each quarter, as described below:

(1) the Company’s quarterly valuation process begins with each portfolio company being initially valued by the investment professionals responsible for the portfolio investment;

(2) preliminary valuation conclusions are then documented and business based assumptions are discussed with the Company’s investment committee;

(3) the Audit Committee of the Board of Directors reviews the preliminary valuation of the investments in the portfolio as provided by the investment committee, which incorporates the results of the independent valuation firm as appropriate; and

(4) the Board of Directors, upon the recommendation of the Audit Committee, discusses valuations and determines the fair value of each investment in the Company’s portfolio in good faith based on the input of, where applicable, the respective independent valuation firm and the investment committee.

ASC Topic 820 establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. ASC Topic 820 also requires disclosure for fair value measurements based on the level within the hierarchy of the information used in the valuation. ASC Topic 820 applies whenever other standards require (or permit) assets or liabilities to be measured at fair value. ASC Topic 820 defines fair value as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

The Company has categorized all investments recorded at fair value in accordance with ASC Topic 820 based upon the level of judgment associated with the inputs used to measure their fair value. Hierarchical levels, defined by ASC Topic 820 and directly related to the amount of subjectivity associated with the inputs to fair valuation of these assets and liabilities, are as follows:

Level 1—Inputs are unadjusted, quoted prices in active markets for identical assets at the measurement date. The types of assets carried at Level 1 fair value generally are equities listed in active markets.

Level 2—Inputs (other than quoted prices included in Level 1) are either directly or indirectly observable for the asset in connection with market data at the measurement date and for the extent of the instrument’s anticipated life. Fair valued assets that are generally included in this category are publicly held debt investments and warrants held in a public company.

Level 3—Inputs reflect management’s best estimate of what market participants would use in pricing the asset at the measurement date. It includes prices or valuations that require inputs that are both significant to the fair value measurement and unobservable. Generally, assets carried at fair value and included in this category are the debt investments and warrants and equities held in a private company.

41


 

Investments measured at fair value on a recurring basis are categorized in the tables below based upon the lowest level of significant input to the valuations as of March 31, 2018 and as of December 31, 2017. The Company transfers investments in and out of Level 1, 2 and 3 as of the beginning balance sheet date, based on changes in the use of observable and unobservable inputs utilized to perform the valuation for the period. During the three months ended March 31, 2018, there were no transfers between Levels 1 or 2.

 

(in thousands)

 

Balance

March 31,

 

 

Quoted Prices In

Active Markets For

Identical Assets

 

 

Significant

Other Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

Description

 

2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Senior Secured Debt

 

$

1,322,451

 

 

$

 

 

$

 

 

$

1,322,451

 

Unsecured Debt

 

 

13,875

 

 

 

 

 

 

 

 

 

13,875

 

Preferred Stock

 

 

65,451

 

 

 

 

 

 

 

 

 

65,451

 

Common Stock

 

 

48,548

 

 

 

20,216

 

 

 

 

 

 

28,332

 

Warrants

 

 

33,253

 

 

 

 

 

 

5,068

 

 

 

28,185

 

Escrow Receivable

 

 

1,280

 

 

 

 

 

 

 

 

 

1,280

 

Total

 

$

1,484,858

 

 

$

20,216

 

 

$

5,068

 

 

$

1,459,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance

December 31,

 

 

Quoted Prices In

Active Markets For

Identical Assets

 

 

Significant

Other Observable

Inputs

 

 

Significant

Unobservable

Inputs

 

Description

 

2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

Senior Secured Debt

 

$

1,415,984

 

 

$

 

 

$

 

 

$

1,415,984

 

Preferred Stock

 

 

40,683

 

 

 

 

 

 

 

 

 

40,683

 

Common Stock

 

 

48,678

 

 

 

22,825

 

 

 

 

 

 

25,853

 

Warrants

 

 

36,869

 

 

 

 

 

 

5,664

 

 

 

31,205

 

Escrow Receivable

 

 

752

 

 

 

 

 

 

 

 

 

752

 

Total

 

$

1,542,966

 

 

$

22,825

 

 

$

5,664

 

 

$

1,514,477

 

The table below presents a reconciliation for all financial assets and liabilities measured at fair value on a recurring basis, excluding accrued interest components, using significant unobservable inputs (Level 3) for the three months ended March 31, 2018 and the year ended December 31, 2017.

 

(in thousands)

 

Balance

January 1, 2018

 

 

Net Realized

Gains (Losses) (1)

 

 

Net Change in

Unrealized

Appreciation

(Depreciation) (2)

 

 

Purchases (5)

 

 

Sales

 

 

Repayments (6)

 

 

Gross

Transfers

into

Level 3 (3)

 

 

Gross

Transfers

out of

Level 3 (3)

 

 

Balance

March 31, 2018

 

Senior Debt

 

$

1,415,984

 

 

$

(5,008

)

 

$

(6,679

)

 

$

196,692

 

 

 

 

 

$

(278,538

)

 

$

 

 

$

 

 

$

1,322,451

 

Unsecured Debt

 

 

 

 

 

 

 

 

(1,598

)

 

 

15,473

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

13,875

 

Preferred Stock

 

 

40,683

 

 

 

 

 

 

(2,071

)

 

 

26,839

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

65,451

 

Common Stock

 

 

25,853

 

 

 

 

 

 

618

 

 

 

1,861

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,332

 

Warrants

 

 

31,205

 

 

 

(386

)

 

 

(3,081

)

 

 

447

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

28,185

 

Escrow Receivable

 

 

752

 

 

 

78

 

 

 

 

 

 

875

 

 

 

(425

)

 

 

 

 

 

 

 

 

 

 

 

1,280

 

Total

 

$

1,514,477

 

 

$

(5,316

)

 

$

(12,811

)

 

$

242,187

 

 

$

(425

)

 

$

(278,538

)

 

$

 

 

$

 

 

$

1,459,574

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

Balance

January 1, 2017

 

 

Net Realized

Gains (Losses) (1)

 

 

Net Change in

Unrealized

Appreciation

(Depreciation) (2)

 

 

Purchases (5)

 

 

Sales

 

 

Repayments (6)

 

 

Gross

Transfers

into

Level 3 (4)

 

 

Gross

Transfers

out of

Level 3 (4)

 

 

Balance

December 31, 2017

 

Senior Debt

 

$

1,323,978

 

 

$

(24,684

)

 

$

29,610

 

 

$

776,648

 

 

$

 

 

$

(626,897

)

 

$

 

 

$

(62,671

)

 

$

1,415,984

 

Preferred Stock

 

 

39,418

 

 

 

(7,531

)

 

 

11,955

 

 

 

2,683

 

 

 

(468

)

 

 

 

 

 

 

 

 

(5,374

)

 

 

40,683

 

Common Stock

 

 

10,965

 

 

 

(487

)

 

 

(49,462

)

 

 

3,748

 

 

 

(1,582

)

 

 

 

 

 

62,671

 

 

 

 

 

 

25,853

 

Warrants

 

 

24,246

 

 

 

727

 

 

 

8,450

 

 

 

5,449

 

 

 

(7,303

)

 

 

 

 

 

 

 

 

(364

)

 

 

31,205

 

Escrow Receivable

 

 

1,382

 

 

 

261

 

 

 

 

 

 

3,127

 

 

 

(4,018

)

 

 

 

 

 

 

 

 

 

 

 

752

 

Total

 

$

1,399,989

 

 

$

(31,714

)

 

$

553

 

 

$

791,655

 

 

$

(13,371

)

 

$

(626,897

)

 

$

62,671

 

 

$

(68,409

)

 

$

1,514,477

 

 

(1)

Included in net realized gains or losses in the accompanying Consolidated Statement of Operations.

(2)

Included in net change in unrealized appreciation (depreciation) in the accompanying Consolidated Statement of Operations.

(3)

There were no transfers in or out of Level 3 during the three months ended March 31, 2018.

(4)

Transfers out of Level 3 during the year ended December 31, 2017 relate to the conversion of the Company’s debt investment in Sungevity, Inc. and a portion of the Company’s debt investment in Gamma Medica, Inc. to common stock through bankruptcy transactions. IPOs of ForeScout Technologies, Inc., Aquantia Corporation, and Quanterix Corporation, and merger of our former portfolio company Cempra, Inc. and current portfolio company Melinta Therapeutics, Inc. into NASDAQ-listed company Melinta Theraputics, Inc. Transfers into Level 3 during the year ended December 31, 2017 relate to the conversion of the Company’s debt investment in Sungevity, Inc. and a portion of the Company’s debt investment in Gamma Medica, Inc. to common stock through bankruptcy transactions.

(5)

Amounts listed above are inclusive of loan origination fees received at the inception of the loan which are deferred and amortized into fee income as well as the accretion of existing loan discounts and fees during the period. Escrow receivable purchases may include additions due to proceeds held in escrow from the liquidation of level 3 investments.

(6)

Amounts listed above include the acceleration and payment of loan discounts and loan fees due to early payoffs or restructures.

42


 

For the three months ended March 31, 2018, approximately $2.1 million in net unrealized depreciation and $618,000 in net unrealized appreciation was recorded for preferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. For the same period, approximately $13.5 million in net unrealized depreciation and $3.4 million in net unrealized depreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

For the year ended December 31, 2017, approximately $4.2 million in net unrealized appreciation and $49.2 million in net unrealized depreciation was recorded for preferred stock and common stock Level 3 investments, respectively, relating to assets still held at the reporting date. The depreciation on common stock during the period reflects the conversion of the Company’s debt investment in Sungevity, Inc. to common stock at cost through a bankruptcy transaction and subsequent depreciation to fair value. For the same period, approximately $10.5 million in net unrealized depreciation and $9.0 million in net unrealized appreciation was recorded for debt and warrant Level 3 investments, respectively, relating to assets still held at the reporting date.

The following tables provide quantitative information about the Company’s Level 3 fair value measurements as of March 31, 2018 and December 31, 2017. In addition to the techniques and inputs noted in the tables below, according to the Company’s valuation policy the Company may also use other valuation techniques and methodologies when determining the Company’s fair value measurements. The tables below are not intended to be all-inclusive, but rather provide information on the significant Level 3 inputs as they relate to the Company’s fair value measurements.

The significant unobservable input used in the fair value measurement of the Company’s escrow receivables is the amount recoverable at the contractual maturity date of the escrow receivable.

 

Investment Type - Level

Three Debt Investments

 

Fair Value at

March 31, 2018

(in thousands)

 

 

Valuation

Techniques/Methodologies

 

Unobservable Input (1)

 

Range

 

 

Weighted

Average (2)

 

Pharmaceuticals

 

$

59,128

 

 

Originated Within 4-6 Months

 

Origination Yield

 

10.55% - 12.71%

 

 

12.50%

 

 

 

 

310,692

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.60% - 16.34%

 

 

13.65%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.25%) - 1.00%

 

 

 

 

 

 

 

 

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

100.00%

 

 

 

 

 

Technology

 

 

91,882

 

 

Originated Within 4-6 Months

 

Origination Yield

 

10.40% - 15.15%

 

 

11.59%

 

 

 

 

364,111

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.02% - 26.08%

 

 

13.84%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.25%) - 1.00%

 

 

 

 

 

 

 

 

16,421

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

5.00% - 100.00%

 

 

 

 

 

Sustainable and Renewable

 

 

17,630

 

 

Originated Within 4-6 Months

 

Origination Yield

 

11.97%

 

 

11.97%

 

Technology

 

 

69,376

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

11.25% - 20.61%

 

 

14.04%

 

Medical Devices

 

 

17,132

 

 

Originated Within 4-6 Months

 

Origination Yield

 

13.49%

 

 

13.49%

 

 

 

 

50,832

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

11.07% - 15.94%

 

 

12.45%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

0.00% - 0.75%

 

 

 

 

 

 

 

 

839

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

10.00% - 50.00%

 

 

 

 

 

Lower Middle Market

 

 

60,257

 

 

Originated Within 4-6 Months

 

Origination Yield

 

8.56% - 12.05%

 

 

11.75%

 

 

 

 

37,371

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

12.75% - 13.29%

 

 

13.04%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

0.00%

 

 

 

 

 

 

 

 

17,095

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

5.00% - 80.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments Where Fair Value Approximates Cost

 

 

 

 

159,641

 

 

Debt Investments originated within 3 months

 

 

 

 

 

 

 

 

 

 

 

63,919

 

 

Debt Investments Maturing in Less than One Year

 

 

 

$

1,336,326

 

 

Total Level Three Debt Investments

 

 

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums (discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:

 

Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development, Drug Delivery and Biotechnology Tools industries in the Consolidated Schedule of Investments.

 

Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products, Information Services, and Communications and Networking industries in the Consolidated Schedule of Investments.

 

Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments.

 

Medical Devices, above, is comprised of debt investments in the Surgical Devices and Medical Devices and Equipment industries in the Consolidated Schedule of Investments.

 

Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other, Information Services, Internet Consumer and Business Services, Media/Content/Info, Diversified Financial Services, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.

(2)

The weighted averages are calculated based on the fair market value of each investment.

(3)

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.

 

43


 

Investment Type - Level

Three Debt Investments

 

Fair Value at

December 31, 2017

(in thousands)

 

 

Valuation

Techniques/Methodologies

 

Unobservable Input (1)

 

Range

 

 

Weighted

Average (2)

 

Pharmaceuticals

 

$

44,301

 

 

Originated Within 6 Months

 

Origination Yield

 

10.71% - 12.61%

 

 

11.89%

 

 

 

 

379,841

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

10.14% - 16.14%

 

 

12.94%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.25%) - 0.75%

 

 

 

 

 

 

 

 

2,257

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

100.00%

 

 

 

 

 

Technology

 

 

158,916

 

 

Originated Within 6 Months

 

Origination Yield

 

9.4% - 25.11%

 

 

11.68%

 

 

 

 

290,561

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

9.47% - 19.21%

 

 

13.55%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

(0.25%) - 1.00%

 

 

 

 

 

 

 

 

22,020

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

5.00% - 100.00%

 

 

 

 

 

Sustainable and Renewable

 

 

33,020

 

 

Originated Within 6 Months

 

Origination Yield

 

11.97% - 20.06%

 

 

15.31%

 

Technology

 

 

49,647

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

11.15% - 14.16%

 

 

12.13%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

0.00% - 0.25%

 

 

 

 

 

Medical Devices

 

 

17,013

 

 

Originated Within 6 Months

 

Origination Yield

 

13.49%

 

 

13.49%

 

 

 

 

89,869

 

 

Market Comparable Companies

 

Hypothetical Market Yield

 

9.66% - 17.57%

 

 

12.28%

 

 

 

 

 

 

 

 

 

Premium/(Discount)

 

0.00% - 0.50%

 

 

 

 

 

Lower Middle Market

 

 

97,291

 

 

Originated Within 6 Months

 

Origination Yield

 

8.29% - 12.68%

 

 

12.01%

 

 

 

 

19,219

 

 

Liquidation (3)

 

Probability weighting of alternative outcomes

 

10.00% - 100.00%

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Debt Investments Where Fair Value Approximates Cost

 

 

 

 

35,517

 

 

Imminent Payoffs (4)

 

 

 

 

176,512

 

 

Debt Investments Maturing in Less than One Year

 

 

 

$

1,415,984

 

 

Total Level Three Debt Investments

 

 

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s debt securities are hypothetical market yields and premiums/(discounts). The hypothetical market yield is defined as the exit price of an investment in a hypothetical market to hypothetical market participants where buyers and sellers are willing participants. The premiums (discounts) relate to company specific characteristics such as underlying investment performance, security liens, and other characteristics of the investment. Significant increases (decreases) in the inputs in isolation may result in a significantly lower (higher) fair value measurement, depending on the materiality of the investment. Debt investments in the industries noted in the Company’s Consolidated Schedule of Investments are included in the industries noted above as follows:

 

Pharmaceuticals, above, is comprised of debt investments in the Specialty Pharmaceuticals, Drug Discovery and Development, Drug Delivery and Biotechnology Tools industries in the Consolidated Schedule of Investments.

 

Technology, above, is comprised of debt investments in the Software, Semiconductors, Internet Consumer and Business Services, Consumer and Business Products, Information Services, and Communications and Networking industries in the Consolidated Schedule of Investments.

 

Sustainable and Renewable Technology, above, aligns with the Sustainable and Renewable Technology Industry in the Consolidated Schedule of Investments.

 

Medical Devices, above, is comprised of debt investments in the Surgical Devices and Medical Devices and Equipment industries in the Consolidated Schedule of Investments.

 

Lower Middle Market, above, is comprised of debt investments in the Communications and Networking, Electronics and Computer Hardware, Healthcare Services - Other, Information Services, Internet Consumer and Business Services, Media/Content/Info, and Specialty Pharmaceuticals industries in the Consolidated Schedule of Investments.

(2)

The weighted averages are calculated based on the fair market value of each investment.

(3)

The significant unobservable input used in the fair value measurement of impaired debt securities is the probability weighting of alternative outcomes.

(4)

Imminent payoffs represent debt investments that the Company expects to be fully repaid within the next three months, prior to their scheduled maturity date.

 


44


 

 

Investment Type - Level Three

Equity and Warrant Investments

 

Fair Value at

March 31, 2018

(in thousands)

 

 

Valuation Techniques/

Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted Average (6)

 

Equity Investments

 

$

9,019

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

3.7x - 58.1x

 

16.4x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.6x - 11.8x

 

3.9x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

12.12% - 18.46%

 

17.39%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

32.5% - 80.36%

 

54.51%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.97% - 2.25%

 

2.19%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

8 - 23

 

 

19

 

 

 

 

18,670

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(42.3%) - 42.71%

 

6.61%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

33.52% - 85.47%

 

71.87%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.88% - 2.15%

 

1.86%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

11 - 23

 

 

18

 

 

 

 

12,432

 

 

Liquidation

 

Probability weighting of alternative outcomes

 

50% - 100%

 

 

 

 

 

 

 

53,662

 

 

Other(7)

 

 

 

 

 

 

 

 

Warrant Investments

 

 

18,169

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

3.7x - 58.1x

 

17.9x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.5x - 11.8x

 

3.2x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

11.13% - 28.69%

 

15.76%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

27.33% - 99.42%

 

57.06%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

2.05% - 2.46%

 

2.12%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

11 - 47

 

 

15

 

 

 

 

7,986

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(31.02%) - 186.26%

 

14.68%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

19.08% - 103.43%

 

67.94%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.96% - 2.47%

 

1.85%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

11 - 47

 

 

20

 

 

 

 

2,030

 

 

Other(7)

 

 

 

 

 

 

 

 

Total Level Three

Warrant and Equity Investments

 

$

121,968

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples, market equity adjustment factors, and discounts for lack of marketability. Additional inputs used in the Black Scholes option pricing model (“OPM”) include industry volatility, risk free interest rate and estimated time to exit.  Significant increases (decreases) in the inputs in isolation would result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date. The significant unobservable input used in the fair value measurement of impaired equity securities is the probability weighting of alternative outcomes.

(2)

Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(3)

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(4)

Represents the range of industry volatility used by market participants when pricing the investment.

(5)

Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(6)

Weighted averages are calculated based on the fair market value of each investment.

(7)

The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.


45


 

 

Investment Type - Level Three

Equity and Warrant Investments

 

Fair Value at

December 31, 2017

(in thousands)

 

 

Valuation Techniques/

Methodologies

 

Unobservable Input (1)

 

Range

 

Weighted Average (6)

 

Equity Investments

 

$

7,684

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

5.1x - 40.2x

 

13.2x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.5x - 6.2x

 

2.9x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

7.49% - 12.97%

 

8.77%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

27.8% - 77.3%

 

53.35%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.40% - 1.90%

 

1.47%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

3 - 10

 

 

5

 

 

 

 

19,323

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(16.43%) - 29.4%

 

11.79%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

33.17% - 78.77%

 

68.99%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.84% - 1.51%

 

1.42%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

5 - 26

 

 

13

 

 

 

 

39,529

 

 

Other (7)

 

 

 

 

 

 

 

 

Warrant Investments

 

 

19,310

 

 

Market Comparable Companies

 

EBITDA Multiple (2)

 

5x - 40.2x

 

14.6x

 

 

 

 

 

 

 

 

 

Revenue Multiple (2)

 

0.5x - 6.4x

 

2.6x

 

 

 

 

 

 

 

 

 

Discount for Lack of Marketability (3)

 

5.16% - 27.41%

 

13.57%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

27.8% - 102.77%

 

55.15%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

1.31% - 2.09%

 

1.66%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

2 - 48

 

 

13

 

 

 

 

6,713

 

 

Market Adjusted OPM Backsolve

 

Market Equity Adjustment (5)

 

(68.52%) - 154.5%

 

11.76%

 

 

 

 

 

 

 

 

 

Average Industry Volatility (4)

 

33.17% - 110.32%

 

66.97%

 

 

 

 

 

 

 

 

 

Risk-Free Interest Rate

 

0.96% - 2.09%

 

1.59%

 

 

 

 

 

 

 

 

 

Estimated Time to Exit (in months)

 

5 - 48

 

 

20

 

 

 

 

5,182

 

 

Other (7)

 

 

 

 

 

 

 

 

Total Level Three

Warrant and Equity Investments

 

$

97,741

 

 

 

 

 

 

 

 

 

 

 

 

(1)

The significant unobservable inputs used in the fair value measurement of the Company’s warrant and equity-related securities are revenue and/or EBITDA multiples, market equity adjustment factors, and discounts for lack of marketability. Additional inputs used in the Black Scholes OPM include industry volatility, risk free interest rate and estimated time to exit. Significant increases (decreases) in the inputs in isolation would result in a significantly higher (lower) fair value measurement, depending on the materiality of the investment. For some investments, additional consideration may be given to data from the last round of financing or merger/acquisition events near the measurement date.

(2)

Represents amounts used when the Company has determined that market participants would use such multiples when pricing the investments.

(3)

Represents amounts used when the Company has determined market participants would take into account these discounts when pricing the investments.

(4)

Represents the range of industry volatility used by market participants when pricing the investment.

(5)

Represents the range of changes in industry valuations since the portfolio company's last external valuation event.

(6)

Weighted averages are calculated based on the fair market value of each investment.

(7)

The fair market value of these investments is derived based on recent private market and merger and acquisition transaction prices.

Debt Investments

 

The Company follows the guidance set forth in ASC Topic 820 which establishes a framework for measuring the fair value of assets and liabilities and outlines a fair value hierarchy, which prioritizes the inputs used to measure fair value and the effect of fair value measures on earnings. The Company’s debt securities are primarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of the Company’s investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there is no known or accessible market or market indexes for debt instruments for these investment securities to be traded or exchanged. In addition, the Company may, from time to time, invest in public debt of companies that meet the Company’s investment objectives. These investments are considered Level 2 assets.

 

In making a good faith determination of the value of the Company’s investments, the Company generally starts with the cost basis of the investment, which includes the value attributed to the original issue discount (“OID”), if any, and payment-in-kind (“PIK”) interest or other receivables which have been accrued as earned. The Company then applies the valuation methods as set forth below.

 

The Company applies a procedure for debt investments that assumes the sale of each investment in a hypothetical market to a hypothetical market participant where buyers and sellers are willing participants. The hypothetical market does not include scenarios where the underlying security was simply repaid or extinguished, but includes an exit concept. The Company determines the yield at inception for each debt investment. The Company then uses senior secured, leveraged loan yields provided by third party providers to determine the change in market yields between inception of the debt investment and the measurement date. Industry specific indices and other relevant market data are used to benchmark/assess market based movements.

 

Under this process, the Company also evaluates the collateral for recoverability of the debt investments. The Company considers each portfolio company’s credit rating, security liens and other characteristics of the investment to adjust the baseline yield to derive a credit adjusted hypothetical yield for each investment as of the measurement date. The anticipated future cash flows from each investment are then discounted at the hypothetical yield to estimate each investment’s fair value as of the measurement date.

 

46


 

The Company’s process includes an analysis of, among other things, the underlying investment performance, the current portfolio company’s financial condition and market changing events that impact valuation, estimated remaining life, current market yield and interest rate spreads of similar securities as of the measurement date. The Company values its syndicated debt investments using broker quotes and bond indices amongst other factors. If there is a significant deterioration of the credit quality of a debt investment, the Company may consider other factors to estimate fair value, including the proceeds that would be received in a liquidation analysis.

 

The Company records unrealized depreciation on investments when it believes that an investment has decreased in value, including where collection of a debt investment is doubtful or, if under the in-exchange premise, when the value of a debt investment is less than amortized cost of the investment. Conversely, where appropriate, the Company records unrealized appreciation if it believes that the underlying portfolio company has appreciated in value and, therefore, that its investment has also appreciated in value or, if under the in-exchange premise, the value of a debt investment is greater than amortized cost.

 

When originating a debt instrument, the Company generally receives warrants or other equity-related securities from the borrower. The Company determines the cost basis of the warrants or other equity-related securities received based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants or other equity-related securities received. Any resulting discount on the debt investments from recordation of the warrant or other equity instruments is accreted into interest income over the life of the debt investment.

Debt investments that are traded on a public exchange are valued at the prevailing market price as of the valuation date.

Equity-Related Securities and Warrants

Securities that are traded in the over-the-counter markets or on a stock exchange will be valued at the prevailing bid price at period end. The Company has a limited amount of equity securities in public companies. In accordance with the 1940 Act, unrestricted publicly traded securities for which market quotations are readily available are valued at the closing market quote on the measurement date.

The Company estimates the fair value of warrants using a Black Scholes OPM. At each reporting date, privately held warrant and equity-related securities are valued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition and general market conditions, price to enterprise value or price to equity ratios, discounted cash flow, valuation comparisons to comparable public companies or other industry benchmarks. When an external event occurs, such as a purchase transaction, public offering, or subsequent equity sale, the pricing indicated by that external event is utilized to corroborate the Company’s valuation of the warrant and equity-related securities. The Company periodically reviews the valuation of its portfolio companies that have not been involved in a qualifying external event to determine if the enterprise value of the portfolio company may have increased or decreased since the last valuation measurement date.

Escrow Receivables

Escrow receivables are collected in accordance with the terms and conditions of the escrow agreement. Escrow balances are typically distributed over a period greater than one year and may accrue interest during the escrow period. Escrow balances are measured for collectability on at least a quarterly basis and fair value is determined based on the amount of the estimated recoverable balances and the contractual maturity date. As of March 31, 2018, there were no material past due escrow receivables.


47


 

Portfolio Composition

As required by the 1940 Act, the Company classifies its investments by level of control. “Control investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “control.” Under the 1940 Act, the Company is generally deemed to “control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board. “Affiliate investments” are investments in those companies that are “affiliated companies” of the Company, as defined in the 1940 Act, which are not control investments. The Company is deemed to be an “affiliate” of a company in which it has invested if it owns 5% or more, but generally less than 25%, of the voting securities of such company. “Non-control/non-affiliate investments” are investments that are neither control investments nor affiliate investments.

The following table summarizes the Company’s realized gains and losses and changes in unrealized appreciation and depreciation on control and affiliate investments for the three months ended March 31, 2018 and 2017.

 

(in thousands)

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2018

 

Portfolio Company

 

Type

 

Fair Value at

March 31, 2018

 

 

Investment

Income

 

 

Net Change in

Unrealized

Appreciation/ (Depreciation)

 

 

Realized

Gain/(Loss)

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achilles Technology Management Co II, Inc.

 

Control

 

$

117

 

 

$

 

 

$

(125

)

 

$

 

Gibraltar Business Capital, LLC

 

Control

 

 

37,201

 

 

 

127

 

 

 

 

 

 

 

Second Time Around (Simplify Holdings, LLC)

 

Control

 

 

 

 

 

 

 

 

1,781

 

 

 

(1,743

)

Tectura Corporation

 

Control

 

 

17,095

 

 

 

459

 

 

 

(2,276

)

 

 

335

 

Total Control Investments

 

$

54,413

 

 

$

586

 

 

$

(620

)

 

$

(1,408

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Optiscan BioMedical, Corp.

 

Affiliate

 

$

6,527

 

 

$

 

 

$

(1,065

)

 

 

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)

 

Affiliate

 

 

23,998

 

 

 

669

 

 

 

828

 

 

 

 

Stion Corporation

 

Affiliate

 

 

 

 

 

 

 

 

 

 

 

 

Total Affiliate Investments

 

$

30,525

 

 

$

669

 

 

$

(237

)

 

$

 

Total Control & Affiliate Investments

 

$

84,938

 

 

$

1,255

 

 

$

(857

)

 

$

(1,408

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

(in thousands)

 

 

 

 

 

 

 

For the Three Months Ended March 31, 2017

 

Portfolio Company

 

Type

 

Fair Value at

March 31, 2017

 

 

Investment

Income

 

 

Net Change in

Unrealized

Appreciation/ (Depreciation)

 

 

Realized

Gain/(Loss)

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Achilles Technology Management Co II, Inc.

 

Control

 

$

2,833

 

 

$

74

 

 

$

(1,941

)

 

$

 

SkyCross, Inc.

 

Control

 

 

2,103

 

 

 

 

 

 

2,103

 

 

 

 

Tectura Corporation

 

Control

 

 

19,839

 

 

 

445

 

 

 

51

 

 

 

(51

)

Total Control Investments

 

$

24,775

 

 

$

519

 

 

$

213

 

 

$

(51

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Optiscan BioMedical, Corp.

 

Affiliate

 

$

5,311

 

 

$

 

 

$

439

 

 

$

 

Stion Corporation

 

Affiliate

 

 

 

 

 

2

 

 

 

 

 

 

 

Total Affiliate Investments

 

$

5,311

 

 

$

2

 

 

$

439

 

 

$

 

Total Control & Affiliate Investments

 

$

30,086

 

 

$

521

 

 

$

652

 

 

$

(51

)

In March 2018, the Company acquired 100% ownership in Gibraltar Business Capital LLC and classified it as a control investment in accordance with the requirements of the 1940 Act. Gibraltar Business Capital LLC is focused on providing asset-based and other secured financing solutions.

In July 2017, the Company acquired the primary assets of Second Time Around (Simplify Holdings, LLC) as part of an article 9 consensual foreclosure and public auction. These assets represent the remaining possible recovery on the Company’s debt and as such this investment is classified as a control investment as of September 30, 2017. As of February 2018, all material recoveries had been made and subsequently the Company’s investments were deemed wholly worthless and written off for a realized loss.

48


 

In April 2017, the Company’s investment in Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) became classified as a control investment as a result of obtaining more than 25% of the portfolio company’s voting securities. In April 2017, under Section 363 of the Bankruptcy Code, Sungevity, Inc. entered into a $50.0 million asset purchase agreement and DIP financing facility with a group of investors, led by Northern Pacific Group and including the Company. On April 7, 2017, the U.S. Bankruptcy Court approved the DIP financing facility and on April 17, the U.S. Bankruptcy Court approved the asset purchase agreement. On April 26, 2017, Solar Spectrum Holdings LLC, a new company backed by the investment group, announced that it had acquired certain assets of Sungevity, Inc. as part of the bankruptcy court-approved sale. As a result, the cost basis of the Company’s debt investment in Sungevity, Inc. was converted to an equity position in Solar Spectrum Holdings LLC and the Company’s warrant and equity positions in Sungevity, Inc. were written off for a realized loss.

In August 2017, the Company’s ownership in Solar Spectrum Holdings LLC was diluted below 25% as a result of additional equity contributions by other investors to fund the acquisition of Horizon Solar Power, Inc. by Solar Spectrum Holdings LLC. The Company made a $15.0 million debt investment to fund the acquisition. Accordingly, the Company’s equity and new debt investment in Solar Spectrum Holdings LLC became classified as affiliate investments as of September 30, 2017.

In January 2017, the Company’s investment in Tectura Corporation became classified as a control investment as a result of obtaining more than 50% representation on the portfolio company’s board. In March 2017, the Company’s warrants in Tectura Corporation expired and were written off for a realized loss.

In June 2016, the Company acquired 100% ownership of the equity of Achilles Technology Management Co II, Inc. and classified it as a control investment in accordance with the requirements of the 1940 Act. In June 2016, Achilles Technology Management Co II, Inc. acquired the assets of a global antenna company that produces radio frequency system solutions as part of an article 9 consensual foreclosure and public auction for total consideration in the amount of $4.0 million. In September and November 2016, the Company made a $1.0 million and $250,000 debt investment, respectively, in Achilles Technology Management II, Inc. to provide working capital under the terms of a loan servicing agreement.

In August 2017, the Company’s debt investment in Achilles Technology Management II, Inc. was fully repaid by net proceeds from sales of the portfolio company’s assets. In addition, the Company’s equity investment in Achilles Technology Management II, Inc. was reduced by $900,000  in lieu of a success fee on the repayment of our debt investment. The remaining equity investment in Achilles Technology Management II, Inc. is carried on the consolidated statement of assets and liabilities at fair value.

The following table shows the fair value of the Company’s portfolio of investments by asset class as of March 31, 2018 and December 31, 2017:

 

 

March 31, 2018

 

 

December 31, 2017

 

(in thousands)

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

 

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

Senior Secured Debt with Warrants

$

736,137

 

 

 

49.6

%

 

$

880,115

 

 

 

57.1

%

Senior Secured Debt

 

619,567

 

 

 

41.8

%

 

 

572,738

 

 

 

37.1

%

Unsecured Debt

 

13,875

 

 

 

0.9

%

 

 

 

 

 

 

Preferred Stock

 

65,451

 

 

 

4.4

%

 

 

40,683

 

 

 

2.6

%

Common Stock

 

48,548

 

 

 

3.3

%

 

 

48,678

 

 

 

3.2

%

Total

$

1,483,578

 

 

 

100.0

%

 

$

1,542,214

 

 

 

100.0

%

49


 

The increase in senior secured debt and the decrease in senior secured debt with warrants during the period is primarily due to an increase in new debt investments that do not include detachable equity enhancement features.

A summary of the Company’s investment portfolio, at value, by geographic location as of March 31, 2018 and December 31, 2017 is shown as follows:

 

 

March 31, 2018

 

 

December 31, 2017

 

(in thousands)

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

 

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

United States

$

1,274,185

 

 

 

86.0

%

 

$

1,404,235

 

 

 

91.1

%

United Kingdom

 

112,221

 

 

 

7.6

%

 

 

91,105

 

 

 

5.9

%

Australia

 

34,682

 

 

 

2.3

%

 

 

 

 

 

0.0

%

Netherlands

 

20,913

 

 

 

1.4

%

 

 

20,783

 

 

 

1.3

%

Cayman Islands

 

19,822

 

 

 

1.3

%

 

 

14,954

 

 

 

1.0

%

Sweden

 

11,933

 

 

 

0.8

%

 

 

 

 

 

0.0

%

Switzerland

 

9,206

 

 

 

0.6

%

 

 

10,581

 

 

 

0.7

%

Canada

 

616

 

 

 

0.0

%

 

 

556

 

 

 

0.0

%

Israel

 

 

 

 

0.0

%

 

 

 

 

 

0.0

%

Total

$

1,483,578

 

 

 

100.0

%

 

$

1,542,214

 

 

 

100.0

%

  

The following table shows the fair value of the Company’s portfolio by industry sector at March 31, 2018 and December 31, 2017:

 

 

March 31, 2018

 

 

December 31, 2017

 

(in thousands)

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

 

Investments at

Fair Value

 

 

Percentage of

Total Portfolio

 

Software

$

393,088

 

 

 

26.5

%

 

$

360,123

 

 

 

23.4

%

Drug Discovery & Development

 

387,371

 

 

 

26.1

%

 

 

369,173

 

 

 

23.9

%

Internet Consumer & Business Services

 

178,502

 

 

 

12.0

%

 

 

154,909

 

 

 

10.0

%

Sustainable and Renewable Technology

 

115,085

 

 

 

7.8

%

 

 

118,432

 

 

 

7.7

%

Drug Delivery

 

84,494

 

 

 

5.7

%

 

 

91,214

 

 

 

5.9

%

Healthcare Services, Other

 

72,041

 

 

 

4.8

%

 

 

72,337

 

 

 

4.7

%

Medical Devices & Equipment

 

69,174

 

 

 

4.6

%

 

 

94,595

 

 

 

6.1

%

Media/Content/Info

 

45,569

 

 

 

3.0

%

 

 

152,998

 

 

 

9.9

%

Diversified Financial Services

 

37,201

 

 

 

2.5

%

 

 

 

 

 

0.0

%

Information Services

 

32,196

 

 

 

2.2

%

 

 

24,618

 

 

 

1.6

%

Electronics & Computer Hardware

 

21,906

 

 

 

1.5

%

 

 

9,982

 

 

 

0.6

%

Consumer & Business Products

 

19,366

 

 

 

1.3

%

 

 

19,792

 

 

 

1.3

%

Surgical Devices

 

12,663

 

 

 

0.9

%

 

 

13,161

 

 

 

0.9

%

Communications & Networking

 

6,768

 

 

 

0.5

%

 

 

6,649

 

 

 

0.4

%

Biotechnology Tools

 

5,645

 

 

 

0.4

%

 

 

5,604

 

 

 

0.4

%

Semiconductors

 

1,342

 

 

 

0.1

%

 

 

10,406

 

 

 

0.7

%

Diagnostic

 

911

 

 

 

0.1

%

 

 

720

 

 

 

0.1

%

Specialty Pharmaceuticals

 

256

 

 

 

0.0

%

 

 

37,501

 

 

 

2.4

%

Total

$

1,483,578

 

 

 

100.0

%

 

$

1,542,214

 

 

 

100.0

%

No single portfolio investment represents more than 10% of the fair value of the investments as of March 31, 2018 and December 31, 2017.

Investment Collateral

In the majority of cases, the Company collateralizes its investments by obtaining a first priority security interest in a portfolio company’s assets, which may include its intellectual property. In other cases, the Company may obtain a negative pledge covering a company’s intellectual property. At March 31, 2018, approximately 85.6% of the Company’s debt investments were in a senior secured first lien position, with 48.0% secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 33.3% secured by a first priority security in all of the assets of the portfolio company and the portfolio company was prohibited from pledging or encumbering its intellectual property, 1.7% of the Company’s debt investments were senior secured by the equipment of the portfolio company and 2.6% of the Company’s debt investments were in a first lien “last-out” senior secured position with security interest in all of the assets of the portfolio company, including its intellectual property. Another 13.4% of the Company’s

50


 

debt investments were secured by a second priority security interest in all of the portfolio company’s assets, other than intellectual property, and 1.0% were unsecured as a result of the terms of the acquisition of two of our portfolio companies.

Cash, Restricted Cash, and Cash Equivalents

Cash and cash equivalents consists solely of funds deposited with financial institutions and short-term liquid investments in money market deposit accounts. Cash and cash equivalents are carried at cost, which approximates fair value. Restricted cash and cash equivalents include amounts that are collected and are held by trustees who have been appointed as custodians of the assets securing certain of the Company’s financing transactions.

 

Income Recognition

The Company records interest income on an accrual basis and recognizes it as earned in accordance with the contractual terms of the loan agreement, to the extent that such amounts are expected to be collected. OID initially represents the value of detachable equity warrants obtained in conjunction with the acquisition of debt securities and is accreted into interest income over the term of the loan as a yield enhancement. When a loan becomes 90 days or more past due, or if management otherwise does not expect that principal, interest, and other obligations due will be collected in full, the Company will generally place the loan on non-accrual status and cease recognizing interest income on that loan until all principal and interest due has been paid or the Company believes the portfolio company has demonstrated the ability to repay the Company’s current and future contractual obligations. Any uncollected interest related to prior periods is reversed from income in the period that collection of the interest receivable is determined to be doubtful. However, the Company may make exceptions to this policy if the investment has sufficient collateral value and is in the process of collection.

At March 31, 2018, the Company had four debt investments on non-accrual with a cumulative investment cost and approximate fair value of $12.3 million and $0, respectively. At December 31, 2017, the Company had five debt investments on non-accrual with cumulative investment cost and fair value of approximately $14.8 million and $340,000, respectively. The decrease in the cost of debt investments on non-accrual between December 31, 2017 and March 31, 2018 is the result of the write-off of one debt investment that was on non-accrual at December 31, 2017 which resulted in a realized loss of approximately $1.7 million.

Fee income, generally collected in advance, includes loan commitment and facility fees for due diligence and structuring, as well as fees for transaction services and management services rendered by us to portfolio companies and other third parties. Loan and commitment fees are amortized into income over the contractual life of the loan. Management fees are generally recognized as income when the services are rendered. Loan origination fees are capitalized and then amortized into interest income using the effective interest rate method. In certain loan arrangements, warrants or other equity interests are received from the borrower as additional origination fees. The Company had approximately $33.0 million of unamortized fees at March 31, 2018, of which approximately $28.8 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $4.2 million was deferred contingent upon the occurrence of a funding or milestone. At December 31, 2017 the Company had approximately $33.3 million of unamortized fees, of which approximately $29.3 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $4.0 million was deferred contingent upon the occurrence of a funding or milestone.

The Company recognizes nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications. Certain fees may still be recognized as one-time fee income, including prepayment penalties, fees related to select covenant default, waiver fees and acceleration of previously deferred loan fees and OID related to early loan pay-off or material modification of the specific debt outstanding. The Company recorded approximately $3.2 million and $565,000 in one-time fee income during the three months ended March 31, 2018 and 2017, respectively.

In addition, the Company may also be entitled to an exit fee that is amortized into income over the life of the loan. Loan exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan. At March 31, 2018, the Company had approximately $22.9 million in exit fees receivable, of which approximately $20.4 million was included as a component of the cost basis of the Company’s current debt investments and approximately $2.5 million was a deferred receivable related to expired commitments. At December 31, 2017, the Company had approximately $27.5 million in exit fees receivable, of which approximately $23.9 million was included as an offset to the cost basis of the Company’s current debt investments and approximately $3.6 million was deferred related to expired commitments.

The Company has debt investments in its portfolio that contain a PIK provision. Contractual PIK interest, which represents contractually deferred interest added to the loan balance that is generally due at the end of the loan term, is generally recorded on the accrual basis to the extent such amounts are expected to be collected. The Company will generally cease accruing PIK interest if there is insufficient value to support the accrual or management does not expect the portfolio company to be able to pay all principal and interest due. The Company recorded approximately $2.3 million and $2.2 million in PIK income during the three months ended March 31, 2018 and 2017, respectively.

51


 

To maintain the Company’s ability to be subject to tax as a RIC, PIK and exit fee income generally must be accrued and distributed to stockholders in the form of dividends for U.S. federal income tax purposes even though the cash has not yet been collected. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments.

In certain investment transactions, the Company may provide advisory services. For services that are separately identifiable and external evidence exists to substantiate fair value, income is recognized as earned, which is generally when the investment transaction closes. The Company had no income from advisory services in the three months ended March 31, 2018 and 2017.

3. Fair Value of Financial Instruments

Fair value estimates are made at discrete points in time based on relevant information. These estimates may be subjective in nature and involve uncertainties and matters of significant judgment and, therefore, cannot be determined with precision. The Company believes that the carrying amounts of its financial instruments, consisting of cash and cash equivalents, receivables including escrow receivables, accounts payable and accrued liabilities, approximate the fair values of such items due to the short maturity of such instruments. The borrowings of the Company are recorded at amortized cost and not at fair value on the Consolidated Statement of Assets and Liabilities. The fair value of the Company’s outstanding borrowings is based on observable market trading prices or quotations and unobservable market rates as applicable for each instrument.

Based on market quotations on or around March 31, 2018, the 2022 Notes, 2021 Asset-Backed Notes and 2022 Convertible Notes were quoted for 1.011, 1.000 and 1.015 per dollar at par value, respectively. At March 31, 2018, the 2024 Notes were trading on the NYSE for $25.28 per unit at par value. The par value at underwriting for the 2024 Notes was $25.00 per unit. Calculated based on the net present value of payments over the term of the notes using estimated market rates for similar notes and remaining terms, the fair value of the SBA debentures is approximately $193.8 million, compared to the carrying amount of $190.2 million as of March 31, 2018.

See the accompanying Consolidated Schedule of Investments for the fair value of the Company’s investments. The methodology for the determination of the fair value of the Company’s investments is discussed in Note 2.

The following tables provide additional information about the fair value and level in the fair value hierarchy of the Company’s outstanding borrowings at March 31, 2018 and December 31, 2017:

 

(in thousands)

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description (1)

 

March 31, 2018

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

SBA Debentures

 

$

193,778

 

 

$

 

 

$

 

 

$

193,778

 

2022 Notes

 

 

151,611

 

 

 

 

 

 

151,611

 

 

 

 

2024 Notes

 

 

185,565

 

 

 

 

 

 

185,565

 

 

 

 

2021 Asset-Backed Notes

 

 

33,575

 

 

 

 

 

 

33,575

 

 

 

 

2022 Convertible Notes

 

 

233,450

 

 

 

 

 

 

233,450

 

 

 

 

Total

 

$

797,979

 

 

$

 

 

$

604,201

 

 

$

193,778

 

 

(in thousands)

 

 

 

 

 

Identical Assets

 

 

Observable Inputs

 

 

Unobservable Inputs

 

Description(1)

 

December 31, 2017

 

 

(Level 1)

 

 

(Level 2)

 

 

(Level 3)

 

SBA Debentures

 

$

198,038

 

 

$

 

 

$

 

 

$

198,038

 

2022 Notes

 

 

152,091

 

 

 

 

 

 

152,091

 

 

 

 

2024 Notes

 

 

188,061

 

 

 

 

 

 

188,061

 

 

 

 

2021 Asset-Backed Notes

 

 

49,199

 

 

 

 

 

 

49,199

 

 

 

 

2022 Convertible Notes

 

 

236,470

 

 

 

 

 

 

236,470

 

 

 

 

Total

 

$

823,859

 

 

$

 

 

$

625,821

 

 

$

198,038

 

 

(1)

As of March 31, 2018, and December 31, 2017, there were no borrowings outstanding on both the Wells Facility and Union Facility.


52


 

4. Borrowings

Outstanding Borrowings

At March 31, 2018 and December 31, 2017, the Company had the following available and outstanding borrowings:

 

 

March 31, 2018

 

 

December 31, 2017

 

(in thousands)

Total Available

 

 

Principal

 

 

Carrying Value (1)

 

 

Total Available

 

 

Principal

 

 

Carrying Value (1)

 

SBA Debentures (2)

$

190,200

 

 

$

190,200

 

 

$

188,299

 

 

$

190,200

 

 

$

190,200

 

 

$

188,141

 

2022 Notes

 

150,000

 

 

 

150,000

 

 

 

147,698

 

 

 

150,000

 

 

 

150,000

 

 

 

147,572

 

2024 Notes

 

183,510

 

 

 

183,510

 

 

 

179,161

 

 

 

183,510

 

 

 

183,510

 

 

 

179,001

 

2021 Asset-Backed Notes

 

33,575

 

 

 

33,575

 

 

 

33,156

 

 

 

49,153

 

 

 

49,153

 

 

 

48,650

 

2022 Convertible Notes

 

230,000

 

 

 

230,000

 

 

 

223,878

 

 

 

230,000

 

 

 

230,000

 

 

 

223,488

 

Wells Facility (3)

 

120,000

 

 

 

 

 

 

 

 

 

120,000

 

 

 

 

 

 

 

Union Bank Facility (3)

 

75,000

 

 

 

 

 

 

 

 

 

75,000

 

 

 

 

 

 

 

Total

$

982,285

 

 

$

787,285

 

 

$

772,192

 

 

$

997,863

 

 

$

802,863

 

 

$

786,852

 

 

 

(1)

Except for the Wells Facility and Union Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted premium or discount, if any, associated with the loan as of the balance sheet date.

(2)

At both March 31, 2018 and December 31, 2017, the total available borrowings under the SBA debentures were $190.2 million, of which $41.2 million was available in HT II and $149.0 million was available in HT III.

(3)

Availability subject to the Company meeting the borrowing base requirements.

Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing and are recognized as prepaid expenses and amortized over the life of the related debt instrument using the effective yield method or the straight line method, which closely approximates the effective yield method. In accordance with ASC Subtopic 835-30 (“Interest – Imputation of Interest”), debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statement of Assets and Liabilities, except for debt issuance costs associated with line-of-credit arrangements. Debt issuance costs, net of accumulated amortization, were as follows as of March 31, 2018 and December 31, 2017:

 

(in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

SBA Debentures

 

$

1,901

 

 

$

2,059

 

2022 Notes

 

 

1,548

 

 

 

1,633

 

2024 Notes

 

 

4,417

 

 

 

4,591

 

2021 Asset-Backed Notes

 

 

420

 

 

 

503

 

2022 Convertible Notes

 

 

3,492

 

 

 

3,715

 

Wells Facility (1)

 

 

726

 

 

 

227

 

Union Bank Facility (1)

 

 

306

 

 

 

379

 

Total

 

$

12,810

 

 

$

13,107

 

 

(1)

As the Wells Facility and Union Bank Facility are line-of-credit arrangements, the debt issuance costs associated with these instruments are presented separately as an asset on the Consolidated Statement of Assets and Liabilities in accordance with ASC Subtopic 835-30.

Long-Term SBA Debentures

On September 27, 2006, HT II received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligible investments and additional contributions to regulatory capital. Under the Small Business Investment Company Act and current SBA policy applicable to SBICs, a SBIC can have outstanding at any time SBA guaranteed debentures up to twice the amount of its regulatory capital. With the Company’s net investment of $44.0 million in HT II as of March 31, 2018, HT II has the capacity to issue a total of $41.2 million of SBA guaranteed debentures, subject to SBA approval, of which $41.2 million was outstanding as of March 31, 2018. As of March 31, 2018, HT II has paid the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of March 31, 2018 the Company held investments in HT II in 34 companies with a fair value of approximately $84.9 million, accounting for approximately 5.7% of the Company’s total investment portfolio at March 31, 2018. HT II held approximately $113.1 million in assets and accounted for approximately 5.7% of the Company’s total assets prior to consolidation at March 31, 2018.

On May 26, 2010, HT III received a license to operate as a SBIC under the SBIC program and is able to borrow funds from the SBA against eligible investments and additional contributions to regulatory capital. With the Company’s net investment of $74.5 million in HT III as of March 31, 2018, HT III has the capacity to issue a total of $149.0 million of SBA guaranteed debentures, subject to SBA approval, of which $149.0 million was outstanding as of March 31, 2018. As of March 31, 2018, HT III has paid the SBA commitment fees and facility fees of approximately $1.5 million and $3.6 million, respectively. As of March 31, 2018, the Company

53


 

held investments in HT III in 47 companies with a fair value of approximately $236.0 million, accounting for approximately 15.9% of the Company’s total investment portfolio at March 31, 2018. HT III held approximately $285.8 million in assets and accounted for approximately 14.4% of the Company’s total assets prior to consolidation at March 31, 2018.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $19.5 million and have average annual fully taxed net income not exceeding $6.5 million for the two most recent fiscal years. In addition, SBICs must devote 25.0% of its investment activity to “smaller” enterprises as defined by the SBA. A smaller enterprise is one that has a tangible net worth not exceeding $6.0 million and has average annual fully taxed net income not exceeding $2.0 million for the two most recent fiscal years. SBA regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to SBA regulations, SBICs may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Through the Company’s wholly owned subsidiaries HT II and HT III, the Company plans to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments.

HT II and HT III are periodically examined and audited by the SBA’s staff to determine their compliance with SBA regulations. If HT II or HT III fails to comply with applicable SBA regulations, the SBA could, depending on the severity of the violation, limit or prohibit HT II’s or HT III’s use of debentures, declare outstanding debentures immediately due and payable, and/or limit HT II or HT III from making new investments. In addition, HT II or HT III may also be limited in their ability to make distributions to the Company if they do not have sufficient capital in accordance with SBA regulations. Such actions by the SBA would, in turn, negatively affect the Company because HT II and HT III are the Company’s wholly owned subsidiaries. HT II and HT III were in compliance with the terms of the SBIC’s leverage as of March 31, 2018 as a result of having sufficient capital as defined under the SBA regulations.

The rates of borrowings under various draws from the SBA beginning in March 2009 are set semiannually in March and September and range from 2.25% to 4.62% excluding annual fees. Interest payments on SBA debentures are payable semiannually. There are no principal payments required on these issues prior to maturity and no prepayment penalties. Debentures under the SBA generally mature ten years after being borrowed. Based on the initial draw down date of March 2009, the initial maturity of SBA debentures will occur in March 2019. In addition, the SBA charges a fee that is set annually, depending on the Federal fiscal year the leverage commitment was delegated by the SBA, regardless of the date that the leverage was drawn by the SBIC. The annual fees related to HT II debentures that pooled on September 22, 2010 were 0.406% and 0.285%, depending upon the year in which the underlying commitment was closed. The annual fees on other debentures have been set at 0.906%. The annual fees related to HT III debentures that pooled on March 27, 2013 were 0.804%. The annual fees on other debentures have been set at 0.515%. The rates of borrowings on the Company’s SBA debentures range from 3.05% to 5.53% when including these annual fees.

The average amount of debentures outstanding for the three months ended March 31, 2018 for HT II was approximately $41.2 million with an average interest rate of approximately 4.56%. The average amount of debentures outstanding for the three months ended March 31, 2018 for HT III was approximately $149.0 million with an average interest rate of approximately 3.46%.

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the SBA debentures are as follows:

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

1,718

 

 

$

1,719

 

Amortization of debt issuance cost (loan fees)

 

158

 

 

 

168

 

Total interest expense and fees

$

1,876

 

 

$

1,887

 

Cash paid for interest expense

$

3,442

 

 

$

3,442

 

In aggregate, at March 31, 2018, with the Company’s net investment of $118.5 million, HT II and HT III have the capacity to issue a total of $190.2 million of SBA-guaranteed debentures, subject to SBA approval. At March 31, 2018, the Company has issued $190.2 million in SBA-guaranteed debentures in the Company’s SBIC subsidiaries.

54


 

The Company reported the following SBA debentures outstanding principal balances as of March 31, 2018 and December 31, 2017: 

(in thousands)

Issuance/Pooling Date

 

Maturity Date

 

Interest Rate (1)

 

 

March 31, 2018

 

 

December 31, 2017

 

March 25, 2009

 

March 1, 2019

 

 

5.53%

 

 

$

18,400

 

 

$

18,400

 

September 23, 2009

 

September 1, 2019

 

 

4.64%

 

 

 

3,400

 

 

 

3,400

 

September 22, 2010

 

September 1, 2020

 

 

3.62%

 

 

 

6,500

 

 

 

6,500

 

September 22, 2010

 

September 1, 2020

 

 

3.50%

 

 

 

22,900

 

 

 

22,900

 

March 29, 2011

 

March 1, 2021

 

 

4.37%

 

 

 

28,750

 

 

 

28,750

 

September 21, 2011

 

September 1, 2021

 

 

3.16%

 

 

 

25,000

 

 

 

25,000

 

March 21, 2012

 

March 1, 2022

 

 

3.28%

 

 

 

25,000

 

 

 

25,000

 

March 21, 2012

 

March 1, 2022

 

 

3.05%

 

 

 

11,250

 

 

 

11,250

 

September 19, 2012

 

September 1, 2022

 

 

3.05%

 

 

 

24,250

 

 

 

24,250

 

March 27, 2013

 

March 1, 2023

 

 

3.16%

 

 

 

24,750

 

 

 

24,750

 

Total SBA Debentures

 

 

 

 

 

 

 

$

190,200

 

 

$

190,200

 

 

(1)

Interest rate includes annual charge

2019 Notes

In April and July 2012, the Company issued $84.5 million in aggregate principal amount of 7.00% notes due 2019 (the “April 2019 Notes”). In September and October 2012, the Company issued $85.9 million in aggregate principal amount of 7.00% notes due 2019 (the “September 2019 Notes”). The April 2019 Notes and September 2019 Notes are together referred to as the “2019 Notes.”

In April 2015, the Company redeemed $20.0 million of the $84.5 million issued and outstanding aggregate principal amount of April 2019 Notes, as previously approved by the Board of Directors. In December 2015, the Company redeemed $40.0 million of the $85.9 million issued and outstanding aggregate principal amount of September 2019 Notes, as previously approved by the Board of Directors. The remaining 2019 Notes were fully redeemed on February 24, 2017.

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the 2019 Notes are as follows:

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

 

 

$

1,159

 

Amortization of debt issuance cost (loan fees)

 

 

 

 

1,546

 

Total interest expense and fees

$

 

 

$

2,705

 

Cash paid for interest expense

$

 

 

$

1,911

 

2022 Notes

On October 23, 2017, the Company issued $150.0 million in aggregate principal amount of 4.625% Notes due 2022 (the “2022 Notes”). The 2022 Notes were issued pursuant to the Fourth Supplemental Indenture to the Base Indenture, dated October 23, 2017 (the “2022 Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee (the “2022 Trustee”). The sale of the 2022 Notes generated net proceeds of approximately $147.5 million, including a public offering discount of $826,500. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discounts and commissions of approximately $975,000, were approximately $1.7 million.

The 2022 Notes mature on October 23, 2022, unless previously repurchased in accordance with their terms. The 2022 Notes bear interest at a rate of 4.625% per year payable semiannually in arrears on April 23 and October 23 of each year, commencing on April 23, 2018.

The 2022 Notes are unsecured obligations of the Company that rank senior in right of payment to all of the Company’s existing and future indebtedness that is expressly subordinated, or junior, in right of payment to the 2022 Notes. The 2022 Notes are not guaranteed by any of the Company’s current or future subsidiaries. The 2022 Notes rank pari passu, or equally, in right of payment with all of the Company’s existing and future liabilities that are not so subordinated, or junior. The 2022 Notes effectively rank subordinated, or junior, to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness. The 2022 Notes rank structurally subordinated, or junior, to all existing and future indebtedness (including trade payables) incurred by subsidiaries, financing vehicles or similar facilities of the Company.

55


 

The Company may redeem some or all of the 2022 Notes at any time, or from time to time, at the redemption price set forth under the terms of the indenture after September 23, 2022. No sinking fund is provided for the 2022 Notes. The 2022 Notes were issued in denominations of $2,000 and integral multiples of $1,000 thereof. As of March 31, 2018, the Company was in compliance with the terms of the 2022 Notes Indenture.

As of March 31, 2018 and December 31, 2017, the components of the carrying value of the 2022 Notes were as follows:

 

(in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

Principal amount of debt

 

$

150,000

 

 

$

150,000

 

Unamortized debt issuance cost

 

 

(1,548

)

 

 

(1,633

)

Original issue discount, net of accretion

 

 

(754

)

 

 

(795

)

Carrying value of 2022 Notes

 

$

147,698

 

 

$

147,572

 

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the 2022 Notes are as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

1,734

 

 

$

 

Amortization of debt issuance cost (loan fees)

 

84

 

 

 

 

Accretion of original issue discount

 

41

 

 

 

 

Total interest expense and fees

$

1,859

 

 

$

 

Cash paid for interest expense

$

 

 

$

 

2024 Notes

On July 14, 2014, the Company and U.S. Bank, N.A. (the “2024 Trustee”), entered into the Third Supplemental Indenture (the “Third Supplemental Indenture”) to the Base Indenture between the Company and the 2024 Trustee, dated July 14, 2014, relating to the Company’s issuance, offer and sale of $100.0 million aggregate principal amount of 6.25% unsecured notes due 2024 (the “2024 Notes”). On August 6, 2014, the underwriters issued notification to exercise their over-allotment option for an additional $3.0 million in aggregate principal amount of the 2024 Notes.

On May 2, 2016, the Company closed an underwritten public offering of an additional $72.9 million in aggregate principal amount of the 2024 Notes. The $72.9 million in aggregate principal amount includes $65.4 million from the initial offering on April 21, 2016 and $7.5 million as a result of underwriters exercising a portion of their option to purchase up to an additional $9.8 million in aggregate principal to cover overallotments on April 29, 2016.

On June 27, 2016, the Company closed an underwritten public offering of an additional $60.0 million in aggregate principal amount of the 2024 Notes. On June 30, 2016, the underwriters exercised their option to purchase up to an additional $9.0 million in aggregate principal to cover overallotments, resulting in total aggregate principal of $69.0 million from the offering.

On October 11, 2016, the Company entered into a debt distribution agreement, pursuant to which it may offer for sale, from time to time, up to $150.0 million in aggregate principal amount of 2024 Notes through FBR Capital Markets & Co. acting as its sales agent (the “2024 Notes Agent”). Sales of the 2024 Notes may be made in negotiated transactions or transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act of 1933, as amended (the “Securities Act”), including sales made directly on the NYSE, or similar securities exchange or sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.

On October 24, 2017, the Board of Directors approved a redemption of $75.0 million of outstanding aggregate principal amount of the 2024 Notes, which were redeemed on November 23, 2017.

The 2024 Notes Agent receives a commission from the Company equal to up to 2.00% of the gross sales of any 2024 Notes sold through the 2024 Notes Agent under the debt distribution agreement. The 2024 Notes Agent is not required to sell any specific principal amount of 2024 Notes, but will use its commercially reasonable efforts consistent with its sales and trading practices to sell the 2024 Notes. The 2024 Notes are expected to trade “flat,” which means that purchasers in the secondary market will not pay, and sellers will not receive, any accrued and unpaid interest on the 2024 Notes that is not reflected in the trading price.

56


 

During the three months ended March 31, 2018, the Company did not sell any notes under the debt distribution agreement. During the year ended December 31, 2017, the Company sold 225,457 notes for approximately $5.6 million in aggregate principal amount. As of March 31, 2018 approximately $136.4 million in aggregate principal amount remains available for issuance and sale under the debt distribution agreement.

All issuances of 2024 Notes rank equally in right of payment and form a single series of notes.

The 2024 Notes will mature on July 30, 2024 and may be redeemed in whole or in part at the Company’s option at any time or from time to time on or after July 30, 2017, upon not less than 30 days nor more than 60 days written notice by mail prior to the date fixed for redemption thereof, at a redemption price of 100% of the outstanding principal amount thereof plus accrued and unpaid interest payments otherwise payable for the then-current quarterly interest period accrued to but not including the date fixed for redemption. The 2024 Notes bear interest at a rate of 6.25% per year payable quarterly on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2014, and trade on the NYSE under the trading symbol “HTGX.”

On February 9, 2018, the Company’s Board of Directors approved a redemption of $100.0 million of outstanding aggregate principal amount of the 2024 Notes and notice for such redemption was provided. The Company redeemed this portion of the 2024 Notes on April 2, 2018. See “Note 12 – Subsequent Events.”

The 2024 Notes are the Company’s direct unsecured obligations and rank: (i) pari passu with the Company’s other outstanding and future senior unsecured indebtedness; (ii) senior to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2024 Notes; (iii) effectively subordinated to all the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness; (iv) structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries.

The Base Indenture, as supplemented by the Third Supplemental Indenture, contains certain covenants including covenants requiring the Company to comply with (regardless of whether it is subject to) the asset coverage requirements set forth in Section 18 (a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act and to comply with the restrictions on dividends and other distributions as well as the purchase of capital stock set forth in Section 18(a)(1)(B) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act. These covenants are subject to important limitations and exceptions that are described in the Base Indenture, as supplemented by the Third Supplemental Indenture. The Base Indenture, as supplemented by the Third Supplemental Indenture, also contains certain reporting requirements, including a requirement that the Company provide financial information to the holders of the 2024 Notes and the 2024 Trustee if the Company should no longer be subject to the reporting requirements under the Exchange Act of 1934, as amended (the “Exchange Act”). The Base Indenture provides for customary events of default and further provides that the 2024 Trustee or the holders of 25% in aggregate principal amount of the outstanding 2024 Notes in a series may declare such 2024 Notes immediately due and payable upon the occurrence of any event of default after expiration of any applicable grace period. As of March 31, 2018, the Company was in compliance with the terms of the Base Indenture as supplemented by the Third Supplemental Indenture.

As of March 31, 2018 and December 31, 2017, the components of the carrying value of the 2024 Notes were as follows:

 

(in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

Principal amount of debt

 

$

183,510

 

 

$

183,510

 

Unamortized debt issuance cost

 

 

(4,417

)

 

 

(4,591

)

Original issue premium, net of amortization

 

 

68

 

 

 

82

 

Carrying value of 2024 Notes

 

$

179,161

 

 

$

179,001

 

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the 2024 Notes are as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

2,881

 

 

$

3,987

 

Amortization of debt issuance cost (loan fees)

 

174

 

 

 

249

 

Amortization of original issue premium

 

(13

)

 

 

(16

)

Total interest expense and fees

$

3,042

 

 

$

4,220

 

Cash paid for interest expense

$

2,867

 

 

$

3,977

 

 

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2021 Asset-Backed Notes

On November 13, 2014, the Company completed a $237.4 million term debt securitization in connection with which an affiliate of the Company made an offer of $129.3 million in aggregate principal amount of fixed rate asset-backed notes (the “2021 Asset-Backed Notes”), which were rated A(sf) by Kroll Bond Rating Agency, Inc. The 2021 Asset-Backed Notes were sold by Hercules Capital Funding Trust 2014-1 pursuant to a note purchase agreement, dated as of November 13, 2014, by and among the Company, Hercules Capital Funding 2014-1, LLC as trust depositor (the “2014 Trust Depositor”), Hercules Capital Funding Trust 2014-1 as issuer (the “2014 Securitization Issuer”), and Guggenheim Securities, LLC, as initial purchaser, and are backed by a pool of senior loans made to certain of the Company’s portfolio companies and secured by certain assets of those portfolio companies and are to be serviced by the Company. The securitization has an 18-month reinvestment period during which time principal collections may be reinvested into additional eligible loans. Interest on the 2021 Asset-Backed Notes is paid, to the extent of funds available, at a fixed rate of 3.524% per annum. The 2021 Asset-Backed Notes have a stated maturity of April 16, 2021.

As part of this transaction, the Company entered into a sale and contribution agreement with the 2014 Trust Depositor under which the Company has agreed to sell or have contributed to the 2014 Trust Depositor certain senior loans made to certain of the Company’s portfolio companies (the “2014 Loans”). The Company has made customary representations, warranties and covenants in the sale and contribution agreement with respect to the 2014 Loans as of the date of their transfer to the 2014 Trust Depositor.

In connection with the issuance and sale of the 2021 Asset-Backed Notes, the Company has made customary representations, warranties and covenants in the note purchase agreement. The 2021 Asset-Backed Notes are secured obligations of the 2014 Securitization Issuer and are non-recourse to the Company. The 2014 Securitization Issuer also entered into an indenture governing the 2021 Asset-Backed Notes, which includes customary representations, warranties and covenants. The 2021 Asset-Backed Notes were sold without being registered under the Securities Act (A) in the United States to “qualified institutional buyers” as defined in Rule 144A under the Securities Act and to institutional “accredited investors” (as defined in Rules 501(a)(1), (2), (3) or (7) under the Securities Act) who in each case, are “qualified purchasers” as defined in Section 2(a)(51)(A) of the 1940 Act and pursuant to an exemption under the Securities Act and (B) to non-U.S. purchasers acquiring interest in the 2021 Asset-Backed Notes outside the United States in accordance with Regulation S under the Securities Act. The 2014 Securitization Issuer is not registered under the 1940 Act in reliance on an exemption provided by Section 3(c)(7) thereof and Rule 3a-7 thereunder. In addition, the 2014 Trust Depositor entered into an amended and restated trust agreement in respect of the 2014 Securitization Issuer, which includes customary representation, warranties and covenants.

The 2014 Loans are serviced by the Company pursuant to a sale and servicing agreement, which contains customary representations, warranties and covenants. The Company performs certain servicing and administrative functions with respect to the 2014 Loans. The Company is entitled to receive a monthly fee from the 2014 Securitization Issuer for servicing the 2014 Loans. This servicing fee is equal to the product of one-twelfth (or in the case of the first payment date, a fraction equal to the number of days from and including October 5, 2014 through and including December 5, 2014 over 360) of 2.00% and the aggregate outstanding principal balance of the 2014 Loans plus collections on deposit in the 2014 Securitization Issuer’s collections account, as of the first day of the related collection period (the period from the 5th day of the immediately preceding calendar month through the 4th day of the calendar month in which a payment date occurs, and for the first payment date, the period from and including October 5, 2014, to the close of business on December 5, 2014).The Company also serves as administrator to the 2014 Securitization Issuer under an administration agreement, which includes customary representations, warranties and covenants.

At March 31, 2018 and December 31, 2017, the 2021 Asset-Backed Notes had an outstanding principal balance of $33.6 million and $49.2 million, respectively.

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the 2021 Asset-Backed Notes are as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

341

 

 

$

888

 

Amortization of debt issuance cost (loan fees)

 

83

 

 

 

210

 

Total interest expense and fees

$

424

 

 

$

1,098

 

Cash paid for interest expense

$

387

 

 

$

940

 

Under the terms of the 2021 Asset-Backed Notes, the Company is required to maintain a reserve cash balance, funded through interest and principal collections from the underlying securitized debt portfolio, which may be used to pay monthly interest and principal payments on the 2021 Asset-Backed Notes. The Company has segregated these funds and classified them as restricted cash. There was approximately $3.6 million and $3.7 million of restricted cash as of March 31, 2018 and December 31, 2017, respectively, funded through interest collections.

58


 

Convertible Notes

2022 Convertible Notes

On January 25, 2017, the Company issued $230.0 million in aggregate principal amount of 4.375% Convertible Notes due 2022 (the “2022 Convertible Notes”), which amount includes the additional $30.0 million aggregate principal amount of 2022 Convertible Notes issued pursuant to the initial purchaser’s exercise in full of its overallotment option. The 2022 Convertible Notes were issued pursuant to an Indenture, dated January 25, 2017 (the “2022 Convertible Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee (the “2022 Trustee”). The sale of the 2022 Convertible Notes generated net proceeds of approximately $225.5 million, including $4.5 million of debt issuance costs.

The 2022 Convertible Notes mature on February 1, 2022, unless previously converted or repurchased in accordance with their terms. The 2022 Convertible Notes bear interest at a rate of 4.375% per year payable semiannually in arrears on February 1 and August 1 of each year, commencing on August 1, 2017.

The 2022 Convertible Notes are unsecured obligations of the Company and rank senior in right of payment to the Company’s future indebtedness that is expressly subordinated in right of payment to the 2022 Convertible Notes; equal in right of payment to the Company’s existing and future indebtedness that is not so subordinated; effectively junior in right of payment to any of the Company’s secured indebtedness (including unsecured indebtedness that the Company later secures) to the extent of the value of the assets securing such indebtedness; and structurally junior to all existing and future indebtedness (including trade payables) incurred by the Company’s subsidiaries, financing vehicles or similar facilities.

Prior to the close of business on the business day immediately preceding August 1, 2021, holders may convert their 2022 Convertible Notes only under certain circumstances set forth in the 2022 Convertible Notes Indenture. On or after August 1, 2021 until the close of business on the scheduled trading day immediately preceding the maturity date, holders may convert their 2022 Convertible Notes at any time. Upon conversion, the Company will pay or deliver, as the case may be, at its election, cash, shares of its common stock or a combination of cash and shares of its common stock. The conversion rate is initially 60.9366 shares of common stock per $1,000 principal amount of 2022 Convertible Notes (equivalent to an initial conversion price of approximately $16.41 per share of common stock). The conversion rate will be subject to adjustment in some events but will not be adjusted for any accrued and unpaid interest. In addition, if certain corporate events occur prior to the maturity date, the Company will increase the conversion rate for a holder who elects to convert its 2022 Convertible Notes in connection with such a corporate event in certain circumstances. As of March 31, 2018, the conversion rate was 60.9366 shares of common stock per $1,000 principal amount of Convertible Senior Notes (equivalent to an adjusted conversion price of approximately $16.41 per share of common stock).

The Company may not redeem the 2022 Convertible Notes at its option prior to maturity. No sinking fund is provided for the 2022 Convertible Notes. In addition, if certain corporate events occur, holders of the 2022 Convertible Notes may require the Company to repurchase for cash all or part of their 2022 Convertible Notes at a repurchase price equal to 100% of the principal amount of the 2022 Convertible Notes to be repurchased, plus accrued and unpaid interest through, but excluding, the required repurchase date.

The 2022 Convertible Notes Indenture contains certain covenants, including covenants requiring the Company to comply with Section 18(a)(1)(A) of the 1940 Act as modified by Section 61(a)(1) of the 1940 Act and to provide financial information to the holders of the 2022 Convertible Notes and the 2022 Trustee if the Company ceases to be subject to the reporting requirements of the Exchange Act. These covenants are subject to important limitations and exceptions that are described in the 2022 Convertible Notes Indenture. The Company offered and sold the 2022 Convertible Notes to the initial purchaser in reliance on the exemption from registration provided by Section 4(a)(2) of the Securities Act, for resale by the initial purchaser to qualified institutional buyers (as defined in the Securities Act) pursuant to the exemption from registration provided by Rule 144A under the Securities Act. The Company relied on these exemptions from registration based in part on representations made by the initial purchaser in connection with the sale of the 2022 Convertible Notes.

The 2022 Convertible Notes are accounted for in accordance with ASC Subtopic 470-20 (“Debt Instruments with Conversion and Other Options”). In accounting for the 2022 Convertible Notes, the Company estimated at the time of issuance that the values of the debt and the embedded conversion feature of the 2022 Convertible Notes were approximately 98.5% and 1.5%, respectively. The original issue discount of 1.5%, or $3.4 million, attributable to the conversion feature of the 2022 Convertible Notes was recorded in “capital in excess of par value” in the Consolidated Statement of Assets and Liabilities. As a result, the Company records interest expense comprised of both stated interest expense as well as accretion of the original issue discount resulting in an estimated effective interest rate of approximately 4.76%.

59


 

As of  March 31, 2018 and December 31, 2017, the components of the carrying value of the 2022 Convertible Notes were as follows:

 

(in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

Principal amount of debt

 

$

230,000

 

 

$

230,000

 

Unamortized debt issuance cost

 

 

(3,492

)

 

 

(3,715

)

Original issue discount, net of accretion

 

 

(2,630

)

 

 

(2,797

)

Carrying value of 2022 Convertible Notes

 

$

223,878

 

 

$

223,488

 

For the three months ended March 31, 2018 and 2017, the components of interest expense, fees and cash paid for interest expense for the 2022 Convertible notes were as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

2,516

 

 

$

1,758

 

Amortization of debt issuance cost (loan fees)

 

223

 

 

 

133

 

Accretion of original issue discount

 

168

 

 

 

112

 

Total interest expense and fees

$

2,907

 

 

$

2,003

 

Cash paid for interest expense

$

5,031

 

 

$

 

As of March 31, 2018, the Company is in compliance with the terms of the indentures governing the 2022 Convertible Notes.

Credit Facilities

As of March 31, 2018, and December 31, 2017, the Company has two available credit facilities, the Wells Facility and the Union Bank Facility.

Wells Facility

On June 29, 2015, the Company, through a special purpose wholly owned subsidiary, Hercules Funding II LLC (“Hercules Funding II”), entered into an Amended and Restated Loan and Security Agreement (the “Wells Facility”) with Wells Fargo Capital Finance, LLC, as a lender and as the arranger and the administrative agent, and the lenders party thereto from time to time.

The Wells Facility matures on August 2, 2019, unless terminated sooner in accordance with its terms.

Under the Wells Facility, Wells Fargo Capital Finance, LLC made commitments of $75.0 million, Alostar Bank of Commerce made commitments of $20.0 million, and Everbank Commercial Finance Inc. made commitments of $25.0 million. The Wells Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $300.0 million, funded by additional lenders and with the agreement of Wells Fargo and subject to other customary conditions. The Company expects to continue discussions with various other potential lenders to join the facility; however, there can be no assurances that additional lenders will join the Wells Facility. Borrowings under the Wells Facility generally bear interest at a rate per annum equal to LIBOR plus 3.25%, and the Wells Facility has an advance rate of 50% against eligible debt investments. The Wells Facility is secured by all of the assets of Hercules Funding II. The Wells Facility requires payment of a non-use fee on a scale of 0.0% to 0.50% depending on the average monthly outstanding balance under the facility relative to the maximum amount of commitments at such time. For the three months ended March 31, 2018 and 2017, this non-use fee was $150,000 and $145,000, respectively.

The Wells Facility also includes various financial and other covenants applicable to the Company and the Company’s subsidiaries, in addition to those applicable to Hercules Funding II, including covenants relating to certain changes of control of the Company and Hercules Funding II. Among other things, these covenants also require the Company to maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimum tangible net worth in an amount, when added to outstanding subordinated indebtedness, that is in excess of $500.0 million plus 90% of the cumulative amount of equity raised after June 30, 2014.

As of March 31, 2018, the minimum tangible net worth covenant increased to $742.7 million as a result of the public offering of 18.2 million shares of common stock issued for a total gross proceeds of approximately $242.8 million under an At-The-Market (“ATM”) equity distribution agreement (the “Prior Equity Distribution Agreement”) with JMP Securities (“JMP”) through February 2017, and a new ATM equity distribution agreement in September 2017 (the “Equity Distribution Agreement”) with JMP for the issuance of 1.6 million shares for gross proceeds of $20.5 million during 2017, and the issuance of 478,000 shares for gross proceeds of $6.3 million during the three months ended March 31, 2018. See “Note 6 – Stockholder’s Equity.”

60


 

The Wells Facility provides for customary events of default, including, without limitation, with respect to payment defaults, breach of representations and covenants, certain key person provisions, cross acceleration provisions to certain other debt, lien and judgment limitations, and bankruptcy.

On June 20, 2011, the Company paid $1.1 million in structuring fees in connection with the original Wells Facility. In connection with an amendment to the original Wells Facility in August 2014, the Company paid an additional $750,000 in structuring fees and in connection with the amendment in December 2015, the Company paid an additional $188,000 in structuring fees. These fees are being amortized through the end of the term of the Wells Facility.

The Company did not make any draws or repayments on the available facility during the three months ended March 31, 2018. The Company had aggregate draws of $8.5 million on the available facility during the three months ended March 31, 2017 offset by repayments of $13.5 million. There were no borrowings outstanding on the facility as of March 31, 2018 and December 31, 2017.

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the Wells Facility are as follows:

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

 

 

$

2

 

Amortization of debt issuance cost (loan fees)

 

44

 

 

 

107

 

Total interest expense and fees

$

44

 

 

$

109

 

Cash paid for interest expense

$

 

 

$

256

 

Union Bank Facility

On May 5, 2016, the Company, through a special purpose wholly owned subsidiary, Hercules Funding III LLC (“Hercules Funding III”), as borrower, entered into the credit facility (the “Union Bank Facility”) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Union Bank Facility from time to time. The Union Bank Facility replaced the company’s credit facility (the “Prior Union Bank Facility”) entered into on August 14, 2014 (as amended and restated from time to time) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Prior Union Bank Facility from time to time.  Any references to amounts related to the Union Bank Facility prior to May 5, 2016 were incurred and relate to the Prior Union Bank Facility.

On July 18, 2016, the Company entered into the First Amendment to the Loan and Security Agreement, dated as of May 5, 2016 with MUFG Union Bank, N.A. The Amendment amends certain definitions relating to borrowings which accrue interest based on the London Interbank Offered Rate (“LIBOR Loans”) and (ii) the method(s) for calculating interest on and the paying of certain fees related to such LIBOR Loans.

Under the Union Bank Facility, MUFG Union Bank made commitments of $75.0 million. The Union Bank Facility contains an accordion feature, in which the Company can increase the credit line up to an aggregate of $200.0 million, funded by additional lenders and with the agreement of MUFG Union Bank and subject to other customary conditions. There can be no assurances that additional lenders will join the Union Bank Facility to increase available borrowings. Borrowings under the Union Bank Facility generally bear interest at either (i) if such borrowing is a base rate loan, a base rate per annum equal to the federal funds rate plus 1.00%, LIBOR plus 1.00% or MUFG Union Bank’s prime rate, in each case, plus a margin of 1.25% or (ii) if such borrowing is a LIBOR loan, a rate per annum equal to LIBOR plus 3.25%, and the Union Bank Facility generally has an advance rate of 50% against eligible debt investments. The Union Bank Facility is secured by all of the assets of Hercules Funding III.

The Company paid a one-time $562,500 structuring fee in connection with the Union Bank Facility. The Union Bank Facility requires payment of a non-use fee during the revolving credit availability period on a scale of 0.25% to 0.50% depending on the average monthly outstanding balance under the facility relative to the maximum amount of commitments at such time. For the three months ended March 31, 2018, the company incurred non-use fees of $94,000. For the three months ended March 31, 2017, the company incurred non-use fees under the Prior Union Bank Facility of $94,000.

The Union Bank Facility also includes various financial and other covenants applicable to the Company and its subsidiaries, in addition to those applicable to Hercules Funding III, including covenants relating to certain changes of control of the Company and Hercules Funding III. Among other things, these covenants also require the Company to maintain certain financial ratios, including a maximum debt to worth ratio, minimum interest coverage ratio, minimum portfolio funding liquidity, and a minimum tangible net worth in an amount that is in excess of $500.0 million plus 90% of the cumulative amount of equity raised after June 30, 2014.

As of March 31, 2018, the minimum tangible net worth covenant increased to $789.2 million as a result the public offering of 18.2 million shares of common stock issued for a total net proceeds of approximately $239.8 million under the Prior Equity

61


 

Distribution Agreement through February 2017, and the issuance of 1.6 million shares for net proceeds of $20.0 million during 2017, and the issuance of 478,000 shares for net proceeds of $6.0 million during the three months ended March 31, 2018 under the Equity Distribution Agreement.  See “Note 6 - Stockholder’s Equity.”

The Union Bank Facility provides for customary events of default, including with respect to payment defaults, breach of representations and covenants, servicer defaults, certain key person provisions, cross default provisions to certain other debt, lien and judgment limitations, and bankruptcy.

The Union Bank Facility matures on May 5, 2020, unless terminated sooner in accordance with its terms.

In connection with the Union Bank Facility, the Company and Hercules Funding III also entered into the Sale Agreement, by and among Hercules Funding III, as borrower, the Company, as originator and servicer, and MUFG Union Bank, as agent. Under the Sale Agreement, the Company agrees to (i) sell or transfer certain loans to Hercules Funding III under the MUFG Union Bank Facility and (ii) act as servicer for the loans sold or transferred.

The Company did not make any draws or repayments on the available facility during the three months ended March 31, 2018 and 2017. At March 31, 2018 and December 31, 2017, there were no borrowings outstanding on the Union Bank Facility.

For the three months ended March 31, 2018 and 2017, the components of interest expense and related fees and cash paid for interest expense for the previous and current Union Bank Facility are as follows:

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Interest expense

$

 

 

$

 

Amortization of debt issuance cost (loan fees)

 

74

 

 

 

112

 

Total interest expense and fees

$

74

 

 

$

112

 

Cash paid for interest expense

$

 

 

$

 

 

5. Income Taxes

The Company intends to operate so as to qualify to be subject to tax as a RIC under Subchapter M of the Code and, as such, will not be subject to U.S. federal income tax on the portion of taxable income (including gains) distributed as dividends for U.S. federal income tax purposes to stockholders. Taxable income includes the Company’s taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses, and generally excludes net unrealized appreciation or depreciation, as such gains or losses are not included in taxable income until they are realized.

To qualify and be subject to tax as a RIC, the Company is required to meet certain income and asset diversification tests in addition to distributing dividends 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 distributions paid, to its stockholders. The amount to be paid out as a distribution is determined by the Board of Directors each quarter and is based upon the annual earnings estimated by the management of the Company. To the extent that the Company’s earnings fall below the amount of dividend distributions declared, however, a portion of the total amount of the Company’s distributions for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders.

During the three months ended March 31, 2018, the Company declared a distribution of $0.31 per share. The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s taxable year generally based upon its taxable income for the full taxable year and distributions paid for the full taxable year. As a result, a determination made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full taxable year. If the Company had determined the tax attributes of our distributions taxable year-to-date as of March 31, 2018, 100% would be from our current and accumulated earnings and profits. However, there can be no certainty to stockholders that this determination is representative of what the actual tax attributes of the Company’s 2018 distributions to stockholders will be.

As a RIC, the Company will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income unless the Company makes distributions treated as dividends for U.S. federal income tax purposes in a timely manner to its stockholders in respect of each calendar year of an amount at least equal to the sum of (1) 98% of the Company’s ordinary income (taking into account certain deferrals and elections) for each calendar year, (2) 98.2% of the Company’s capital gain net income (adjusted for certain ordinary losses) for the 1-year period ending October 31 of each such calendar year and (3) any ordinary income and capital gain net income realized, but not distributed, in preceding calendar years. The Company will not be subject to this excise tax on any amount on which the Company incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

62


 

Depending on the level of taxable income earned in a taxable year, the Company may choose to carry over taxable income in excess of current taxable year distributions from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent the Company chooses to carry over taxable income into the next taxable year, distributions declared and paid by the Company in a taxable year may differ from the Company’s taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.

The Company has taxable subsidiaries which hold certain portfolio investments in an effort to limit potential legal liability and/or comply with source-income type requirements contained in the RIC tax provisions of the Code. These taxable subsidiaries are consolidated for U.S. GAAP and the portfolio investments held by the taxable subsidiaries are included in the Company’s consolidated financial statements, and are recorded at fair value. These taxable subsidiaries are not consolidated with the Company for income tax purposes and may generate income tax expense, or benefit, and tax assets and liabilities as a result of their ownership of certain portfolio investments. Any income generated by these taxable subsidiaries generally would be subject to tax at normal corporate tax rates based on its taxable income.

Taxable income for the three months ended March 31, 2018 was approximately $23.6 million or $0.28 per share. Taxable net realized gains for the same period were $219,000 or approximately $0.00 per share. Taxable income for the three months ended March 31, 2017 was approximately $20.5 million or $0.25 per share. Taxable net realized gains for the same period were $3.9 million or approximately $0.05 per share.

For the three months ended March 31, 2018, the Company paid approximately $667,000 of tax expense and had no accrued but unpaid tax expense as of the balance sheet date. For the three months ended March 31, 2017, the Company paid approximately $1.0 million of tax expense and had no accrued but unpaid tax expense as of the balance sheet date.

The Company intends to distribute 100% of spillover earnings from ordinary income from the Company’s taxable year ended December 31, 2017 to the Company’s stockholders during 2018.

6. Stockholder’s Equity

On August 16, 2013, the Company entered into the Prior Equity Distribution Agreement. On March 7, 2016, the Company renewed the Prior Equity Distribution Agreement and on December 21, 2016, we further amended the agreement to increase the total shares available under the program. The Prior Equity Distribution Agreement, as amended, provided that the Company may offer and sell up to 12.0 million shares of its common stock from time to time through JMP, as its sales agent.

On September 7, 2017, the Company terminated the Prior Equity Distribution Agreement and entered into the new Equity Distribution Agreement. As a result, the remaining shares that were available under the Prior Equity Distribution agreement are no longer available for issuance. The Equity Distribution Agreement provides that the Company may offer and sell up to 12.0 million shares of its common stock from time to time through JMP, as its sales agent. Sales of the Company’s common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.

During the three months ended March 31, 2018, the Company sold 478,000 shares of common stock for total accumulated net proceeds of approximately $6.0 million, including $312,000 of offering expenses under the Equity Distribution Agreement.

During the three months ended March 31, 2017, the Company sold 3.3 million shares of common stock under the Prior Equity Distribution Agreement for total accumulated net proceeds of approximately $46.9 million, including $495,000 of offering expenses.

The Company generally uses net proceeds from these offerings to make investments, to repurchase or pay down liabilities and for general corporate purposes. As of March 31, 2018, approximately 9.9 million shares remain available for issuance and sale under the Equity Distribution Agreement. See “Note 12 – Subsequent Events.”

The Company has issued stock options for common stock subject to future issuance, of which 542,690 and 590,525 were outstanding at March 31, 2018 and December 31, 2017, respectively.

 


63


 

7. Equity Incentive Plan

The Company and its stockholders have authorized and adopted the 2004 Equity Incentive Plan (the “2004 Plan”) for purposes of attracting and retaining the services of its executive officers and key employees. Under the 2004 Plan, the Company is authorized to issue 12.0 million shares of common stock.

The Company and its stockholders have authorized and adopted the 2006 Non-Employee Director Plan (the “2006 Plan” and, together with the 2004 Plan, the “Plans”) for purposes of attracting and retaining the services of its Board of Directors. On June 21, 2017, the 2006 Plan expired in accordance with its terms and no additional awards may be granted under the 2006 Plan. In the future, we may adopt a Non-Employee Director Plan that, among other things, provides for the issuance of restricted stock to directors. Under the 2006 Plan, the Company is authorized to issue 1.0 million shares of common stock. The Company filed an exemptive relief request with the Securities and Exchange Commission (“SEC”) to allow options to be issued under the 2006 Plan which was approved on October 10, 2007.

On June 21, 2007, the stockholders approved amendments to the 2004 Plan and the 2006 Plan allowing for the grant of restricted stock. The amended Plans limit the combined maximum amount of restricted stock that may be issued under both Plans to 10% of the outstanding shares of the Company’s stock on the effective date of the Plans plus 10% of the number of shares of stock issued or delivered by the Company during the terms of the Plans. The amendments further specify that no one person shall be granted awards of restricted stock relating to more than 25% of the shares available for issuance under the 2004 Plan. Further, the amount of voting securities that would result from the exercise of all of the Company’s outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 25% of its outstanding voting securities, except that if the amount of voting securities that would result from such exercise of all of the Company’s outstanding warrants, options and rights issued to the Company’s directors, officers and employees, together with any restricted stock issued pursuant to the Plans, would exceed 15% of the Company’s outstanding voting securities, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 20% of the Company’s outstanding voting securities.

During 2012, the Compensation Committee adopted a policy that provided for awards with different vesting schedules for short and long-term awards. All restricted stock grants under the 2004 Plan made prior to March 4, 2013 continue to vest on a monthly basis following their one year anniversary over the succeeding 36 months. Under the 2004 Plan, restricted stock awarded subsequent to March 3, 2013 vests subject to continued employment based on two vesting schedules: short-term awards vest one-half on the one year anniversary of the date of the grant and quarterly over the succeeding 12 months, and long-term awards vest one-fourth on the one year anniversary of the date of grant and quarterly over the succeeding 36 months. No restricted stock was granted pursuant to the 2004 Plan prior to 2009.

On December 29, 2016, the Company’s Board of Directors approved a further amendment and restatement of the 2004 Plan. The amended plan provides, in addition to the preexisting types of awards available for grant thereunder and among other things, (1) for the grant of restricted stock units; (2) for the deferral of the receipt of the shares of the Company’s common stock underlying vested restricted stock units; (3) that grantees may receive up to 10% of the value of the tentative restricted stock unit grants proposed for any grantee in the form of an option to acquire shares of the Company’s common stock; (4) that awards of restricted stock units may include performance vesting conditions; (5) that awards may require that all or a portion of the shares of the Company’s common stock delivered in respect of any vested restricted stock unit award be subject to a specified post-delivery holding period; and (6) that restricted stock unit awards may accrue distribution equivalents in respect of the Company’s common stock underlying any restricted stock unit award payable in the form of cash or additional shares of the Company’s common stock to the extent, and in respect of, any vested restricted stock units.

The following table summarizes the common stock option activities for the three months ended March 31, 2018 and 2017:

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

 

Common

Stock

Options

 

 

Weighted

Average

Exercise Price

 

 

Common

Stock

Options

 

 

Weighted

Average

Exercise Price

 

Outstanding at December 31,

 

590,525

 

 

$

13.60

 

 

 

668,171

 

 

$

13.73

 

Granted

 

22,000

 

 

$

12.11

 

 

 

56,000

 

 

$

14.56

 

Exercised

 

(38,208

)

 

$

11.31

 

 

 

(24,023

)

 

$

11.23

 

Forfeited

 

(20,628

)

 

$

13.41

 

 

 

(4,723

)

 

$

10.46

 

Expired

 

(10,999

)

 

$

14.39

 

 

 

 

 

$

 

Outstanding at March 31,

 

542,690

 

 

$

13.69

 

 

 

695,425

 

 

$

13.91

 

Shares Expected to Vest at March 31,

 

176,076

 

 

$

13.69

 

 

 

297,487

 

 

$

13.91

 

64


 

The following table summarizes common stock options outstanding and exercisable at March 31, 2018: 

(Dollars in thousands,

except exercise price)

 

Options Outstanding

 

 

Options Exercisable

 

Range of exercise prices

 

Number of

shares

 

 

Weighted

Average

Remaining

Contractual Life

 

 

Aggregate

Intrinsic

Value

 

 

Weighted

Average

Exercise

Price

 

 

Number

of shares

 

 

Weighted

Average

Remaining

Contractual Life

 

 

Aggregate

Intrinsic

Value

 

 

Weighted

Average

Exercise

Price

 

$9.25 - $14.02

 

 

305,884

 

 

 

5.67

 

 

$

115,163

 

 

$

12.35

 

 

 

157,004

 

 

 

5.13

 

 

$

87,521

 

 

$

12.07

 

$14.56 - $16.34

 

 

236,806

 

 

 

3.70

 

 

 

 

 

$

15.42

 

 

 

209,610

 

 

 

3.40

 

 

 

 

 

$

15.49

 

$9.25 - $16.34

 

 

542,690

 

 

 

4.81

 

 

$

115,163

 

 

$

13.69

 

 

 

366,614

 

 

 

4.14

 

 

$

87,521

 

 

$

14.02

 

 

Options generally vest 33% one year after the date of grant and ratably over the succeeding 24 months.

All options may be exercised for a period ending seven years after the date of grant. At March 31, 2018 options for 366,614 shares were exercisable at a weighted average exercise price of approximately $14.02 per share with a weighted average remaining contractual term of 4.14 years.

The Company determined that the fair value of options granted under the Plans during the three months ended March 31, 2018 and 2017 was approximately $12,000 and $40,000, respectively. During the three months ended March 31, 2018 and 2017, approximately $14,000 and $20,000 of share-based cost due to stock option grants was expensed, respectively. As of March 31, 2018, there was approximately $85,000 of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average remaining vesting period of 1.91 years.

The Company follows ASC Topic 718 (“Compensation – Stock Compensation”) to account for stock options granted. Under ASC Topic 718, compensation expense associated with stock-based compensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility, forfeiture rate and expected option life. The fair value of options granted is based upon a Black Scholes option pricing model using the assumptions in the following table for the three months ended March 31, 2018 and 2017:

 

 

Three Months Ended March 31,

 

 

 

2018

 

 

2017

 

Expected Volatility

 

21.19%

 

 

23.07%

 

Expected Dividends

 

 

10%

 

 

 

10%

 

Expected term (in years)

 

 

4.5

 

 

 

4.5

 

Risk-free rate

 

2.19% - 2.64%

 

 

1.70% - 2.02%

 

 

During the three months ended March 31, 2018 and 2017, the Company granted 334,995 shares and 4,464 shares, respectively, of restricted stock awards pursuant to the Plans. The Company determined that the fair value of restricted stock awards granted under the Plans during the three months ended March 31, 2018 and 2017 was approximately $4.4 million and $65,000, respectively. As of March 31, 2018, there was approximately $5.7 million of total unrecognized compensation costs related to restricted stock awards. These costs are expected to be recognized over a weighted average remaining vesting period of 2.22 years.

The following table summarizes the activities for the Company’s unvested restricted stock awards for the three months ended March 31, 2018 and 2017:

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

 

Restricted

Stock Awards

 

 

Weighted Average

Grant Date

Fair Value

 

 

Restricted

Stock Awards

 

 

Weighted Average

Grant Date

Fair Value

 

Unvested at December 31,

 

261,245

 

 

$

12.43

 

 

 

799,558

 

 

$

12.54

 

Granted

 

334,995

 

 

$

13.04

 

 

 

4,464

 

 

$

14.56

 

Vested

 

(83,054

)

 

$

13.03

 

 

 

(240,299

)

 

$

12.42

 

Forfeited

 

(1,168

)

 

$

12.01

 

 

 

(1,602

)

 

$

13.60

 

Unvested at March 31,

 

512,018

 

 

$

12.73

 

 

 

562,121

 

 

$

12.61

 

During the three months ended March 31, 2018, and 2017, the Company granted 411,689 shares and 600,461 shares of restricted stock units pursuant to the Plans based on the December 2016 amended terms. The Company determined that the fair value of restricted stock units granted under the Plans during the three months ended March 31, 2018 and 2017, was approximately $5.4 million and $8.5 million. As of March 31, 2018, there was approximately $9.6 million of total unrecognized compensation costs related to restricted stock units. These costs are expected to be recognized over a weighted average remaining vesting period of 2.32 years.

65


 

The following table summarizes the activities for the Company’s unvested restricted stock units for the three months ended March 31, 2018:

 

Three Months Ended March 31,

 

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

 

Restricted

Stock Units

 

 

Weighted Average

Grant Date

Fair Value

 

 

Restricted

Stock Units

 

 

Weighted Average

Grant Date

Fair Value

 

Unvested at December 31,

 

594,322

 

 

$

12.99

 

 

 

 

 

$

 

Granted

 

411,689

 

 

$

13.04

 

 

 

600,461

 

 

$

13.94

 

Distribution Equivalent Unit Granted

 

20,386

 

 

$

12.42

 

 

 

11,788

 

 

$

13.94

 

Vested (1)

 

(198,006

)

 

$

12.91

 

 

 

 

 

$

 

Forfeited

 

(3,544

)

 

$

12.66

 

 

 

(1,078

)

 

$

13.92

 

Unvested at March 31,

 

824,847

 

 

$

12.69

 

 

 

611,171

 

 

$

13.94

 

 

(1)

Pursuant to the December 29, 2016 amendment and restatement of the 2004 plan, receipt of the shares of the Company’s common stock underlying vested restricted stock units will be deferred for 4 years from grant date unless certain conditions are met. As such, vested restricted stock units will not be issued as common stock upon vesting until the completion of the deferral period.  

During the three months ended March 31, 2018, the Company expensed approximately $2.3 million of compensation expense related to restricted stock awards and restricted stock units. The Company had approximately $1.8 million in compensation expense related to restricted stock awards during the three months ended March 31, 2017.

The SEC, through an exemptive order granted on June 22, 2010, approved amendments to the Plans which allow participants to elect to have the Company withhold shares of the Company’s common stock to pay for the exercise price and applicable taxes with respect to an option exercise (“net issuance exercise”). The exemptive order also permits the holders of restricted stock to elect to have the Company withhold shares of the Company’s stock to pay the applicable taxes due on restricted stock at the time of vesting. Each individual can make a cash payment at the time of option exercise or to pay taxes on restricted stock.

8. Earnings Per Share

Shares used in the computation of the Company’s basic and diluted earnings per share are as follows:

 

 

 

Three Months Ended March 31,

 

(in thousands, except per share data)

 

2018

 

 

2017

 

Numerator

 

 

 

 

 

 

 

 

Net increase in net assets resulting from operations

 

$

5,946

 

 

$

(5,588

)

Less: Distributions declared-common and restricted shares

 

 

(26,419

)

 

 

(25,667

)

Undistributed earnings

 

 

(20,473

)

 

 

(31,255

)

Undistributed earnings-common shares

 

 

(20,473

)

 

 

(31,255

)

Add: Distributions declared-common shares

 

 

26,247

 

 

 

25,479

 

Numerator for basic and diluted change in net assets per common share

 

$

5,774

 

 

$

(5,776

)

 

 

 

 

 

 

 

 

 

Denominator

 

 

 

 

 

 

 

 

Basic weighted average common shares outstanding

 

 

84,596

 

 

 

81,420

 

Common shares issuable

 

 

70

 

 

 

 

Weighted average common shares outstanding assuming dilution

 

 

84,666

 

 

 

81,420

 

 

 

 

 

 

 

 

 

 

Change in net assets per common share

 

 

 

 

 

 

 

 

Basic

 

$

0.07

 

 

$

(0.07

)

Diluted

 

$

0.07

 

 

$

(0.07

)

 

In the table above, unvested share-based payment awards that have non-forfeitable rights to distributions or distribution equivalents are treated as participating securities for calculating earnings per share. Unvested common stock options and restricted stock units are also considered for the purpose of calculating diluted earnings per share.

 

For the three months ended March 31, 2018 and 2017, the effect of the 2022 Convertible Notes under the treasury stock method is anti-dilutive and, accordingly, is excluded from the calculation of diluted earnings per share.

 

66


 

The calculation of change in net assets resulting from operations per common share—assuming dilution, excludes all anti-dilutive shares. For the three months ended March 31, 2018, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, consisted of 4.3 million shares related to 2022 Convertible Notes, 73,024 shares of unvested common stock options, and no shares of unvested restricted stock units. For the three months ended March 31, 2017, the number of anti-dilutive shares, as calculated based on the weighted average closing price of the Company’s common stock for the periods, consisted of 1.2 million shares related to 2022 Convertible Notes, 72,796 shares of unvested common stock options, and 30,649 shares of unvested restricted stock units.

At March 31, 2018 and December 31, 2017, the Company was authorized to issue 200.0 million shares of common stock with a par value of $0.001. Each share of common stock entitles the holder to one vote.

9. Financial Highlights

Following is a schedule of financial highlights for the three months ended March 31, 2018 and 2017:

 

 

Three Months Ended March 31,

 

 

2018

 

 

2017

 

Per share data (1):

 

 

 

 

 

 

 

Net asset value at beginning of period

$

9.96

 

 

$

9.90

 

Net investment income

 

0.31

 

 

 

0.28

 

Net realized gain (loss) on investments

 

(0.06

)

 

 

0.04

 

Net unrealized appreciation (depreciation) on investments

 

(0.18

)

 

 

(0.39

)

Total from investment operations

 

0.07

 

 

 

(0.07

)

Net increase (decrease) in net assets from capital share transactions (1)

 

(0.03

)

 

 

0.22

 

Distributions of net investment income (6)

 

(0.31

)

 

 

(0.31

)

Distributions of capital gains (6)

 

 

 

 

 

Stock-based compensation expense included in investment income (2)

 

0.03

 

 

 

0.02

 

Net asset value at end of period

$

9.72

 

 

$

9.76

 

 

 

 

 

 

 

 

 

Ratios and supplemental data:

 

 

 

 

 

 

 

Per share market value at end of period

$

12.10

 

 

$

15.13

 

Total return (3)

 

(5.44

%)

 

 

9.47

%

Shares outstanding at end of period

 

85,239

 

 

 

82,801

 

Weighted average number of common shares outstanding

 

84,596

 

 

 

81,420

 

Net assets at end of period

$

828,731

 

 

$

807,896

 

Ratio of total expense to average net assets (4)

 

10.64

%

 

 

11.48

%

Ratio of net investment income before investment gains and losses to average net assets (4)

 

12.25

%

 

 

10.99

%

Portfolio turnover rate (5)

 

15.62

%

 

 

10.89

%

Weighted average debt outstanding

$

795,060

 

 

$

785,915

 

Weighted average debt per common share

$

9.40

 

 

$

9.65

 

 

(1)

All per share activity is calculated based on the weighted average shares outstanding for the relevant period, except net increase (decrease) in net assets from capital share transactions, which is based on the common shares outstanding as of the relevant balance sheet date.

(2)

Stock option expense is a non-cash expense that has no effect on net asset value. Pursuant to ASC Topic 718 (“Compensation – Stock Compensation”), net investment income includes the expense associated with the granting of stock options which is offset by a corresponding increase in paid-in capital.

(3)

The total return for the three months ended March 31, 2018 and 2017 equals the change in the ending market value over the beginning of the period price per share plus distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. As such, the total return is not annualized. The total return does not reflect any sales load that must be paid by investors.

(4)

These ratios are calculated based on weighted average net assets for the relevant period and are annualized. The ratio of total expense to average net assets for the period ended March 31, 2017 was incorrectly computed. The ratio was revised from 7.99% as previously disclosed to 11.48% as adjusted. The ratio was incorrectly computed for June 30, 2017 as well. It will be revised from 7.63% as previously disclosed to 11.24% in the June 30, 2018 Consolidated Financial Statements.

(5)

The portfolio turnover rate for the three months ended March 31, 2018 and 2017 equals the lesser of investment portfolio purchases or sales during the period, divided by the average investment portfolio value during the period. As such, portfolio turnover rate is not annualized.

(6)

Includes distributions on unvested shares.


67


 

10. Commitments and Contingencies

 

The Company’s commitments and contingencies consist primarily of unused commitments to extend credit in the form of loans to the Company’s portfolio companies. A portion of these unfunded contractual commitments are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, the Company’s credit agreements contain customary lending provisions which allow the Company relief from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the Company. Since a portion of these commitments may expire without being drawn, unfunded contractual commitments do not necessarily represent future cash requirements. As such, the Company’s disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones.

At March 31, 2018, the Company had approximately $51.9 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by milestones.

The Company also had approximately $174.0 million of non-binding term sheets outstanding at March 31, 2018. Non-binding outstanding term sheets are subject to completion of the Company’s due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

The fair value of the Company’s unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing agreements.

As of March 31, 2018, the Company’s unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and unencumbered by milestones are as follows:

(in thousands)

 

 

 

 

Portfolio Company

 

Unfunded

Commitments (1)

 

Chemocentryx, Inc.

 

$

10,000

 

Evernote Corporation

 

 

10,000

 

Proterra, Inc.

 

 

10,000

 

Impact Radius Holdings, Inc.

 

 

5,000

 

Wrike, Inc.

 

 

5,000

 

Achronix Semiconductor Corporation

 

 

5,000

 

Oak Street Health

 

 

5,000

 

Lithium Technologies, Inc.

 

 

878

 

Greenphire

 

 

500

 

Insurance Technologies Corp.

 

 

500

 

Total

 

$

51,878

 

 

(1)

Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones.

Certain premises are leased or licensed under agreements which expire at various dates through June 2027. Total rent expense amounted to approximately $451,000 and $444,000 during the three months ended March 31, 2018 and 2017.

68


 

The Company’s contractual obligations as of March 31, 2018 include:  

 

 

Payments due by period (in thousands)

 

Contractual Obligations (1)

 

Total

 

 

Less than 1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

After 5 years

 

Borrowings (2)(3)(5)

 

$

787,285

 

 

$

151,975

 

 

$

61,550

 

 

$

490,250

 

 

$

83,510

 

Operating Lease Obligations (4)

 

 

17,290

 

 

 

2,436

 

 

 

5,005

 

 

 

5,912

 

 

 

3,937

 

Total

 

$

804,575

 

 

$

154,411

 

 

$

66,555

 

 

$

496,162

 

 

$

87,447

 

 

(1)

Excludes commitments to extend credit to the Company’s portfolio companies.

(2)

Includes $190.2 million in principal outstanding under the SBA debentures, $150.0 million of the 2022 Notes, $183.5 million of the 2024 Notes, $33.6 million of the 2021 Asset-Backed Notes and $230.0 million of the 2022 Convertible Notes as of March 31, 2018.

(3)

Amounts represent future principal repayments and not the carrying value of each liability. See Note 4 to the Company’s consolidated financial statements.

(4)

Facility leases and licenses.

(5)

Reflects announced redemption of a portion of the 2024 Notes in April 2018. See “Note 4 – Borrowings.”

The Company may, from time to time, be involved in litigation arising out of its operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on the Company in connection with the activities of its portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, the Company does not expect any current matters will materially affect the Company’s financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on the Company’s financial condition or results of operations in any future reporting period.

11. Recent Accounting Pronouncements

In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which, among other things, requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU changes the disclosure requirements for financial instruments.  ASU 2016-01 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017. The Company has adopted this standard, which did not have a material impact, on its consolidated financial statements and related disclosures for the periods presented.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which, among other things, requires recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Additionally, the ASU requires the classification of all cash payments on leases within operating activities in the Consolidated Statement of Cash Flows.  ASU 2016-02 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2018. Early adoption is permitted. The Company anticipates an increase in the recognition of right-of-use assets and lease liabilities, however, the Company does not believe that ASU 2016-02 will have a material impact on its consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs.  ASU 2016-15 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017. The Company has adopted this standard, which did not have a material impact, on its consolidated financial statements and related disclosures for the periods presented.

In October 2016, the SEC adopted new rules and forms and amended other rules to enhance the reporting and disclosure of information by registered investment companies. As part of these changes, the SEC amended Regulation S-X to standardize and enhance disclosures in investment company financial statements. Implementation of the new or amended rules is required for reporting periods ending after August 1, 2017. The Company has reviewed the requirements and adopted the amendments to Regulation S-X on its consolidated financial statements and related disclosures for the periods presented.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230),” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017. The Company has adopted this standard, which did not have a material impact, on its consolidated financial statements and related disclosures for the periods presented.

 

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12. Subsequent Events

Distribution Declaration

On April 25, 2018 the Board of Directors declared a cash distribution of $0.31 per share to be paid on May 21, 2018 to stockholders of record as of May 14, 2018. This distribution represents the Company’s fifty-first consecutive distribution since the Company’s IPO, bringing the total cumulative distribution to date to $14.33 per share.

Redemption of 2024 Notes

On February 9, 2018, the Company’s Board of Directors approved a redemption of $100.0 million of outstanding aggregate principal amount of the 2024 Notes, which were redeemed on April 2, 2018.

ATM Equity Program Issuances

Subsequent to March 31, 2018 and as of April 30, 2018, the Company sold 679,800 shares of common stock for total accumulated net proceeds of approximately $8.2 million, including $74,000 of offering expenses, under the Equity Distribution Agreement with JMP. As of April 30, 2018, approximately 9.2 million shares remain available for issuance and sale under the Equity Distribution Agreement.

2025 Notes

On April 26, 2018, the Company issued $75.0 million in aggregate principal amount of 5.25% notes due 2025 (the “2025 Notes”). The 2025 Notes were issued pursuant to the Fifth Supplemental Indenture to the Base Indenture, dated April 26, 2018 (the “2025 Notes Indenture”), between the Company and U.S. Bank, National Association, as trustee. The sale of the 2025 Notes generated net proceeds of approximately $73.0 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $2.0 million.

The 2025 Notes will mature on April 30, 2025, unless previously repurchased in accordance with their terms. The 2025 Notes bear interest at a rate of 5.25% per year payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2018.

The 2025 Notes will be the Company’s direct unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by Hercules Capital, Inc.

The Company may redeem some or all of the 2025 Notes at any time, or from time to time, at the redemption price set forth under the terms of the indenture after April 30, 2021. No sinking fund is provided for the 2025 Notes. The 2025 Notes were issued in denominations of $25 and integral multiples of $25 thereof.

The 2025 Notes are listed on the NYSE, and trade on the NYSE under the symbol “HCXZ.”

Portfolio Company Developments

As of April 30, 2018, the Company held warrants or equity positions in three companies that have filed registration statements on Form S-1 with the SEC in contemplation of potential initial public offerings. All three companies filed confidentially under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. There can be no assurance that companies that have yet to complete their initial public offerings will do so in a timely manner or at all. In addition, subsequent to March 31, 2018, the following companies announced or completed liquidity events:

 

1.

In March 2018, our portfolio company IntegenX, Inc., the market leader of rapid human DNA identification technology for use in forensics and law enforcement applications, announced that they have been acquired by Thermo Fisher Scientific Inc., the world leader in serving science. Terms of the transaction were not disclosed.

 

2.

In April 2018, our portfolio company, DocuSign, Inc. completed its initial public offering.

 


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ITEM 2.

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Forward-Looking Statements

The matters discussed in this report, as well as in future oral and written statements by management of Hercules Capital, Inc., that are forward-looking statements are based on current management expectations that involve substantial risks and uncertainties which could cause actual results to differ materially from the results expressed in, or implied by, these forward- looking statements. Forward-looking statements relate to future events or our future financial performance. We generally identify forward-looking statements by terminology such as “may,” “will,” “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “potential” or “continue” or the negative of these terms or other similar expressions. Important assumptions include our ability to originate new investments, achieve certain margins and levels of profitability, the availability of additional capital, and the ability to maintain certain debt to asset ratios. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this report should not be regarded as a representation by us that our plans or objectives will be achieved. The forward-looking statements contained in this report include statements as to:

 

our current and future management structure;

 

our future operating results;

 

our business prospects and the prospects of our prospective portfolio companies;

 

the impact of investments that we expect to make;

 

our informal relationships with third parties including in the venture capital industry;

 

the expected market for venture capital investments and our addressable market;

 

the dependence of our future success on the general economy and its impact on the industries in which we invest;

 

our ability to access debt markets and equity markets;

 

the ability of our portfolio companies to achieve their objectives;

 

our expected financings and investments;

 

our regulatory structure and tax status;

 

our ability to operate as a business development company, a SBIC and a RIC;

 

the adequacy of our cash resources and working capital;

 

the timing of cash flows, if any, from the operations of our portfolio companies;

 

the timing, form and amount of any distributions;

 

the impact of fluctuations in interest rates on our business;

 

the valuation of any investments in portfolio companies, particularly those having no liquid trading market; and

 

our ability to recover unrealized losses.

The following discussion should be read in conjunction with our consolidated financial statements and related notes and other financial information appearing elsewhere in this report. In addition to historical information, the following discussion and other parts of this report contain forward-looking information that involves risks and uncertainties. Our actual results could differ materially from those anticipated by such forward-looking information due to the factors discussed under Item 1A— “Risk Factors” of Part II of this quarterly report on Form 10-Q, Item 1A— “Risk Factors” of our annual report on Form 10-K filed with the Securities and Exchange Commission (“SEC”) on February 22, 2018 and under “Forward-Looking Statements” of this Item 2.

Overview

We are a specialty finance company focused on providing senior secured loans to high-growth, innovative venture capital-backed companies in a variety of technology, life sciences, and sustainable and renewable technology industries. We source our investments through our principal office located in Palo Alto, CA, as well as through our additional offices in Boston, MA, New York, NY, Washington, DC, Hartford, CT, and San Diego, CA.

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Our goal is to be the leading structured debt financing provider for venture capital-backed companies in technology-related industries requiring sophisticated and customized financing solutions. Our strategy is to evaluate and invest in a broad range of technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare, and sustainable and renewable technology and to offer a full suite of growth capital products. We invest primarily in structured debt with warrants and, to a lesser extent, in senior debt and equity investments. We invest primarily in private companies but also have investments in public companies.

We use the term “structured debt with warrants” to refer to any debt investment, such as a senior or subordinated secured loan, that is coupled with an equity component, including warrants, options or other rights to purchase common or preferred stock. Our structured debt with warrants investments typically are secured by some or all of the assets of the portfolio company. We also provide “unitranche” loans, which are loans that combine both senior and mezzanine debt, generally in a first lien position.

Our investment objective is to maximize our portfolio total return by generating current income from our debt investments and capital appreciation from our warrant and equity-related investments. Our primary business objectives are to increase our net income, net operating income and NAV by investing in structured debt with warrants and equity of venture capital-backed companies in technology-related industries with attractive current yields and the potential for equity appreciation and realized gains. Our equity ownership in our portfolio companies may exceed 25% of the voting securities of such companies, which represents a controlling interest under the 1940 Act. In some cases, we receive the right to make additional equity investments in our portfolio companies in connection with future equity financing rounds. Capital that we provide directly to venture capital-backed companies in technology-related industries is generally used for growth and general working capital purposes as well as in select cases for acquisitions or recapitalizations.

 

We also make investments in qualifying small businesses through our two wholly owned small business investment companies (“SBICs”). Our SBIC subsidiaries, Hercules Technology II, L.P. (“HT II”) and Hercules Technology III, L.P. (“HT III”), hold approximately $113.1 million and $285.8 million in assets, respectively, and accounted for approximately 5.7% and 14.4% of our total assets, respectively, prior to consolidation at March 31, 2018. In aggregate, at March 31, 2018, with our net investment of $118.5 million, HT II and HT III have the capacity to issue a total of $190.2 million of SBA-guaranteed debentures, subject to Small Business Administration (“SBA”) approval. At March 31, 2018, we have issued $190.2 million in SBA-guaranteed debentures in our SBIC subsidiaries.

 

We have qualified as and have elected to be treated for tax purposes as a RIC under Subchapter M of the Code. Pursuant to this election, we generally will not be subject to corporate-level taxes on any income and gains that we distribute as dividends for federal income tax purposes to our stockholders. However, our qualification and election to be treated as a RIC requires that we comply with provisions contained in Subchapter M of the Code. For example, as a RIC we must earn 90% or more of our gross income during each taxable year from qualified sources, typically referred to as “good income,” as well as satisfy certain quarterly asset diversification and annual income distribution requirements.

We are an internally managed, non-diversified, closed-end investment company that has elected to be regulated as a business development company under the 1940 Act. As a business development company, we are required to comply with certain regulatory requirements. For instance, we generally have to invest at least 70% of our total assets in “qualifying assets,” which includes securities of private U.S. companies, cash, cash equivalents and high-quality debt investments that mature in one year or less.

Our portfolio is comprised of, and we anticipate that our portfolio will continue to be comprised of, investments primarily in technology related companies at various stages of their development. Consistent with requirements under the 1940 Act, we invest primarily in United-States based companies and to a lesser extent in foreign companies.

We regularly engage in discussions with third parties with respect to various potential transactions. We may acquire an investment or a portfolio of investments or an entire company or sell a portion of our portfolio on an opportunistic basis. We, our subsidiaries or our affiliates may also agree to manage certain other funds that invest in debt, equity or provide other financing or services to companies in a variety of industries for which we may earn management or other fees for our services. We may also invest in the equity of these funds, along with other third parties, from which we would seek to earn a return and/or future incentive allocations. Some of these transactions could be material to our business. Consummation of any such transaction will be subject to completion of due diligence, finalization of key business and financial terms (including price) and negotiation of final definitive documentation as well as a number of other factors and conditions including, without limitation, the approval of our board of directors and required regulatory or third party consents and, in certain cases, the approval of our stockholders. Accordingly, there can be no assurance that any such transaction would be consummated. Any of these transactions or funds may require significant management resources either during the transaction phase or on an ongoing basis depending on the terms of the transaction.


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Portfolio and Investment Activity

The total fair value of our investment portfolio was approximately $1.5 billion at both March 31, 2018 and December 31, 2017. The fair value of our debt investment portfolio at March 31, 2018 was approximately $1.3 billion, compared to a fair value of approximately $1.4 billion December 31, 2017. The fair value of the equity portfolio at March 31, 2018 was approximately $114.0 million, compared to a fair value of approximately $89.4 million at December 31, 2017. The fair value of the warrant portfolio at March 31, 2018 was approximately $33.3 million, compared to a fair value of approximately $36.8 million at December 31, 2017.

Portfolio Activity

Our investments in portfolio companies take a variety of forms, including unfunded contractual commitments and funded investments. From time to time, unfunded contractual commitments depend upon a portfolio company reaching certain milestones before the debt commitment is available to the portfolio company, which is expected to affect our funding levels. These commitments are subject to the same underwriting and ongoing portfolio maintenance as the on-balance sheet financial instruments that we hold. Debt commitments generally fund over the two succeeding quarters from close. Not all debt commitments represent future cash requirements. Similarly, unfunded contractual commitments may expire without being drawn and thus do not represent future cash requirements.

Prior to entering into a contractual commitment, we generally issue a non-binding term sheet to a prospective portfolio company. Non-binding term sheets are subject to completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. These non-binding term sheets generally convert to contractual commitments in approximately 90 days from signing. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

Our portfolio activity for the three months ended March 31, 2018 and the year ended December 31, 2017 was comprised of the following:

 

(in millions)

 

March 31, 2018

 

 

December 31, 2017

 

Debt Commitments (1)

 

 

 

 

 

 

 

 

New portfolio company

 

$

232.6

 

 

$

773.2

 

Existing portfolio company

 

 

5.0

 

 

 

98.8

 

Total

 

$

237.6

 

 

$

872.0

 

Funded and Restructured Debt Investments (2)

 

 

 

 

 

 

 

 

New portfolio company

 

$

162.6

 

 

$

578.9

 

Existing portfolio company

 

 

45.0

 

 

 

175.9

 

Total

 

$

207.6

 

 

$

754.8

 

Funded Equity Investments

 

 

 

 

 

 

 

 

New portfolio company

 

$

27.4

 

 

 

7.1

 

Existing portfolio company

 

 

1.3

 

 

 

2.9

 

Total

 

$

28.7

 

 

$

10.0

 

Unfunded Contractual Commitments (3)

 

 

 

 

 

 

 

 

Total

 

$

51.9

 

 

$

73.6

 

Non-Binding Term Sheets

 

 

 

 

 

 

 

 

New portfolio company

 

$

146.0

 

 

$

122.0

 

Existing portfolio company

 

 

28.0

 

 

 

 

Total

 

$

174.0

 

 

$

122.0

 

 

(1)

Includes restructured loans and renewals in addition to new commitments.

(2)

Funded amounts include borrowings on revolving facilities.

(3)

Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones.

 

We receive principal payments on our debt investment portfolio based on scheduled amortization of the outstanding balances. In addition, we receive principal repayments for some of our loans prior to their scheduled maturity date. The frequency or volume of these early principal repayments may fluctuate significantly from period to period. During the three months ended March 31, 2018, we received approximately $273.3 million in aggregate principal repayments. Of the approximately $273.3 million of aggregate principal repayments, approximately $29.8 million were scheduled principal payments and approximately $243.5 million were early principal repayments related to 12 portfolio companies. Of the approximately $243.5 million early principal repayments, approximately $18.5 million were early repayments due to merger and acquisition transactions for two portfolio companies.

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Total portfolio investment activity (inclusive of unearned income and excluding activity related to taxes payable, and escrow receivables) as of and for the three months ended March 31, 2018 and the year ended December 31, 2017 was as follows:

 

(in millions)

 

March 31, 2018

 

 

December 31, 2017

 

Beginning portfolio

 

$

1,542.2

 

 

$

1,423.9

 

New fundings and restructures

 

 

236.3

 

 

 

764.8

 

Warrants not related to current period fundings

 

 

(0.10

)

 

 

0.6

 

Principal payments received on investments

 

 

(29.8

)

 

 

(119.5

)

Early payoffs

 

 

(243.5

)

 

 

(505.6

)

Accretion of loan discounts and paid-in-kind principal

 

 

8.2

 

 

 

36.5

 

Net acceleration of loan discounts and loan fees due to

early payoff or restructure

 

 

(5.3

)

 

 

(8.1

)

New loan fees

 

 

(2.8

)

 

 

(9.8

)

Sale of investments

 

 

 

 

 

(11.0

)

Loss on investments due to write offs

 

 

(6.5

)

 

 

(39.6

)

Net change in unrealized appreciation (depreciation)

 

 

(15.1

)

 

 

10.0

 

Ending portfolio

 

$

1,483.6

 

 

$

1,542.2

 

As of March 31, 2018, we held warrants or equity positions in three companies that have filed registration statements on Form S-1 with the SEC in contemplation of potential initial public offerings. All three companies filed confidentially under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. There can be no assurance that companies that have yet to complete their initial public offerings will do so in a timely manner or at all.

Changes in Portfolio

We generate revenue in the form of interest income, primarily from our investments in debt securities, and commitment and facility fees. Interest income is recognized in accordance with the contractual terms of the loan agreement to the extent that such amounts are expected to be collected. Fees generated in connection with our debt investments are recognized over the life of the loan or, in some cases, recognized as earned. In addition, we generate revenue in the form of capital gains, if any, on warrants or other equity-related securities that we acquire from our portfolio companies. Our investments generally range from $12.0 million to $40.0 million, although we may make investments in amounts above or below that range. As of March 31, 2018, our debt investments have a term of between two and seven years and typically bear interest at a rate ranging from 5.1% to 14.5%. In addition to the cash yields received on our debt investments, in some instances, our debt investments may also include any of the following: exit fees, balloon payment fees, commitment fees, success fees, payment-in-kind (“PIK”) provisions or prepayment fees which may be required to be included in income prior to receipt.

Interest on debt securities is generally payable monthly, with amortization of principal typically occurring over the term of the investment. In addition, our loans may include an interest-only period ranging from three to eighteen months or longer. In limited instances in which we choose to defer amortization of the loan for a period of time from the date of the initial investment, the principal amount of the debt securities and any accrued but unpaid interest become due at the maturity date.

Loan origination and commitment fees received in full at the inception of a loan are deferred and amortized into fee income as an enhancement to the related loan’s yield over the contractual life of the loan. We recognize nonrecurring fees amortized over the remaining term of the loan commencing in the quarter relating to specific loan modifications. We had approximately $33.0 million of unamortized fees at March 31, 2018, of which approximately $28.8 million was included as an offset to the cost basis of our current debt investments and approximately $4.2 million was deferred contingent upon the occurrence of a funding or milestone. At December 31, 2017, we had approximately $33.3 million of unamortized fees, of which approximately $29.3 million was included as an offset to the cost basis of our current debt investments and approximately $4.0 million was deferred contingent upon the occurrence of a funding or milestone.

Loan exit fees to be paid at the termination of the loan are accreted into interest income over the contractual life of the loan. At March 31, 2018, we had approximately $22.9 million in exit fees receivable, of which approximately $20.4 million was included as a component of the cost basis of our current debt investments and approximately $2.5 million was a deferred receivable related to expired commitments. At December 31, 2017, we had approximately $27.5 million in exit fees receivable, of which approximately $23.9 million was included as a component of the cost basis of our current debt investments and approximately $3.6 million was a deferred receivable related to expired commitments.

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We have debt investments in our portfolio that contain a PIK provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is recorded as interest income and added to the principal balance of the loan on specified capitalization dates. To maintain our ability to be subject to tax as a RIC, this non-cash source of income must be distributed to stockholders with other sources of income in the form of dividend distributions even though we have not yet collected the cash. Amounts necessary to pay these distributions may come from available cash or the liquidation of certain investments. We recorded approximately $2.3 million and $2.2 million in PIK income in the three months ended March 31, 2018 and 2017, respectively.

The core yield on our debt investments, which excludes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time events and includes income from expired commitments, was 11.9% and 12.2% during the three months ended March 31, 2018 and 2017, respectively. The effective yield on our debt investments, which includes the effects of fee and income accelerations attributed to early payoffs, restructuring, loan modifications and other one-time events, was 14.3% and 13.4% for the three months ended March 31, 2018 and 2017, respectively. The effective yield is derived by dividing total investment income by the weighted average earning investment portfolio assets outstanding during the quarter, excluding non-interest earning assets such as warrants and equity investments. Both the core yield and effective yield may be higher than what our common stockholders may realize as the core yield and effective yield do not reflect our expenses and any sales load paid by our common stockholders.

The total return for our investors was approximately -5.4% and 9.5% during the three months ended March 31, 2018 and 2017, respectively. The total return equals the change in the ending market value over the beginning of the period price per share plus dividend distributions paid per share during the period, divided by the beginning price assuming the distribution is reinvested on the date of the distribution. The total return does not reflect any sales load that must be paid by investors. See “Note 9 – Financial Highlights” included in the notes to our consolidated financial statements appearing elsewhere in this report.

Portfolio Composition

Our portfolio companies are primarily privately held companies and public companies which are active in the software, drug discovery & development, internet consumer & business services, sustainable and renewable technology, drug delivery, healthcare services, medical devices & equipment, media/content/info, diversified financial services, information services, electronics & computer hardware, consumer & business products, surgical devices, communications & networking, biotechnology tools, semiconductors, diagnostic and specialty pharmaceuticals industry sectors. These sectors are characterized by high margins, high growth rates, consolidation and product and market extension opportunities. Value for companies in these sectors is often vested in intangible assets and intellectual property.

As of March 31, 2018, approximately 78.1% of the fair value of our portfolio was composed of investments in five industries: 26.5% investments in the software industry, 26.1% investments in the drug discovery & development industry, 12.0% investments in the internet consumer & business services industry, 7.8% investments in the sustainable and renewable technology industry, and 5.7% investments in the drug delivery.

Industry and sector concentrations vary as new loans are recorded and loans pay off. Loan revenue, consisting of interest, fees, and recognition of gains on equity and warrants or other equity-related interests, can fluctuate materially when a loan is paid off or a warrant or equity interest is sold. Revenue recognition in any given year can be highly concentrated in several portfolio companies.

For the three months ended March 31, 2018 and the year ended December 31, 2017, our ten largest portfolio companies represented approximately 29.7% and 34.6% of the total fair value of our investments in portfolio companies, respectively. At March 31, 2018 and December 31, 2017, we had five and seven investments, respectively, that represented 5% or more of our net assets. At March 31, 2018, we had seven equity investments representing approximately 64.9% of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments. At December 31, 2017, we had nine equity investments which represented approximately 67.1% of the total fair value of our equity investments, and each represented 5% or more of the total fair value of our equity investments.

As of March 31, 2018, approximately 96.5% of the debt investment portfolio was priced at floating interest rates or floating interest rates with a Prime or LIBOR-based interest rate floor. As a result, we believe we are well positioned to benefit should market interest rates continue to rise.

As of March 31, 2018, 85.6% of our debt investments were in a senior secured first lien position, 13.4% were secured by a senior second priority security interest in all of the portfolio company’s assets, other than intellectual property, and the remaining 1.0% were unsecured as a result of the terms of the acquisition of two of our portfolio companies. In the majority of cases, we collateralize our investments by obtaining a first priority security interest in a portfolio company’s assets, which may include its intellectual property. In other cases, we may obtain a negative pledge covering a company’s intellectual property.

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At March 31, 2018, of the approximately 85.6% of our debt investments in a senior secured first lien position, 48.0% were secured by a first priority security in all of the assets of the portfolio company, including its intellectual property, 33.3% were secured by a first priority security in all of the assets of the portfolio company and the portfolio company was prohibited from pledging or encumbering its intellectual property, or subject to a negative pledge. Another 1.7% of the Company’s debt investments were senior secured by the equipment of the portfolio company, and 2.6% were in a first lien “last-out” senior secured position with security interest in all assets of the portfolio company whereby the “last-out” loans will be subordinated to the “first-out” portion of the unitranche loan in a liquidation, sale or other disposition.

Our investments in senior secured debt with warrants have detachable equity enhancement features, typically in the form of warrants or other equity-related securities designed to provide us with an opportunity for capital appreciation. These features are treated as OID and are accreted into interest income over the term of the loan as a yield enhancement. Our warrant coverage generally ranges from 3% to 20% of the principal amount invested in a portfolio company, with a strike price generally equal to the most recent equity financing round. As of March 31, 2018, we held warrants in 134 portfolio companies, with a fair value of approximately $33.3 million. The fair value of our warrant portfolio decreased by approximately $3.5 million, as compared to a fair value of $36.8 million at December 31, 2017 primarily related to the slight decrease in portfolio companies and valuation of the portfolio.

Our existing warrant holdings would require us to invest approximately $84.0 million to exercise such warrants as of March 31, 2018. Warrants may appreciate or depreciate in value depending largely upon the underlying portfolio company’s performance and overall market conditions. Of the warrants that we have monetized since inception, we have realized multiples in the range of approximately 1.02x to 29.06x based on the historical rate of return on our investments. However, our warrants may not appreciate in value and, in fact, may decline in value. Accordingly, we may experience losses from our warrant portfolio.

Portfolio Grading

We use an investment grading system, which grades each debt investment on a scale of 1 to 5 to characterize and monitor our expected level of risk on the debt investments in our portfolio with 1 being the highest quality. The following table shows the distribution of our outstanding debt investments on the 1 to 5 investment grading scale at fair value as of March 31, 2018 and December 31, 2017, respectively:

 

(in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

Investment Grading

 

Number of Companies

 

Debt Investments

at Fair Value

 

 

Percentage of

Total Portfolio

 

 

Number of Companies

 

Debt Investments

at Fair Value

 

 

Percentage of

Total Portfolio

 

1

 

10

 

$

141,761

 

 

 

10.6

%

 

12

 

$

345,191

 

 

 

24.4

%

2

 

36

 

 

599,767

 

 

 

44.9

%

 

32

 

 

583,017

 

 

 

41.2

%

3

 

30

 

 

548,038

 

 

 

41.0

%

 

32

 

 

443,775

 

 

 

31.3

%

4

 

4

 

 

33,573

 

 

 

2.5

%

 

4

 

 

41,744

 

 

 

2.9

%

5

 

5

 

 

13,187

 

 

 

1.0

%

 

5

 

 

2,257

 

 

 

0.2

%

 

 

85

 

$

1,336,326

 

 

 

100.0

%

 

85

 

$

1,415,984

 

 

 

100.0

%

As of March 31, 2018, our debt investments had a weighted average investment grading of 2.43 on a cost basis, as compared to 2.17 at December 31, 2017. Our policy is to lower the grading on our portfolio companies as they approach the point in time when they will require additional equity capital. Additionally, we may downgrade our portfolio companies if they are not meeting our financing criteria or are underperforming relative to their respective business plans. Various companies in our portfolio will require additional funding in the near term or have not met their business plans and therefore have been downgraded until their funding is complete or their operations improve. The decline in weighted average investment grading at March 31, 2018 from December 31, 2017 is primarily due to the payoff of our credit rating 1 positions, including Machine Zone, Inc. and Alimera Sciences, Inc., as well as the downgrade of Fuze, Inc., Clarabridge and Proterra, Inc., from a credit rating 2 to a credit rating 3. In addition, two positions were downgraded to a credit rating 5, while two positions that were rated 5 as of December 31, 2017 were sold or liquidated during the period.

At March 31, 2018, we had four debt investments on non-accrual with a cumulative investment cost and fair value of approximately $12.3 million and $0, respectively. At December 31, 2017, we had five debt investments on non-accrual with cumulative investment cost and fair value of approximately $14.8 million and $340,000, respectively. The decrease in the cumulative cost of debt investments on non-accrual between March 31, 2018 and December 31, 2017 is the result of the liquidation of one debt investment that was on non-accrual at December 31, 2017. We recognized a realized loss of approximately $1.7 million on the write-off of the investment.

76


 

Results of Operations

Comparison of the three months ended March 31, 2018 and 2017

Investment Income

Interest Income

Total investment income for the three months ended March 31, 2018 was approximately $48.7 million as compared to approximately $46.4 million for the three months ended March 31, 2017.

Interest income for the three months ended March 31, 2018 totaled approximately $43.0 million as compared to approximately $42.9 million for the three months ended March 31, 2017. The increase in interest income for the three months ended March 31, 2018 as compared to the same period ended March 31, 2017 is primarily attributable to an increase in interest accelerations due to early loan repayments and other one-time events, offset by a decrease in recurring interest income.

Of the $43.0 million in interest income for the three months ended March 31, 2018, approximately $39.3 million represents recurring income from the contractual servicing of our loan portfolio and approximately $3.7 million represents income related to the acceleration of income due to early loan repayments and other one-time events during the period. Income from recurring interest and the acceleration of interest income due to early loan repayments represented $40.0 million and $2.9 million, respectively, of the $42.9 million interest income for the three months ended March 31, 2017.

The following table shows the PIK-related activity for the three months ended March 31, 2018 and 2017, at cost:

 

 

 

Three Months Ended March 31,

 

(in thousands)

 

2018

 

 

2017

 

Beginning PIK interest receivable balance

 

$

15,487

 

 

$

9,930

 

PIK interest income during the period

 

 

2,308

 

 

 

2,215

 

PIK accrued (capitalized) to principal but not

recorded as income during the period

 

 

 

 

 

 

Payments received from PIK loans

 

 

(7,983

)

 

 

(46

)

Realized gain (loss)

 

 

 

 

 

 

Ending PIK interest receivable balance

 

$

9,812

 

 

$

12,099

 

The increase in PIK interest income during the three months ended March 31, 2018 as compared to the three months ended March 31, 2017 is due to an increase in the weighted average principal outstanding of loans which bear PIK interest. This increase is partially offset by an increase in the number of PIK loans that paid off during the period.

Fee Income

Fee income from commitment, facility and loan related fees for the three months ended March 31, 2018 totaled approximately $5.7 million as compared to approximately $3.5 million for the three months ended March 31, 2017. The increase in fee income for the three months ended March 31, 2018 is primarily due to an increase in the acceleration of unamortized fees due to early repayments and one-time fees between periods.

Of the $5.7 million in fee income for the three months ended March 31, 2018, approximately $1.3 million represents income from recurring fee amortization and approximately $4.4 million represents income related to the acceleration of unamortized fees due to early repayments, including one-time fees of $3.2 million for the period. Income from recurring fee amortization and the acceleration of unamortized fees due to early loan repayments represented $2.1 million and $1.4 million, respectively, of the $3.5 million in income for the three months ended March 31, 2017.

In certain investment transactions, we may earn income from advisory services; however, we had no income from advisory services in the three months ended March 31, 2018 or 2017.

Operating Expenses

Our operating expenses are comprised of interest and fees on our borrowings, general and administrative expenses and employee compensation and benefits. Our operating expenses totaled approximately $22.6 million and $23.7 million during the three months ended March 31, 2018 and 2017, respectively.

77


 

Interest and Fees on our Borrowings

Interest and fees on our borrowings totaled approximately $10.6 million and $12.4 million for the three months ended March 31, 2018 and 2017, respectively. Interest and fee expense for the three months ended March 31, 2018, as compared to March 31, 2017, decreased due to the partial redemption of our 2024 Notes and the redemption of our 2019 Notes in February 2017, which resulted in a one-time, non-cash acceleration of our unamortized fees and a thirty day interest overlap related to our Convertible Note issuance in January 2017.

We had a weighted average cost of debt, comprised of interest and fees, of approximately 5.3% and 6.3% for the three months ended March 31, 2018 and 2017, respectively. The decrease in the weighted average cost of debt for the three months ended March 31, 2018 as compared to the same period ended March 31, 2017 is primarily attributable to the redemption of our 2019 Notes between periods.

General and Administrative Expenses

General and administrative expenses include legal fees, consulting fees, accounting fees, printer fees, insurance premiums, rent, expenses associated with the workout of underperforming investments and various other expenses. Our general and administrative expenses decreased to $4.0 million from $4.1 million for the three months ended March 31, 2018 and 2017. The decrease for the three months ended March 31, 2018 was primarily attributable to a reduction in corporate legal and other expenses.

Employee Compensation

Employee compensation and benefits totaled $5.8 million for the three months ended March 31, 2018 as compared to $5.3 million for the three months ended March 31, 2017. The increase between the comparative periods was primarily due to increased salaries and changes in variable compensation expenses due to company performance objectives.

Employee stock-based compensation totaled $2.3 million for the three months ended March 31, 2018 as compared to $1.8 million for the three months ended March 31, 2017. The increase for the three-month comparative period was primarily related to restricted stock award vesting.

Net Investment Realized Gains and Losses and Net Unrealized Appreciation and Depreciation

Realized gains or losses are measured by the difference between the net proceeds from the repayment or sale and the cost basis of an investment without regard to unrealized appreciation or depreciation previously recognized, and includes investments written off during the period, net of recoveries. Net change in unrealized appreciation or depreciation primarily reflects the change in portfolio investment values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.

A summary of realized gains and losses for the three months ended March 31, 2018 and 2017 is as follows:

 

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Realized gains

$

1,108

 

 

$

6,470

 

Realized losses

 

(6,028

)

 

 

(3,233

)

Net realized gains (losses)

$

(4,920

)

 

$

3,237

 

During the three months ended March 31, 2018 we recognized net realized losses of $4.9 million. During the three months ended March 31, 2018, we recorded gross realized gains of $1.1 million primarily from the sale or acquisition of our holdings. These gains were offset by gross realized losses of $6.0 million primarily from the liquidation or write-off of our warrant and equity investments in six portfolio companies and our debt investments in two portfolio companies.

During the three months ended March 31, 2017, we recognized net realized gains of $3.2 million. During the three months ended March 31, 2017, we recorded gross realized gains of $6.4 million primarily from the sale of our holdings in three portfolio companies. These gains were offset by gross realized losses of $3.2 million primarily from the liquidation or write-off of our warrant and equity investments in two portfolio companies and the sale of our public bond position in one portfolio company.

78


 

The following table summarizes the change in net unrealized appreciation/depreciation of investments for the three months ended March 31, 2018 and 2017:

 

 

Three Months Ended March 31,

 

(in thousands)

2018

 

 

2017

 

Gross unrealized appreciation on portfolio investments

$

7,797

 

 

$

19,478

 

Gross unrealized depreciation on portfolio investments

 

(29,548

)

 

 

(48,270

)

Reversal of prior period net unrealized appreciation (depreciation) upon a realization event

 

6,666

 

 

 

(2,405

)

Net unrealized appreciation (depreciation) on debt, equity, and warrant investments

 

(15,085

)

 

 

(31,197

)

Other net unrealized appreciation (depreciation)

 

(112

)

 

 

(306

)

Total net unrealized depreciation on investments

$

(15,197

)

 

$

(31,503

)

During the three months ended March 31, 2018, we recorded $15.2 million of net unrealized depreciation, of which $15.1 million was net unrealized depreciation from our debt, equity and warrant investments. We recorded $8.3 million of net unrealized depreciation on our debt investments which was primarily related to $13.5 million of unrealized depreciation on the debt portfolio including $9.0 million of unrealized depreciation on collateral-based impairments on seven portfolio companies. This unrealized depreciation was partially offset by $5.2 million of unrealized appreciation primarily due to the reversal of unrealized depreciation upon write-off of two portfolio companies.

We recorded $4.1 million of net unrealized depreciation on our equity investments and $2.7 million of net unrealized depreciation on our warrant investments during the three months ended March 31, 2018. This net unrealized depreciation of $6.8 million was due to $8.2 million of unrealized depreciation on the equity and warrant portfolio partially offset by $1.4 million of unrealized appreciation primarily due to the reversal of unrealized depreciation upon being realized as a gain or loss due to the acquisition or liquidation of our equity and warrant investments.

During the three months ended March 31, 2017, we recorded $31.5 million of net unrealized depreciation, of which $31.2 million was net unrealized depreciation from our debt, equity and warrant investments. We recorded $31.2 million of net unrealized depreciation on our debt investments, which was primarily related to $39.8 million of unrealized depreciation for collateral-based impairments on ten portfolio companies offset by the reversal of $3.2 million unrealized depreciation for the prior period collateral-based impairments on one portfolio company.

We recorded $2.8 million of net unrealized depreciation on our equity investments primarily due to the reversal of approximately $4.7 million of unrealized appreciation for one portfolio company upon being realized as a gain. We also recorded $2.8 million of net unrealized appreciation on our warrant investments during the three months ended March 31, 2017.

Income and Excise Taxes

We account for income taxes in accordance with the provisions of Topic 740 of the FASB’s Accounting Standards Codification, as amended (“ASC”), “Income Taxes”, under which income taxes are provided for amounts currently payable and for amounts deferred based upon the estimated future tax effects of differences between the financial statements and tax basis of assets and liabilities given the provisions of the enacted tax law. Valuation allowances may be used to reduce deferred tax assets to the amount likely to be realized. Based upon our previous election and anticipated continued qualification to be subject to taxation as a RIC, we are typically not subject to a material level of federal income taxes. We intend to distribute 100% of our spillover earnings from ordinary income for our taxable year ended December 31, 2017 to our stockholders in 2018.

Net Change in Net Assets Resulting from Operations and Earnings Per Share

For the three months ended March 31, 2018 we had a net increase in net assets resulting from operations of approximately $5.9 million and for the three months ended March 31, 2017 we had a net decrease in net assets resulting from operations of approximately $5.6 million.

Both the basic and fully diluted net change in net assets per common share were $0.07 per share for the three months ended March 31, 2018. Both the basic and fully diluted net change in net assets per common share were $(0.07) per share for the three months ended March 31, 2017.

For the purpose of calculating diluted earnings per share for three months ended March 31, 2018 and 2017, the effect of the 2022 Convertible Notes, outstanding options, and restricted stock units under the treasury stock method was considered. The effect of the 2022 Convertible Notes was excluded from these calculations for the three months ended March 31, 2018 and 2017 as our share price was less than the conversion price in effect which results in anti-dilution.

79


 

Financial Condition, Liquidity, and Capital Resources

Our liquidity and capital resources are derived from our SBA debentures, 2022 Notes, 2024 Notes, 2021 Asset-Backed Notes, 2022 Convertible Notes, Credit Facilities and cash flows from operations, including investment sales and repayments, and income earned. Our primary use of funds from operations includes investments in portfolio companies and payments of fees and other operating expenses we incur. We have used, and expect to continue to use, our borrowings and the proceeds from the turnover of our portfolio and from public and private offerings of securities to finance our investment objectives. We may also raise additional equity or debt capital through registered offerings off a shelf registration, At-The-Market (“ATM”) and private offerings of securities, by securitizing a portion of our investments, or by borrowing from the SBA through our SBIC subsidiaries.

On August 16, 2013, we entered into an ATM equity distribution agreement (the “Prior Equity Distribution Agreement”) with JMP Securities LLC (“JMP”). On March 7, 2016, we renewed the Prior Equity Distribution Agreement and on December 21, 2016, we further amended the agreement to increase the total shares available under the program. The Prior Equity Distribution Agreement, as amended, provided that we may offer and sell up to 12.0 million shares of our common stock from time to time through JMP, as our sales agent.

On September 7, 2017, we terminated the Prior Equity Distribution Agreement and entered into a new ATM equity distribution agreement (the “Equity Distribution Agreement”) with JMP. As a result, the remaining shares that were available under the Prior Equity Distribution agreement are no longer available for issuance. The Equity Distribution Agreement provides that the Company may offer and sell up to 12.0 million shares of its common stock from time to time through JMP, as its sales agent. Sales of the Company’s common stock, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market,” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE or similar securities exchange or sales made to or through a market maker other than on an exchange, at prices related to the prevailing market prices or at negotiated prices.

During the three months ended March 31, 2018, we sold 478,000 shares of common stock, which were issued under the Equity Distribution Agreement, for a total accumulated net proceeds of approximately $6.0 million, including $312,000 of offering expenses. As of March 31, 2018, approximately 9.9 million shares remain available for issuance and sale under the Equity Distribution Agreement. See “ – Subsequent Events.”

Our 2016 Convertible Notes were fully settled on or before their contractual maturity date of April 15, 2016. Throughout the life of the 2016 Convertible Notes, holders of approximately $74.8 million of our 2016 Convertible Notes exercised their conversion rights. These 2016 Convertible Notes were settled with a combination of cash equal to the outstanding principal amount of the converted notes and approximately 1.6 million shares of our common stock, or $24.3 million.

On May 2, 2016, we closed an underwritten public offering of an additional $72.9 million in aggregate principal amount of our 2024 Notes. The $72.9 million in aggregate principal amount includes $65.4 million from the initial offering on April 21, 2016 and $7.5 million as a result of underwriters exercising a portion of their option to purchase up to an additional $9.8 million in aggregate principal to cover overallotments on April 29, 2016. On June 27, 2016, we closed an underwritten public offering of an additional $60.0 million in aggregate principal amount of the 2024 Notes. On June 30, 2016, the underwriters exercised their option to purchase up to an additional $9.0 million in aggregate principal to cover overallotments, resulting in total aggregate principal of $69.0 million from the offering. The 2024 Notes rank equally in right of payment and form a single series of notes.

On May 5, 2016, we, through a special purpose wholly-owned subsidiary, Hercules Funding III, as borrower, entered into the credit facility (the “Union Bank Facility”) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Union Bank Facility from time to time. The Union Bank Facility replaced our credit facility (the “Prior Union Bank Facility”) entered into on August 14, 2014 (as amended and restated from time to time) with MUFG Union Bank, as the arranger and administrative agent, and the lenders party to the Prior Union Bank Facility from time to time.  Any references to amounts related to the Union Bank Facility prior to May 5, 2016 were incurred and relate to the Prior Union Bank Facility.

On October 11, 2016, we entered into a debt distribution agreement, pursuant to which we may offer for sale, from time to time, up to $150.0 million in aggregate principal amount of 2024 Notes through FBR Capital Markets & Co. acting as our sales agent. Sales of the 2024 Notes, if any, may be made in negotiated transactions or transactions that are deemed to be “at the market offerings” as defined in Rule 415 under the Securities Act, including sales made directly on the NYSE, or similar securities exchange or sales made through a market maker other than on an exchange at prices related to prevailing market prices or at negotiated prices.

We did not sell any notes under the program during the three months ended March 31, 2018. During the year ended December 31, 2017, we sold 225,457 notes for approximately $5.6 million in aggregate principal amount. As of March 31, 2018, approximately $136.4 million in aggregate principal amount remains available for issuance and sale under the debt distribution agreement.

80


 

On January 25, 2017, we issued $230.0 million in aggregate principal amount of 2022 Convertible Notes, which amount includes the additional $30.0 million aggregate principal amount issued pursuant to the initial purchaser’s exercise in full of its overallotment option. The sale generated net proceeds of approximately $225.5 million, including $4.5 million of debt issuance costs. Aggregate issuances costs include the initial purchaser’s discount of approximately $5.2 million, offset by the reimbursement of $1.2 million by the initial purchaser.

On February 24, 2017, we redeemed the $110.4 million remaining outstanding balance of our 2019 Notes in full.

On October 23, 2017, we issued $150.0 million in aggregate principal amount of the 2022 Notes. The 2022 Notes were issued pursuant to the Fourth Supplemental Indenture to the Base Indenture, dated October 23, 2017 (the “2022 Notes Indenture”), between us and U.S. Bank, National Association, as trustee (the “2022 Trustee”). The sale of the 2022 Notes generated net proceeds of approximately $147.5 million, including a public offering discount of $826,500. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions of approximately $975,000, were approximately $1.7 million.

On November 23, 2017, we redeemed $75.0 million of the $258.5 million issued and outstanding aggregate principal amount of our 2024 Notes. On April 2, 2018, we redeemed an additional $100.0 million of the remaining outstanding aggregate principal amount of the 2024 Notes.

At March 31, 2018, we had $190.2 million of SBA debentures, $150.0 million of 2022 Notes, $183.5 million of 2024 Notes, $33.6 million of 2021 Asset-Backed Notes, and $230.0 million of 2022 Convertible Notes payable. We had no borrowings outstanding under the Wells Facility or the Union Bank Facility.

At March 31, 2018, we had $313.2 million in available liquidity, including $118.2 million in cash and cash equivalents. We had available borrowing capacity of $120.0 million under the Wells Facility and $75.0 million under the Union Bank Facility, both subject to existing terms and advance rates and regulatory requirements. We primarily invest cash on hand in interest bearing deposit accounts.

At March 31, 2018, we had $118.5 million of capital outstanding in restricted accounts related to our SBIC that we may use to fund new investments in the SBIC. With our net investments of $44.0 million and $74.5 million in HT II and HT III, respectively, we have the combined capacity to issue a total of $190.2 million of SBA guaranteed debentures, subject to SBA approval. At March 31, 2018, we have issued $190.2 million in SBA guaranteed debentures in our SBIC subsidiaries.

At March 31, 2018, we had approximately $3.6 million of restricted cash, which consists of collections of interest and principal payments on assets that are securitized. In accordance with the terms of the related securitized 2021 Asset-Backed Notes, based on current characteristics of the securitized debt investment portfolios, the restricted funds may be used to pay monthly interest and principal on the securitized debt and are not distributed to us or available for our general operations.

During the three months ended March 31, 2018, we principally funded our operations from (i) cash receipts from interest, dividend and fee income from our investment portfolio and (ii) cash proceeds from the realization of portfolio investments through the repayments of debt investments and the sale of debt and equity investments.

During the three months ended March 31, 2018, our operating activities provided $63.0 million of cash and cash equivalents, compared to $11.7 million provided during the three months ended March 31, 2017. This $51.3 million increase in cash provided by operating activities is primarily related to an increase in investment repayments of $138.4 million and an increase in net realized losses on investments of $8.2 million, partially offset by an increase in investment purchases of $82.6 million and a decrease in net unrealized depreciation of $16.3 million.

During the three months ended March 31, 2018, our investing activities used approximately $72,000 of cash, compared to $39,000 used during the three months ended March 31, 2017.

During the three months ended March 31, 2018, our financing activities used $36.1 million of cash, compared to $128.0 million provided during the three months ended March 31, 2017. The $164.1 million decrease in cash provided by financing activities was primarily due to a decrease in the issuance of our common stock under the equity distribution agreement of $41.0 million, the net issuance of $225.5 million of the 2022 Convertible Notes, offset by the repayment of $110.4 million of 2019 Notes during the three months ended March 31, 2017.

As of March 31, 2018, net assets totaled $828.7 million, with a NAV per share of $9.72. We intend to continue to operate in order to generate cash flows from operations, including income earned from investments in our portfolio companies. Our primary use of funds will be investments in portfolio companies and cash distributions to holders of our common stock.

81


 

As required by the 1940 Act, our asset coverage must be at least 200% (or 150%, subject to certain approval and disclosure requirements) after each issuance of senior securities. As of March 31, 2018 our asset coverage ratio under our regulatory requirements as a business development company was 238.2% excluding our SBA debentures as a result of our exemptive order from the SEC that allows us to exclude all SBA leverage from our asset coverage ratio. As a result of the SEC exemptive order, our ratio of total assets on a consolidated basis to outstanding indebtedness may be less than 200% (or 150%, subject to certain approval and disclosure requirements), which while providing increased investment flexibility, also may increase our exposure to risks associated with leverage. Total asset coverage ratio when including our SBA debentures was 204.8% at March 31, 2018.

Outstanding Borrowings

At March 31, 2018 and December 31, 2017, we had the following available borrowings and outstanding amounts:

 

 

March 31, 2018

 

 

December 31, 2017

 

(in thousands)

Total Available

 

 

Principal

 

 

Carrying Value (1)

 

 

Total Available

 

 

Principal

 

 

Carrying Value (1)

 

SBA Debentures (2)

$

190,200

 

 

$

190,200

 

 

$

188,299

 

 

$

190,200

 

 

$

190,200

 

 

$

188,141

 

2022 Notes

 

150,000

 

 

 

150,000

 

 

 

147,698

 

 

 

150,000

 

 

 

150,000

 

 

 

147,572

 

2024 Notes

 

183,510

 

 

 

183,510

 

 

 

179,161

 

 

 

183,510

 

 

 

183,510

 

 

 

179,001

 

2021 Asset-Backed Notes

 

33,575

 

 

 

33,575

 

 

 

33,156

 

 

 

49,153

 

 

 

49,153

 

 

 

48,650

 

2022 Convertible Notes

 

230,000

 

 

 

230,000

 

 

 

223,878

 

 

 

230,000

 

 

 

230,000

 

 

 

223,488

 

Wells Facility (3)

 

120,000

 

 

 

 

 

 

 

 

 

120,000

 

 

 

 

 

 

 

Union Bank Facility (3)

 

75,000

 

 

 

 

 

 

 

 

 

75,000

 

 

 

 

 

 

 

Total

$

982,285

 

 

$

787,285

 

 

$

772,192

 

 

$

997,863

 

 

$

802,863

 

 

$

786,852

 

 

(1)

Except for the Wells Facility and Union Bank Facility, all carrying values represent the principal amount outstanding less the remaining unamortized debt issuance costs and unaccreted discount, if any, associated with the loan as of the balance sheet date. See below for the amount of debt issuance cost associated with each borrowing.

(2)

At both March 31, 2018 and December 31, 2017, the total available borrowings under the SBA debentures were $190.2 million, of which $41.2 million was available in HT II and $149.0 million was available in HT III.  

(3)

Availability subject to us meeting the borrowing base requirements.

Debt issuance costs are fees and other direct incremental costs we incur in obtaining debt financing and are recognized as prepaid expenses and amortized over the life of the related debt instrument using the effective yield method or the straight line method, which closely approximates the effective yield method. In accordance with ASC Subtopic 835-30 (“Interest – Imputation of Interest”), debt issuance costs are presented as a reduction to the associated liability balance on the Consolidated Statement of Assets and Liabilities, except for debt issuance costs associated with line-of-credit arrangements. Debt issuance costs, net of accumulated amortization, as of March 31, 2018 and December 31, 2017 were as follows:

 

(in thousands)

 

March 31, 2018

 

 

December 31, 2017

 

SBA Debentures

 

$

1,901

 

 

$

2,059

 

2022 Notes

 

 

1,548

 

 

 

1,633

 

2024 Notes

 

 

4,417

 

 

 

4,591

 

2021 Asset-Backed Notes

 

 

420

 

 

 

503

 

2022 Convertible Notes

 

 

3,492

 

 

 

3,715

 

Wells Facility (1)

 

 

726

 

 

 

227

 

Union Bank Facility (1)

 

 

306

 

 

 

379

 

Total

 

$

12,810

 

 

$

13,107

 

 

(1)

As the Wells Facility and Union Bank Facility are line-of-credit arrangements, the debt issuance costs associated with these instruments are presented separately as an asset on the Consolidated Statement of Assets and Liabilities in accordance with ASC Subtopic 835-30.

Refer to “Note 4 – Borrowings” included in the notes to our consolidated financial statements appearing elsewhere in this report for a discussion of the contract terms, interest expense, and fees associated with each outstanding borrowing as of and for the three months ended March 31, 2018.


82


 

Commitments

In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded contractual commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded contractual commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded contractual commitments may be significant from time to time. A portion of these unfunded contractual commitments are dependent upon the portfolio company reaching certain milestones before the debt commitment becomes available. Furthermore, our credit agreements contain customary lending provisions which allow us relief from funding obligations for previously made commitments in instances where the underlying company experiences materially adverse events that affect the financial condition or business outlook for the company. These commitments will be subject to the same underwriting and ongoing portfolio maintenance as are the on-balance sheet financial instruments that we hold. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. As such, our disclosure of unfunded contractual commitments includes only those which are available at the request of the portfolio company and unencumbered by milestones.

At March 31, 2018, we had approximately $51.9 million of unfunded commitments, including undrawn revolving facilities, which were available at the request of the portfolio company and unencumbered by milestones. We intend to use cash flow from normal and early principal repayments, and proceeds from borrowings and notes to fund these commitments.

We also had approximately $174.0 million of non-binding term sheets outstanding to three new companies, which generally convert to contractual commitments within approximately 90 days of signing. Non-binding outstanding term sheets are subject to completion of our due diligence and final investment committee approval process, as well as the negotiation of definitive documentation with the prospective portfolio companies. Not all non-binding term sheets are expected to close and do not necessarily represent future cash requirements.

The fair value of our unfunded commitments is considered to be immaterial as the yield determined at the time of underwriting is expected to be materially consistent with the yield upon funding, given that interest rates are generally pegged to market indices and given the existence of milestones, conditions and/or obligations imbedded in the borrowing agreements.

As of March 31, 2018, our unfunded contractual commitments available at the request of the portfolio company, including undrawn revolving facilities, and unencumbered by milestones are as follows:

 

(in thousands)

 

 

 

 

Portfolio Company

 

Unfunded

Commitments (1)

 

Chemocentryx, Inc.

 

$

10,000

 

Evernote Corporation

 

 

10,000

 

Proterra, Inc.

 

 

10,000

 

Impact Radius Holdings, Inc.

 

 

5,000

 

Wrike, Inc.

 

 

5,000

 

Achronix Semiconductor Corporation

 

 

5,000

 

Oak Street Health

 

 

5,000

 

Lithium Technologies, Inc.

 

 

878

 

Greenphire

 

 

500

 

Insurance Technologies Corp.

 

 

500

 

Total

 

$

51,878

 

 

(1)

Amount represents unfunded commitments, including undrawn revolving facilities, which are available at the request of the portfolio company. Amount excludes unfunded commitments which are unavailable due to the borrower having not met certain milestones.

 

 

 

 

 

83


 

Contractual Obligations

The following table shows our contractual obligations as of March 31, 2018:

 

 

 

Payments due by period (in thousands)

 

Contractual Obligations (1)

 

Total

 

 

Less than 1 year

 

 

1 - 3 years

 

 

3 - 5 years

 

 

After 5 years

 

Borrowings (2)(3)(5)

 

$

787,285

 

 

$

151,975

 

 

$

61,550

 

 

$

490,250

 

 

$

83,510

 

Operating Lease Obligations (4)

 

 

17,290

 

 

 

2,436

 

 

 

5,005

 

 

 

5,912

 

 

 

3,937

 

Total

 

$

804,575

 

 

$

154,411

 

 

$

66,555

 

 

$

496,162

 

 

$

87,447

 

 

(1)

Excludes commitments to extend credit to our portfolio companies.

(2)

Includes $190.2 million in principal outstanding under the SBA debentures, $150.0 million of the 2022 Notes, $183.5 million of the 2024 Notes, $33.6 million of the 2021 Asset-Backed Notes and $230.0 million of the 2022 Convertible Notes as of March 31, 2018.

(3)

Amounts represent future principal repayments and not the carrying value of each liability. See Note 4 to our consolidated financial statements.

(4)

Facility leases and licenses.

(5)

Reflects announced redemption of a portion of the 2024 Notes in April 2018. See “ – Subsequent Events.”

Certain premises are leased or licensed under agreements which expire at various dates through June 2027. Total rent expense amounted to approximately $451,000 and $444,000 during the three months ended March 31, 2018 and 2017 respectively.

Indemnification Agreements

We have entered into indemnification agreements with our directors and executive officers. The indemnification agreements are intended to provide our directors and executive officers the maximum indemnification permitted under Maryland law and the 1940 Act. Each indemnification agreement provides that we shall indemnify the director or executive officer who is a party to the agreement, or an “Indemnitee,” including the advancement of legal expenses, if, by reason of his or her corporate status, the Indemnitee is, or is threatened to be, made a party to or a witness in any threatened, pending, or completed proceeding, to the maximum extent permitted by Maryland law and the 1940 Act.

We and our executives and directors are covered by Directors and Officers Insurance, with the directors and officers being indemnified by us to the maximum extent permitted by Maryland law subject to the restrictions in the 1940 Act.

Distributions

The following table summarizes our distributions declared and paid, to be paid, or reinvested on all shares, including restricted stock, to date:

 

Date Declared

 

Record Date

 

Payment Date

 

Amount Per Share

 

Cumulative distributions declared and paid prior to January 1, 2016

 

$

11.23

 

February 17, 2016

 

March 7, 2016

 

March 14, 2016

 

 

0.31

 

April 27, 2016

 

May 16, 2016

 

May 23, 2016

 

 

0.31

 

July 27, 2016

 

August 15, 2016

 

August 22, 2016

 

 

0.31

 

October 26, 2016

 

November 14, 2016

 

November 21, 2016

 

 

0.31

 

February 16, 2017

 

March 6, 2017

 

March 13, 2017

 

 

0.31

 

April 26, 2017

 

May 15, 2017

 

May 22, 2017

 

 

0.31

 

July 26, 2017

 

August 14, 2017

 

August 21, 2017

 

 

0.31

 

October 25, 2017

 

November 13, 2017

 

November 20, 2017

 

 

0.31

 

February 14, 2018

 

March 5, 2018

 

March 12, 2018

 

 

0.31

 

April 25, 2018

 

May 14, 2018

 

May 21, 2018

 

 

0.31

 

 

 

 

 

 

 

$

14.33

 

On April 25, 2018, the Board of Directors declared a cash distribution of $0.31 per share to be paid on May 21, 2018 to stockholders of record as of May 14, 2018. This distribution represents our fifty-first consecutive distribution since our initial public offering, bringing the total cumulative distribution to date to $14.33 per share.

Our Board of Directors maintains a variable distribution policy with the objective of distributing four quarterly distributions in an amount that approximates 90 - 100% of our taxable quarterly income or potential annual income for a particular taxable year. In addition, at the end of our taxable year, our Board of Directors may choose to pay an additional special distribution, or fifth distribution, so that we may distribute approximately all of our annual taxable income in the taxable year in which it was earned, or may elect to maintain the option to spill over our excess taxable income into the following taxable year as part of any future distribution payments.

84


 

Distributions from our taxable income (including gains) to a stockholder generally will be treated as a dividend for U.S. federal income tax purposes to the extent of such stockholder’s allocable share of our current or accumulated earnings and profits. Distributions in excess of our current and accumulated earnings and profits would generally be treated first as a return of capital to the extent of a stockholder’s tax basis in our shares, and any remaining distributions would be treated as a capital gain. The determination of the tax attributes of our distributions is made annually as of the end of our taxable year based upon our taxable income for the full taxable year and distributions paid for the full taxable year. As a result, any determination of the tax attributes of our distributions made on a quarterly basis may not be representative of the actual tax attributes of the Company’s distributions for a full taxable year. Of the distributions declared during the year ended December 31, 2017, 100% were distributions derived from our current and accumulated earnings and profits.

During the three months ended March 31, 2018, we declared a distribution of $0.31 per share. If we had determined the tax attributes of our distributions year-to-date as of March 31, 2018, 100% would be from our current and accumulated earnings and profits. However, there can be no certainty to stockholders that this determination is representative of what the tax attributes of our 2018 distributions to stockholders will actually be.

We maintain an “opt out” dividend reinvestment plan that provides for reinvestment of our distribution on behalf of our stockholders, unless a stockholder elects to receive cash. As a result, if our Board of Directors authorizes, and we declare a cash distribution, then our stockholders who have not “opted out” of our dividend reinvestment plan will have their cash distribution automatically reinvested in additional shares of our common stock, rather than receiving the cash distributions.

Shortly after the close of each calendar year information identifying the source of the distribution (i.e., paid from ordinary income, paid from net capital gains on the sale of securities, and/or a return of paid-in-capital surplus which is a nontaxable distribution, if any) will be provided to our stockholders subject to information reporting. To the extent our taxable earnings fall below the total amount of our distributions for any taxable year, a portion of those distributions may be deemed a tax return of capital to our stockholders.

We expect to qualify to be subject to tax as a RIC under Subchapter M of the Code. In order to be subject to tax as a RIC, we are required to satisfy certain annual gross income and quarterly asset composition tests, as well as make distributions to our stockholders each taxable year treated as dividends for federal income tax purposes of an amount at least equal to 90% of the sum of our investment company taxable income, determined without regard to any deduction for dividends paid, plus our net tax-exempt income, if any. Upon being eligible to be subject to tax as a RIC, we would be entitled to deduct such distributions we pay to our stockholders in determining the overall components of our “taxable income.” Components of our taxable income include our taxable interest, dividend and fee income, reduced by certain deductions, as well as taxable net realized securities gains. Taxable income generally differs from net income for financial reporting purposes due to temporary and permanent differences in the recognition of income and expenses and generally excludes net unrealized appreciation or depreciation as such gains or losses are not included in taxable income until they are realized. In connection with maintaining our ability to be subject to tax as a RIC, among other things, we have made and intend to continue to make the requisite distributions to our stockholders each taxable year, which generally should relieve us from corporate-level U.S. federal income taxes.

As a RIC, we will be subject to a 4% nondeductible U.S. federal excise tax on certain undistributed income and gains unless we make distributions treated as dividends for U.S. federal income tax purposes in a timely manner to our stockholders in respect of each calendar year of an amount at least equal to the Excise Tax Avoidance Requirement. We will not be subject to this excise tax on any amount on which we incurred U.S. federal corporate income tax (such as the tax imposed on a RIC’s retained net capital gains).

Depending on the level of taxable income earned in a taxable year, we may choose to carry over taxable income in excess of current taxable year distributions treated as dividends for U.S. federal income tax purposes from such taxable income into the next taxable year and incur a 4% excise tax on such taxable income, as required. The maximum amount of excess taxable income that may be carried over for distribution in the next taxable year under the Code is the total amount of distributions treated as dividends for U.S. federal income tax purposes paid in the following taxable year, subject to certain declaration and payment guidelines. To the extent we choose to carry over taxable income into the next taxable year, distributions declared and paid by us in a taxable year may differ from our taxable income for that taxable year as such distributions may include the distribution of current taxable year taxable income, the distribution of prior taxable year taxable income carried over into and distributed in the current taxable year, or returns of capital.  

We can offer no assurance that we will achieve results that will permit the payment of any cash distributions and, if we issue senior securities, we will be prohibited from making distributions if doing so causes us to fail to maintain the asset coverage ratios stipulated by the 1940 Act or if distributions are limited by the terms of any of our borrowings. Our ability to make distributions will be limited by the asset coverage requirements under the 1940 Act.

We intend to distribute 100% of our spillover earnings, which consists of ordinary income, from the year ended December 31, 2017 to our stockholders during 2018.  

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Critical Accounting Policies

The preparation of consolidated financial statements in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the consolidated financial statements, and revenues and expenses during the period reported. On an ongoing basis, our management evaluates its estimates and assumptions, which are based on historical experience and on various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates. Changes in our estimates and assumptions could materially impact our results of operations and financial condition.

Reclassification

Certain balances from prior years have been reclassified in order to conform to the current year presentation.

Valuation of Investments

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

At March 31, 2018, approximately 91.6% of our total assets represented investments in portfolio companies whose fair value is determined in good faith by the Board of Directors. Value, as defined in Section 2(a)(41) of the 1940 Act, is (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board of Directors. Our investments are carried at fair value in accordance with the 1940 Act and ASC Topic 946 and measured in accordance with ASC Topic 820. Our debt securities are primarily invested in venture capital-backed companies in technology-related industries including technology, drug discovery and development, biotechnology, life sciences, healthcare and sustainable and renewable technology at all stages of development. Given the nature of lending to these types of businesses, substantially all of our investments in these portfolio companies are considered Level 3 assets under ASC Topic 820 because there is no known or accessible market or market indexes for these investment securities to be traded or exchanged. As such, we value substantially all of our investments at fair value as determined in good faith pursuant to a consistent valuation policy by our Board of Directors in accordance with the provisions of ASC Topic 820 and the 1940 Act. Due to the inherent uncertainty in determining the fair value of investments that do not have a readily available market value, the fair value of our investments determined in good faith by our Board of Directors may differ significantly from the value that would have been used had a readily available market existed for such investments, and the differences could be material.

We may from time to time engage an independent valuation firm to provide us with valuation assistance with respect to certain of our portfolio investments. We engage independent valuation firms on a discretionary basis. Specifically, on a quarterly basis, we will identify portfolio investments with respect to which an independent valuation firm will assist in valuing. We select these portfolio investments based on a number of factors, including, but not limited to, the potential for material fluctuations in valuation results, credit quality and the time lapse since the last valuation of the portfolio investment by an independent valuation firm.

We intend to continue to engage an independent valuation firm to provide us with assistance regarding our determination of the fair value of selected portfolio investments each quarter unless directed by the Board of Directors to cancel such valuation services. The scope of the services rendered by an independent valuation firm is at the discretion of the Board of Directors. Our Board of Directors is ultimately, and solely, responsible for determining the fair value of our investments in good faith.

Refer to “Note 2 – Summary of Significant Accounting Policies” included in the notes to our consolidated financial statements appearing elsewhere in this report for a discussion of our valuation policies for the three months ended March 31, 2018.

Income Recognition

See “— Changes in Portfolio” for a discussion of our income recognition policies and results during the three months ended March 31, 2018. See “— Results of Operations” for a comparison of investment income for the three months ended March 31, 2018 and 2017.


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Stock Based Compensation

We have issued and may, from time to time, issue stock options and restricted stock to employees under our 2004 Equity Incentive Plan and to Board members under our 2006 Equity Incentive Plan prior to its expiration on June 21, 2017. We follow the guidelines set forth under ASC Topic 718, (“Compensation – Stock Compensation”) to account for stock options granted. Under ASC Topic 718, compensation expense associated with stock-based compensation is measured at the grant date based on the fair value of the award and is recognized over the vesting period. Determining the appropriate fair value model and calculating the fair value of stock-based awards at the grant date requires judgment, including estimating stock price volatility, forfeiture rate and expected option life.

Recent Accounting Pronouncements

In January 2016, the FASB issued Accounting Standards Update (“ASU”) 2016-01, “Financial Instruments – Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities,” which, among other things, requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, the ASU changes the disclosure requirements for financial instruments.  ASU 2016-01 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017. We have adopted this standard, which did not have a material impact, on our consolidated financial statements and related disclosures for the periods presented.

In February 2016, the FASB issued ASU 2016-02, “Leases (Topic 842),” which, among other things, requires recognition of lease assets and lease liabilities by lessees for those leases classified as operating leases under previous U.S. GAAP. Additionally, the ASU requires the classification of all cash payments on leases within operating activities in the Consolidated Statement of Cash Flows.  ASU 2016-02 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2018. Early adoption is permitted. We anticipate an increase in the recognition of right-of-use assets and lease liabilities, however, we do not believe that ASU 2016-02 will have a material impact on our consolidated financial statements and disclosures.

In August 2016, the FASB issued ASU 2016-15, “Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments,” which addresses eight specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs.  ASU 2016-15 is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017. We have adopted this standard, which did not have a material impact, on our consolidated financial statements and related disclosures for the periods presented.

In October 2016, the SEC adopted new rules and forms and amended other rules to enhance the reporting and disclosure of information by registered investment companies. As part of these changes, the SEC amended Regulation S-X to standardize and enhance disclosures in investment company financial statements. Implementation of the new or amended rules is required for reporting periods ending after August 1, 2017. We have reviewed the requirements and adopted the amendments to Regulation S-X on our consolidated financial statements and related disclosures for the periods presented.

In November 2016, the FASB issued ASU 2016-18, “Statement of Cash Flows (Topic 230),” which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017. We have adopted this standard, which did not have a material impact, on our consolidated financial statements and related disclosures for the periods presented.

 


87


 

Subsequent Events

Distribution Declaration

On April 25, 2018 the Board of Directors declared a cash distribution of $0.31 per share to be paid on May 21, 2018 to stockholders of record as of May 14, 2018. This distribution represents our fifty-first consecutive distribution since our initial public offering, bringing the total cumulative distribution to date to $14.33 per share.

Redemption of 2024 Notes

On February 9, 2018, our Board of Directors approved a redemption of $100.0 million of outstanding aggregate principal amount of the 2024 Notes, which were redeemed on April 2, 2018.

ATM Equity Program Issuances

Subsequent to March 31, 2018 and as of April 30, 2018, we sold 679,800 shares of common stock for total accumulated net proceeds of approximately $8.2 million, including $74,000 of offering expenses, under the Equity Distribution Agreement with JMP. As of April 30, 2018, approximately 9.2 million shares remain available for issuance and sale under the Equity Distribution Agreement.

2025 Notes

On April 26, 2018, we issued $75.0 million in aggregate principal amount of 5.25% notes due 2025 (the “2025 Notes”). The 2025 Notes were issued pursuant to the Fifth Supplemental Indenture to the Base Indenture, dated April 26, 2018 (the “2025 Notes Indenture”), between us and U.S. Bank, National Association, as trustee. The sale of the 2025 Notes generated net proceeds of approximately $73.0 million. Aggregate estimated offering expenses in connection with the transaction, including the underwriter’s discount and commissions, were approximately $2.0 million.

The 2025 Notes will mature on April 30, 2025, unless previously repurchased in accordance with their terms. The 2025 Notes bear interest at a rate of 5.25% per year payable quarterly in arrears on January 30, April 30, July 30 and October 30 of each year, commencing on July 30, 2018.

The 2025 Notes will be our direct unsecured obligations and rank pari passu, or equally in right of payment, with all outstanding and future unsecured unsubordinated indebtedness issued by Hercules Capital, Inc.

We may redeem some or all of the 2025 Notes at any time, or from time to time, at the redemption price set forth under the terms of the indenture after April 30, 2021. No sinking fund is provided for the 2025 Notes. The 2025 Notes were issued in denominations of $25 and integral multiples of $25 thereof.

The 2025 Notes are listed on the NYSE, and trade on the NYSE under the symbol “HCXZ.”

Portfolio Company Developments

As of April 30, 2018, we held warrants or equity positions in three companies that have filed registration statements on Form S-1 with the SEC in contemplation of potential initial public offerings. All three companies filed confidentially under the Jumpstart Our Business Startups Act of 2012, or the JOBS Act. There can be no assurance that companies that have yet to complete their initial public offerings will do so in a timely manner or at all. In addition, subsequent to March 31, 2018, the following companies announced or completed liquidity events:

 

1.

In March 2018, our portfolio company IntegenX, Inc., the market leader of rapid human DNA identification technology for use in forensics and law enforcement applications, announced that they have been acquired by Thermo Fisher Scientific Inc., the world leader in serving science. Terms of the transaction were not disclosed.

 

2.

In April 2018, our portfolio company, DocuSign, Inc. completed its initial public offering.

 


88


 

ITEM 3.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

We are subject to financial market risks, including changes in interest rates. Interest rate risk is defined as the sensitivity of our current and future earnings to interest rate volatility, variability of spread relationships, the difference in re-pricing intervals between our assets and liabilities and the effect that interest rates may have on our cash flows. Changes in interest rates may affect both our cost of funding and our interest income from portfolio investments, cash and cash equivalents and idle fund investments. Our investment income will be affected by changes in various interest rates, including LIBOR and Prime rates, to the extent our debt investments include variable interest rates. As of March 31, 2018, approximately 96.5% of the loans in our portfolio had variable rates based on floating Prime or LIBOR rates with a floor. Changes in interest rates can also affect, among other things, our ability to acquire and originate loans and securities and the value of our investment portfolio.

Based on our Consolidated Statement of Assets and Liabilities as of March 31, 2018, the following table shows the approximate annualized increase (decrease) in components of net assets resulting from operations of hypothetical base rate changes in interest rates, assuming no changes in our investments and borrowings.

 

(in thousands)

 

Interest

 

 

Interest

 

 

Net

 

 

 

 

 

Basis Point Change

 

Income

 

 

Expense

 

 

Income

 

 

EPS(1)

 

25

 

$

3,088

 

 

$

 

 

$

3,088

 

 

$

0.04

 

50

 

$

6,197

 

 

$

 

 

$

6,197

 

 

$

0.07

 

75

 

$

9,394

 

 

$

 

 

$

9,394

 

 

$

0.11

 

100

 

$

12,591

 

 

$

 

 

$

12,591

 

 

$

0.15

 

200

 

$

25,791

 

 

$

 

 

$

25,791

 

 

$

0.30

 

300

 

$

38,578

 

 

$

 

 

$

38,578

 

 

$

0.46

 

 

(1)

Earnings per share impact calculated based on basic weighted average shares outstanding of 84,596.

We do not currently engage in any hedging activities. However, we may, in the future, hedge against interest rate fluctuations (and foreign currency) by using standard hedging instruments such as futures, options, and forward contracts. While hedging activities may insulate us against changes in interest rates (and foreign currency), they may also limit our ability to participate in the benefits of lower interest rates with respect to our borrowed funds and higher interest rates with respect to our portfolio of investments. During the three months ended March 31, 2018 we did not engage in interest rate (or foreign currency) hedging activities.

Although we believe that the foregoing analysis is indicative of our sensitivity to interest rate changes, it does not adjust for potential changes in the credit market, credit quality, size and composition of the assets in our portfolio. It also does not adjust for other business developments, including borrowings under our SBA debentures, 2022 Notes, 2024 Notes, 2021 Asset-Backed Notes, 2022 Convertible Notes and Credit Facilities that could affect the net increase in net assets resulting from operations, or net income. It also does not assume any repayments from borrowers. Accordingly, no assurances can be given that actual results would not differ materially from the statement above.

Because we currently borrow, and plan to borrow in the future, money to make investments, our net investment income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net investment income. In periods of rising interest rates, our cost of funds would increase, which could reduce our net investment income if there is not a corresponding increase in interest income generated by variable rate assets in our investment portfolio.

For additional information regarding the interest rate associated with each of our, SBA debentures, 2022 Notes, 2024 Notes, 2021 Asset-Backed Notes, 2022 Convertible Notes, and Credit Facilities, please refer to “Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations - Financial Condition, Liquidity and Capital Resources - Outstanding Borrowings” in this quarterly report on Form 10-Q.

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ITEM 4.

CONTROLS AND PROCEDURES

Disclosure Controls and Procedures

Our chief executive and chief financial officers, under the supervision and with the participation of our management, conducted an evaluation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act. As of the end of the period covered by this quarterly report on Form 10-Q, our chief executive and chief financial officers have concluded that our disclosure controls and procedures were effective to ensure that information required to be disclosed by us in reports that we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in SEC rules and forms, and that information required to be disclosed by us in the reports that we file or submit under the Exchange Act is accumulated and communicated to our management, including our chief executive and chief financial officers, as appropriate to allow timely decisions regarding required disclosure.

Changes in Internal Control over Financial Reporting

There have been no changes in our internal control over financing reporting, as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act that occurred during our most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

 

 

 

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PART II: OTHER INFORMATION

ITEM 1.

LEGAL PROCEEDINGS

We may, from time to time, be involved in litigation arising out of our operations in the normal course of business or otherwise. Furthermore, third parties may try to seek to impose liability on us in connection with the activities of our portfolio companies. While the outcome of any current legal proceedings cannot at this time be predicted with certainty, we do not expect any current matters will materially affect our financial condition or results of operations; however, there can be no assurance whether any pending legal proceedings will have a material adverse effect on our financial condition or results of operations in any future reporting period.

 

ITEM  1A.

RISK FACTORS

In addition to the risks discussed below, important risk factors that could cause results or events to differ from current expectations are described in Part I, Item 1A “Risk Factors” of the Company’s Annual Report on Form 10-K for the year ended December 31, 2017 filed with the Securities and Exchange Commission on February 22, 2018.

Our financial results could be negatively affected if a significant portfolio investment fails to perform as expected.

Our total investment in companies may be significant individually or in the aggregate. As a result, if a significant investment in one or more companies fails to perform as expected, our financial results could be more negatively affected and the magnitude of the loss could be more significant than if we had made smaller investments in more companies. The following table shows the fair value of the totals of investments held in portfolio companies March 31, 2018 that represent greater than 5% of our net assets:

 

 

March 31, 2018

 

(in thousands)

Fair Value

 

 

Percentage of Net Assets

 

Paratek Pharmaceuticals, Inc. (p.k.a. Transcept Pharmaceuticals, Inc.)

$

60,893

 

 

 

7.3

%

Axovant Sciences Ltd.

 

53,842

 

 

 

6.5

%

Fuze, Inc.

 

50,418

 

 

 

6.1

%

Emma, Inc.

 

47,785

 

 

 

5.8

%

Snagajob.com, Inc.

 

42,572

 

 

 

5.1

%

 

Paratek Pharmaceuticals, Inc. is a biopharmaceutical company focused on the development and commercialization of innovative therapies based upon its expertise in novel tetracycline chemistry

 

Axovant Sciences Ltd. is a clinical-stage biopharmaceutical company focused on acquiring, developing and commercializing novel therapeutics for the treatment of dementia.

 

Fuze, Inc. is a technology company that provides a cloud-based unified communications-as-a-service platform to server message block, mid-market, and small enterprise customers worldwide.

 

Emma, Inc. is a technology company that offers software to enable organizations to create, send and track email marketing campaigns and online surveys.

 

Snagajob.com, Inc. is a technology company that offers an array of services designed to simplify the hourly job recruiting process for both job seekers and employers.

Our financial results could be materially adversely affected if these portfolio companies or any of our other significant portfolio companies encounter financial difficulty and fail to repay their obligations or to perform as expected.

Recently passed legislation may allow us to incur additional leverage.

Historically, as a business development company, under the 1940 Act generally we are not permitted to incur indebtedness unless immediately after such borrowing we have an asset coverage for total borrowings of at least 200% (i.e., the amount of debt may not exceed 50% of the value of our assets). The Small Business Credit Availability Act, which was signed into law in March 2018, modifies this section of the 1940 Act and decreases this percentage from 200% to 150% (subject to either stockholder approval or approval of both a majority of the board of directors and a majority of directors who are not interested persons). As a result of this new law, we may be able to incur additional indebtedness subject to relevant approval and disclosure requirements and, therefore, your risk of an investment in us may increase. Rating agencies may also decide to review our credit ratings and those of other business development companies in light of this new law as well as any corresponding changes to asset coverage ratios and consider downgrading such ratings, including a downgrade from an investment grade rating to a non-investment grade rating. Such a downgrade in our credit ratings may adversely affect our other securities.

 

 

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ITEM 2.

UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS

Dividend Reinvestment Plan

During the three months ended March 31, 2018, we issued 34,758 shares of common stock to stockholders in connection with the dividend reinvestment plan. These issuances were not subject to the registration requirements of the Securities Act. The aggregate value of the shares of our common stock issued under our dividend reinvestment plan was approximately $426,000.

 

ITEM 3.

DEFAULTS UPON SENIOR SECURITIES

Not Applicable

 

ITEM 4.

MINE SAFETY DISCLOSURES

Not Applicable

 

ITEM 5.

OTHER INFORMATION

2018 Annual Meeting

We have not yet announced the date for our 2018 annual meeting of stockholders (the “2018 Annual Meeting”). Because we expect that the 2018 Annual Meeting date will represent a change of more than thirty days from the anniversary of our 2017 annual meeting of stockholders held on December 13, 2017, the deadline for the receipt of stockholder proposals for the 2018 Annual Meeting will change. When we set the date for our 2018 Annual Meeting, we will publicly announce such data and deadlines for the receipt of stockholder proposals.

Retention Performance Stock Units and Cash Retention Bonus Awards

On May 2, 2018, the Company granted long-term Retention Performance Stock Unit awards (the “Retention PSUs”) under its 2004 Equity Incentive Plan to Manuel Henriquez and Scott Bluestein, and separate cash bonus awards with similar terms (the “Cash Awards”) to Gerard Waldt and three other senior personnel.  The awards are designed to provide incentives that increase along with the total shareholder return (“TSR”) and further align the interests of key management with those of the Company’s shareholders.  The Company believes that there is a highly competitive market place for senior personnel that have the experience and track record of successfully sourcing, financing and managing the asset class in which the Company invests.  Accordingly, the Compensation Committee and the other independent directors adopted this program with the assistance of F.W. Cook.  These awards are intended to promote long term management consistency and retention and to mitigate the likelihood of departure to competitors of those individuals most responsible for delivering financial performance to our shareholders. The objectives are sought to be achieved by offering a four year cliff vesting retention program to reward critical executives and senior personnel, whose services are valuable to the Company and industry competitors as a result of their proven and specialized expertise sourcing and funding venture debt.  The target number of Retention PSUs granted to Mr. Henriquez and Mr. Bluestein are 812,348 and 487,409, respectively.  The target amount of the Cash Award granted to Mr. Waldt is $500,000, and $3,500,000, in the aggregate, for the three other senior personnel.

The Retention PSUs and Cash Awards do not vest until the fourth anniversary “cliff vest” of the grant date (or a change in control of the Company, if earlier) and the Retention PSUs must generally be held and not disposed of until the fifth anniversary of the grant date, except in the event of death, disability or a change in control. No Retention PSUs or Cash Awards will vest if the Company’s TSR relative to certain specified publicly traded business development companies (BDCs) is not at or above the 25th percentile level of such BDCs.  50% of the target Cash Award and target number of Retention PSUs will vest if the Company’s TSR performance relative to such BDCs is at the 25th percentile level. 100% of the target Cash Award and target number of Retention PSUs will vest if the Company’s TSR performance relative to such BDCs is at the 50th percentile level.  200% of the target Cash Award and target number of Retention PSUs will vest if the Company’s TSR performance relative to such BDCs is at the 90th percentile level.  If the Company’s TSR performance is between the 25th percentile and the 50th percentile, or between the 50th percentile and the 90th percentile, of such BDCs, the amount of the Cash Awards vested and payable and the number of vested and payable Retention PSUs will be determined by linear interpolation between the foregoing metrics.  Dividend equivalents will accrue in respect only of the Retention PSUs in the form of additional Retention PSUs, but will not be paid unless the Retention PSUs to which such dividend equivalents relate actually vest.  The Cash Awards are not eligible to accrue dividend equivalents.  TSR is calculated assuming dividend reinvestment and measurement begins on the date of grant and utilizes a 20 trading day volume weighted average price ending on the last trading day of the four year TSR performance period.

In the event of death or disability occurring prior to the fourth anniversary of the date of grant, Retention PSUs and the Cash Awards will vest, along with, in the case only of the Retention PSUs, any accrued dividend equivalents, on the date of such death or disability, with the Relative TSR Percentile Rank used to calculate such vesting to be the greater of (a) 50% and (b) the actual Relative TSR Percentile Rank as of the date of such death or disability.  In the event of a voluntary termination prior to the fourth anniversary,

92


 

all Cash Awards and Retention PSUs, and accrued dividend equivalents, will be forfeited.  In the event of an involuntary termination without Cause prior to the fourth anniversary of the date of grant, the Retention PSUs and Cash Awards will be pro-rated based on service through the date of termination and such pro-rated Retention PSUs and Cash Awards will vest based on the actual relative TSR performance over the four year TSR performance period.  In the event of a termination for Cause occurring at any time prior to delivery of the shares underlying the Retention PSUs or payment of the Cash Awards, all Retention PSUs and accrued dividend equivalents, and Cash Awards will be forfeited.

In the event of a change in control of the Company, Retention PSUs and Cash Awards will vest and be paid on a non-pro-rated basis based on the actual relative TSR performance through the date of the change in control utilizing the transaction price for the Company and the peer group TSR through the date of the change in control.

93


 

ITEM 6.

EXHIBITS

 

Exhibit
Number

 

Description

 

10.1*

 

 

Form of Retention Performance Stock Unit Award Agreement.

 

10.2*

 

 

Form of Cash Retention Bonus Award Agreement.

 

11

 

 

Computation of Per Share Earnings (included in Note 8 to the Consolidated Financial Statements included in this report).

 

31.1*

 

 

Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

31.2*

 

 

Chief Accounting Officer Certification Pursuant to Exchange Act Rule 13a-14 (a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.

 

32.1*

 

 

Chief Executive Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

32.2*

 

 

Chief Accounting Officer Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.

 

 

 

 

*

Filed herewith.

 

 

94


 

Schedule 12 – 14

HERCULES CAPITAL, INC.

SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

For the Three Months Ended March 31, 2018

(in thousands)

 

 

 

 

 

Amount of

 

 

 

 

 

 

As of

 

 

 

 

 

 

 

 

 

 

Net Change in

 

 

As of

 

 

 

 

 

Interest

 

 

 

 

 

 

December 31,

 

 

 

 

 

 

 

 

 

 

Unrealized

 

 

March 31,

 

 

 

 

 

Credited to

 

 

Realized

 

 

2017

 

 

Gross

 

 

Gross

 

 

Appreciation/

 

 

2018

 

Portfolio Company

 

Investment (1)

 

Income (2)

 

 

Gain (Loss)

 

 

Fair Value

 

 

Additions (3)

 

 

Reductions (4)

 

 

(Depreciation)

 

 

Fair Value

 

Control Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Majority Owned Control Investments

 

Achilles Technology Management Co II, Inc.

 

Common Stock

 

$

 

 

$

 

 

$

242

 

 

$

 

 

$

 

 

$

(125

)

 

$

117

 

Gibraltar Business Capital, LLC (8)

 

Senior Debt

 

 

127

 

 

 

 

 

 

 

 

 

9,802

 

 

 

 

 

 

 

 

 

9,802

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

25,538

 

 

 

 

 

 

 

 

 

25,538

 

 

 

Common Stock

 

 

 

 

 

 

 

 

 

 

 

1,861

 

 

 

 

 

 

 

 

 

1,861

 

Total Majority Owned Control Investments

 

$

127

 

 

$

 

 

$

242

 

 

$

37,201

 

 

$

 

 

$

(125

)

 

$

37,318

 

Other Control Investments

 

Second Time Around (Simplify Holdings, LLC) (7)

 

Senior Debt

 

$

 

 

$

(1,743

)

 

$

 

 

$

 

 

$

(1,781

)

 

$

1,781

 

 

$

 

Tectura Corporation(5)

 

Senior Debt

 

 

459

 

 

 

335

 

 

 

19,219

 

 

 

487

 

 

 

(335

)

 

 

(2,276

)

 

 

17,095

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Other Control Investments

 

$

459

 

 

$

(1,408

)

 

$

19,219

 

 

$

487

 

 

$

(2,116

)

 

$

(495

)

 

$

17,095

 

Total Control Investments

 

$

586

 

 

$

(1,408

)

 

$

19,461

 

 

$

37,688

 

 

$

(2,116

)

 

$

(620

)

 

$

54,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

Optiscan BioMedical, Corp.

 

Preferred Warrants

 

$

 

 

$

 

 

$

86

 

 

$

 

 

$

 

 

$

185

 

 

$

271

 

 

 

Preferred Stock

 

 

 

 

 

 

 

 

6,205

 

 

 

1,301

 

 

 

 

 

 

(1,250

)

 

 

6,256

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)(6)

 

Senior Debt

 

 

561

 

 

 

 

 

 

13,604

 

 

 

166

 

 

 

(2,000

)

 

 

(87

)

 

 

11,683

 

 

 

Common Stock

 

 

 

 

 

 

 

 

11,400

 

 

 

 

 

 

 

 

 

915

 

 

 

12,315

 

Stion Corporation

 

Preferred Warrants

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total Affiliate Investments

 

$

561

 

 

$

 

 

$

31,295

 

 

$

1,467

 

 

$

(2,000

)

 

$

(237

)

 

$

30,525

 

Total Control and Affiliate Investments

 

$

1,147

 

 

$

(1,408

)

 

$

50,756

 

 

$

39,155

 

 

$

(4,116

)

 

$

(857

)

 

$

84,938

 

 

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

Represents the total amount of interest or dividends credited to income for the period an investment was an affiliate or control investment.

(3)

Gross additions include increases in the cost basis of investments resulting from new portfolio investments, paid-in-kind interest or dividends, the amortization of discounts and closing fees and the exchange of one or more existing securities for one or more new securities.

(4)

Gross reductions include decreases in the cost basis of investments resulting from principal repayments or sales and the exchange of one or more existing securities for one or more new securities. Gross reductions also include previously recognized depreciation on investments that become control or affiliate investments during the period.

(5)

As of March 31, 2017, the Company's investment in Tectura Corporation became classified as a control investment as of result of obtaining more than 50% representation on the portfolio company's board.

(6)

As of September 30, 2017, the Company's investment in Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.) became classified as an affiliate investment due to a reduction in equity ownership. Note that this investment was classified as a control investment as of June 30, 2017 after the Company obtained a controlling financial interest.

(7)

As of February 2018, the Company’s investments in Second Time Around ((Simplify Holdings, LLC) were deemed wholly worthless and written off for a realized loss.

(8)

As of March 31, 2018, the Company's investment in Gibraltar Business Capital, LLC became classified as a control investment as a result of obtaining a controlling financial interest

 


 

Schedule 12 – 14

HERCULES CAPITAL, INC.

SCHEDULE OF INVESTMENTS IN AND ADVANCES TO AFFILIATES

As of March 31, 2018

(in thousands)

 

Portfolio Company

 

Industry

 

Type of Investment (1)

 

Maturity Date

 

Interest Rate and Floor

 

Principal

or Shares

 

 

Cost

 

 

Value (2)

 

Control Investments

 

Majority Owned Control Investments

 

Achilles Technology Management Co II, Inc.

 

Communications & Networking

 

Common Stock

 

 

 

 

 

 

100

 

 

$

3,100

 

 

$

117

 

Gibraltar Business Capital, LLC

 

Diversified Financial Services

 

Unsecured Debt

 

March 2023

 

Interest rate FIXED 14.50%

 

$

10,000

 

 

 

9,802

 

 

 

9,802

 

 

 

Diversified Financial Services

 

Preferred Stock

 

 

 

 

 

 

10,602,752

 

 

 

25,538

 

 

 

25,538

 

 

 

Diversified Financial Services

 

Common Stock

 

 

 

 

 

 

830,000

 

 

 

1,861

 

 

 

1,861

 

Total Gibraltar Business Capital, LLC

 

 

 

 

 

 

 

 

 

 

 

 

 

$

37,201

 

 

$

37,201

 

Total Majority Owned Control Investments (4.51%)*

 

 

$

40,301

 

 

$

37,318

 

Other Control Investments

 

Tectura Corporation

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

June 2021

 

Interest rate FIXED 6.00%,

PIK Interest 3.00%

 

$

20,450

 

 

$

20,450

 

 

$

17,095

 

 

 

Internet Consumer & Business Services

 

Senior Secured Debt

 

June 2021

 

PIK Interest 8.00%

 

$

10,680

 

 

 

240

 

 

 

 

 

 

Internet Consumer & Business Services

 

Preferred Series BB Equity

 

 

 

 

 

 

1,000,000

 

 

 

 

 

 

 

Total Tectura Corporation

 

 

 

20,690

 

 

 

17,095

 

Total Other Control Investments (2.06%)*

 

 

$

20,690

 

 

$

17,095

 

Total Control Investments (6.57%)*

 

 

$

60,991

 

 

$

54,413

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Affiliate Investments

 

Optiscan BioMedical, Corp.

 

Medical Devices & Equipment

 

Preferred Series B Equity

 

 

 

 

 

 

6,185,567

 

 

$

3,000

 

 

$

345

 

 

 

Medical Devices & Equipment

 

Preferred Series C Equity

 

 

 

 

 

 

1,927,309

 

 

 

655

 

 

 

100

 

 

 

Medical Devices & Equipment

 

Preferred Series D Equity

 

 

 

 

 

 

55,103,923

 

 

 

5,257

 

 

 

3,193

 

 

 

Medical Devices & Equipment

 

Preferred Series E Equity

 

 

 

 

 

 

31,199,131

 

 

 

2,609

 

 

 

2,618

 

 

 

Medical Devices & Equipment

 

Preferred Series E Warrants

 

 

 

 

 

 

10,535,275

 

 

 

1,252

 

 

 

271

 

Total Optiscan BioMedical, Corp.

 

 

 

12,773

 

 

 

6,527

 

Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)

 

Sustainable and Renewable Technology

 

Senior Secured Debt

 

August 2019

 

Interest rate PRIME + 8.70%

or Floor rate of 12.95%,

4.50% Exit Fee

 

$

12,000

 

 

 

11,770

 

 

 

11,683

 

 

 

Sustainable and Renewable Technology

 

Common Stock

 

 

 

 

 

 

288

 

 

 

61,502

 

 

 

12,315

 

Total Solar Spectrum Holdings LLC (p.k.a. Sungevity, Inc.)

 

 

$

73,272

 

 

$

23,998

 

Stion Corporation

 

Sustainable and Renewable Technology

 

Preferred Series Seed Warrants

 

 

 

 

 

 

2,154

 

 

 

1,378

 

 

 

 

Total Affiliate Investments (3.68%)*

 

 

$

87,423

 

 

$

30,525

 

Total Control and Affiliate Investments (10.25%)*

 

 

$

148,414

 

 

$

84,938

 

 

*

Value as a percent of net assets

(1)

Stock and warrants are generally non-income producing and restricted.

(2)

All of the Company’s control and affiliate investments are Level 3 investments valued using significant unobservable inputs.

 


 

SIGNATURES

Pursuant to the requirements of the Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

 

 

 

HERCULES CAPITAL, INC. (Registrant)

 

 

 

Dated: May 3, 2018

 

/S/ MANUEL A. HENRIQUEZ

 

 

Manuel A. Henriquez

 

 

Chairman, President, and Chief Executive Officer

 

 

Dated: May 3, 2018

 

/S/ GERARD R. WALDT, JR. 

 

 

Gerard R. Waldt, Jr.

 

 

Interim Chief Accounting Officer