Hercules Capital
HERCULES TECHNOLOGY GROWTH CAPITAL INC (Form: 10-Q, Received: 08/09/2007 06:06:07)
Table of Contents

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

 


FORM 10-Q

 


(Mark One)

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

For The Quarterly Period Ended June 30, 2007

OR

 

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

Commission File Number: 814-00702

 


HERCULES TECHNOLOGY GROWTH 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 94301   94301
(Address of Principal Executive Offices)   (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 as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    YES   x     NO   ¨

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

Large Accelerated Filer   ¨     Accelerated Filer   x     Non-Accelerated Filer   ¨

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

On August 6, 2007, there were 32,373,043 shares outstanding of the Registrant’s common stock, $0.001 par value.

 



Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

FORM 10-Q TABLE OF CONTENTS

 

PART I.    FINANCIAL INFORMATION

   3

Item 1.

   Consolidated Financial Statements    3
   Consolidated Statements of Assets and Liabilities as of June 30, 2007 (unaudited) and December 31, 2006    3
   Consolidated Schedule of Investments as of June 30, 2007 (unaudited)    4
   Consolidated Schedule of Investments as of December 31, 2006    13
  

Consolidated Statements of Operations for the three and six-month periods ended June 30, 2007 and 2006 (unaudited)

   19
  

Consolidated Statements of Changes in Net Assets for the six-month periods ended June 30, 2007 and 2006 (unaudited)

   20
   Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2007 and 2006 (unaudited)    21
   Notes to Consolidated Financial Statements (unaudited)    22

Item 2.

   Management’s Discussion and Analysis of Financial Condition and Results of Operations    32

Item 3.

   Quantitative and Qualitative Disclosures About Market Risk    41

Item 4.

   Controls and Procedures    41

PART II.    OTHER INFORMATION

  

Item 1.

   Legal Proceedings    42

Item 1a.

   Risk Factors    42

Item 2.

   Unregistered Sales of Equity Securities and Use of Proceeds    42

Item 3.

   Defaults Upon Senior Securities    43

Item 4.

   Submission of Matters to a Vote of Security Holders    43

Item 5.

   Other Information    43

Item 6.

   Exhibits    44

Signatures

   45

 

2


Table of Contents

PART I: FINANCIAL INFORMATION

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

 

ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES

 

    

June 30,

2007
(unaudited)

    December 31,
2006
 

Assets

    

Investments, at value (cost of $411,011,161 and $279,946,465, respectively)

   $ 416,705,087     $ 283,233,751  

Deferred loan origination revenue

     (4,939,369 )     (3,450,971 )

Cash and cash equivalents

     7,465,828       16,404,214  

Interest receivable

     4,934,961       2,906,831  

Other assets

     3,570,301       2,048,384  
                

Total assets

     427,736,808       301,142,209  

Liabilities

    

Accounts payable

     535,247       540,376  

Accrued liabilities

     3,477,486       4,189,011  

Short-term loans payable

     21,700,000       41,000,000  

Long-term loans payable

     12,000,000       —    
                

Total liabilities

     37,712,733       45,729,387  
                

Net assets

   $ 390,024,075     $ 255,412,822  
                

Net assets consist of:

    

Par value

   $ 32,371     $ 21,927  

Capital in excess of par value

     391,061,289       257,234,729  

Unrealized appreciation on investments

     5,042,341       2,860,654  

Accumulated realized gains (losses) on investments

     (2,017,940 )     (1,972,014 )

Distributions in excess of investment income

     (4,093,986 )     (2,732,474 )
                

Total net assets

   $ 390,024,075     $ 255,412,822  
                

Shares of common stock outstanding ($0.001 par value, 60,000,000 authorized)

     32,371,376       21,927,034  
                

Net asset value per share

   $ 12.05     $ 11.65  
                

See notes to consolidated financial statements (unaudited).

 

3


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(unaudited)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Acceleron Pharmaceuticals, Inc. (1.04%)* (4)

  Drug Discovery   Senior Debt      
   

Matures June 2009

     
   

Interest rate 10.25%

  $ 3,663,796   $ 3,596,060   $ 3,596,060
   

Preferred Stock Warrants

      69,106     409,707
   

Preferred Stock Warrants

      34,996     31,290

Acceleron Pharmaceuticals, Inc. (0.28%)

    Preferred Stock       1,000,000     1,111,112
                 

Total Acceleron Pharmaceuticals, Inc.

    4,700,162     5,148,169

Aveo Pharmaceuticals, Inc. (3.66%) (4)

  Drug Discovery   Senior Debt      
   

Matures September 2009

     
   

Interest rate 10.75%

  $ 14,289,198     14,166,591     14,166,591
   

Preferred Stock Warrants

      144,056     84,408
   

Preferred Stock Warrants

      46,288     32,845
                 

Total Aveo Pharmaceuticals, Inc.

    14,356,935     14,283,844

Elixir Pharmaceuticals, Inc. (2.57%) (4)

  Drug Discovery   Senior Debt      
   

Matures June 2010

     
   

Interest rate Prime + 2.45%

  $ 10,000,000     9,878,968     9,878,968
   

Preferred Stock Warrants

      149,510     132,908
                 

Total Elixir Pharmaceuticals, Inc.

    10,028,478     10,011,876

EpiCept Corporation (2.60%) (4)

  Drug Discovery   Senior Debt      
   

Matures August 2009

     
   

Interest rate 11.70%

  $ 9,129,887     8,571,497     8,571,497
   

Common Stock Warrants

      794,633     1,568,705
                 

Total EpiCept Corporation

    9,366,130     10,140,202

Memory Pharmaceuticals Corp. (2.84%) (4)

  Drug Discovery   Senior Debt      
   

Matures February 2011

     
   

Interest rate 11.45%

  $ 11,000,000     9,362,449     9,362,449
   

Common Stock Warrants

      1,750,585     1,698,732
                 

Total Memory Pharmaceuticals Corp.

    11,113,034     11,061,181

Merrimack Pharmaceuticals, Inc. (1.27%) (4)

  Drug Discovery   Convertible Senior Debt      
   

Matures October 2008

     
   

Interest rate 11.15%

  $ 5,833,308     4,380,225     4,570,225
   

Preferred Stock Warrants

      155,456     388,729
                 

Total Merrimack Pharmaceuticals, Inc.

    4,535,681     4,958,954

Neosil, Inc. (0.51%)

  Drug Discovery   Senior Debt      
   

Matures May 2010

     
   

Interest rate 10.75%

  $ 2,000,000     1,921,817     1,921,817
   

Preferred Stock Warrants

      82,782     83,423
                 

Total Neosil, Inc.

    2,004,599     2,005,240

Paratek Pharmaceuticals, Inc. (1.21%) (4)

  Drug Discovery   Senior Debt      
   

Matures June 2008

     
   

Interest rate 11.10%

  $ 4,675,325     4,633,343     4,633,343
   

Preferred Stock Warrants

      137,396     91,625
                 

Total Paratek Pharmaceuticals, Inc.

    4,770,739     4,724,968

Portola Pharmaceuticals, Inc. (3.87%) (4)

  Drug Discovery   Senior Debt      
   

Matures September 2010

     
   

Interest rate Prime + 1.75%

  $ 15,000,000     14,875,281     14,875,281
   

Preferred Stock Warrants

      151,557     205,290
                 

Total Portola Pharmaceuticals, Inc.

    15,026,838     15,080,571

 

4


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1) (6)

 

Principal

Amount

  Cost (2)   Value (3)

Sirtris Pharmaceuticals, Inc. (2.68%) (4)

  Drug Discovery   Senior Debt      
   

Matures April 2011

     
   

Interest rate 10.60%

  $ 10,000,000   $ 9,933,376   $ 9,933,376
   

Common Stock Warrants

      88,829     504,743

Sirtris Pharmaceuticals, Inc. (0.14%)

    Common Stock       500,000     559,524
                 

Total Sirtris Pharmaceuticals, Inc.

    10,522,205     10,997,643
                 

Total Drug Discovery (22.67%)

    86,424,801     88,412,648
                 

IKANO Communications, Inc. (5.78%) (4)

  Communications & Networking  

Senior Debt

Matures March 2011

     
         
   

Interest rate 11.00%

  $ 22,500,000     22,500,000     22,500,000
   

Preferred Stock Warrants

      45,460     27,138
   

Preferred Stock Warrants

      72,344     46,217
                 

Total IKANO Communications, Inc.

    22,617,804     22,573,355

Interwise, Inc. (0.06%) (4)

  Communications & Networking  

Senior Debt

Preferred Stock Warrants

      268,401     230,765
         
                 

Total Interwise, Inc.

    268,401     230,765

Ping Identity Corporation (0.57%) (4)

  Communications & Networking  

Senior Debt

Matures June 2009

     
         
   

Interest rate 11.50%

  $ 2,112,811     2,082,820     2,082,820
   

Preferred Stock Warrants

      51,801     155,432
                 

Total Ping Identity Corporation

    2,134,621     2,238,252

Purcell Systems, Inc. (2.01%)

  Communications & Networking  

Senior Debt

Matures June 2009

     
         
   

Interest rate Prime + 3.50%

  $ 2,500,000     2,380,622     2,380,622
   

Revolving Line of Credit

     
   

Matures June 2008

     
   

Interest rate Prime + 2.00%

  $ 5,334,473     5,334,473     5,334,473
   

Preferred Stock Warrants

      122,789     119,360
                 

Total Purcell Systems, Inc.

    7,837,884     7,834,455

Rivulet Communications, Inc. (0.90%) (4)

  Communications & Networking  

Senior Debt

Matures September 2009

     
         
   

Interest rate 10.60%

  $ 3,500,000     3,467,973     3,467,973
   

Preferred Stock Warrants

      50,710     35,677

Rivulet Communications, Inc. (0.06%)

    Preferred Stock       250,000     250,000
                 

Total Rivulet Communications, Inc.

    3,768,683     3,753,650

Seven Networks, Inc. (3.08%)

  Communications & Networking  

Senior Debt

Matures April 2010

     
         
   

Interest rate Prime + 3.75%

  $ 10,000,000     10,000,000     10,000,000
   

Revolving Line of Credit

     
   

Matures April 2008

     
   

Interest rate Prime + 3.00%

  $ 2,000,000     1,841,383     1,841,383
   

Preferred Stock Warrants

      173,967     167,521
                 

Total Seven Networks, Inc.

    12,015,350     12,008,904

Simpler Networks Corp. (1.26%) (4)

  Communications & Networking  

Senior Debt

Matures July 2009

     
         
   

Interest rate 11.75%

  $ 4,264,256     4,174,366     4,174,366
   

Preferred Stock Warrants

      160,241     727,740

Simpler Networks Corp. (0.13%)

    Preferred Stock       500,000     500,000
                 

Total Simpler Networks Corp.

    4,834,607     5,402,106

 

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Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Tectura Corporation (5.57%)

  Communications & Networking  

Senior Debt

Matures March 2012

     
         
   

Interest rate LIBOR + 6.15%

  $ 9,726,182   $ 9,677,668   $ 9,677,668
    Revolving Line of Credit      
   

Matures March 2008

     
   

Interest rate LIBOR + 5.15%

  $ 12,000,000     12,000,000     12,000,000
    Preferred Stock Warrants       51,067     49,368
                 

Total Tectura Corporation

    21,728,735     21,727,036

Teleflip, Inc. (0.13%) (4)

  Communications & Networking  

Senior Debt

Matures May 2010

     
         
   

Interest rate Prime + 2.75%

  $ 500,000     489,784     489,784
    Preferred Stock Warrants       10,508     9,837
                 

Total Teleflip, Inc.

    500,292     499,621

Wireless Channels, Inc. (3.18%)

  Communications & Networking  

Senior Debt-Second Lien

Matures April 2010

     
         
   

Interest rate 9.25%

  $ 2,378,824     2,240,922     2,240,922
    Senior Debt-Second Lien      
   

Matures April 2010

     
   

Interest rate Prime + 4.25%

  $ 10,000,000     10,000,000     10,000,000
    Preferred Stock Warrants       155,139     152,828
                 

Total Wireless Channels, Inc.

    12,396,061     12,393,750
                 

Total Communications & Networking (22.73%)

    88,102,438     88,661,894
                 

Atrenta, Inc. (1.26%) (4)

  Software   Senior Debt      
   

Matures June 2009

     
   

Interest rate 11.50%

  $ 4,707,075     4,651,001     4,651,001
    Preferred Stock Warrants       102,396     189,211
    Preferred Stock Warrants       33,760     62,084

Atrenta, Inc. (0.06%)

    Preferred Stock       250,000     250,000
                 

Total Atrenta, Inc.

    5,037,157     5,152,296

Blurb, Inc. (0.06%)

  Software   Senior Debt      
   

Matures December 2009

     
   

Interest rate 9.55%

  $ 250,000     239,605     239,605
    Preferred Stock Warrants       12,904     11,513
                 

Total Blurb, Inc.

    252,509     251,118

Cittio, Inc. (0.26%)

  Software   Senior Debt      
   

Matures April 2010

     
   

Interest rate 11.00%

  $ 1,000,000     1,000,000     1,000,000
                 

Total Cittio, Inc.

    1,000,000     1,000,000

Compete, Inc. (0.85%) (4)

  Software   Senior Debt      
   

Matures March 2009

     
   

Interest rate Prime + 3.50%

  $ 3,168,595     3,133,366     3,133,366
    Preferred Stock Warrants       62,067     195,872
                 

Total Compete, Inc.

    3,195,433     3,329,238

Forescout Technologies, Inc. (0.77%) (4)

  Software   Senior Debt      
   

Matures August 2009

     
   

Interest rate 11.15%

  $ 2,500,000     2,459,849     2,459,849
    Revolving Line of Credit      
   

Matures August 2007

     
   

Interest rate Prime + 1.49%

  $ 500,000     500,000     500,000
    Preferred Stock Warrants       55,593     45,585
                 

Total Forescout Technologies, Inc.

    3,015,442     3,005,434

GameLogic, Inc. (0.77%) (4)

  Software   Senior Debt      
   

Matures December 2009

     
   

Interest rate Prime + 4.125%

  $ 2,947,396     2,926,101     2,926,101
    Preferred Stock Warrants       92,483     74,978
                 

Total GameLogic, Inc.

    3,018,584     3,001,079

 

6


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Gomez, Inc. (0.17%) (4)

  Software   Senior Debt      
   

Matures December 2007

     
   

Interest rate 12.25%

  $ 672,351   $ 667,491   $ 667,491
    Preferred Stock Warrants       35,000     9,542
                 

Total Gomez, Inc.

    702,491     677,033

HighRoads, Inc. (0.01%) (4)

  Software   Preferred Stock Warrants       44,466     31,004
                 

Total HighRoads, Inc.

    44,466     31,004

Intelliden, Inc. (0.73%)

  Software   Senior Debt      
   

Matures February 2010

     
   

Interest rate 13.20%

  $ 2,793,991     2,780,727     2,780,727
    Preferred Stock Warrants       17,542     72,309
                 

Total Intelliden, Inc.

    2,798,269     2,853,036

Inxight Software, Inc. (0.92%) (4)

  Software   Senior Debt      
   

Matures February 2008

     
   

Interest rate 10.00%

  $ 3,414,512     3,402,270     3,402,270
    Preferred Stock Warrants       55,963     133,000
                 

Total Inxight Software, Inc.

    3,458,233     3,535,270

Oatsystems, Inc. (1.40%) (4)

  Software   Senior Debt      
   

Matures September 2009

     
   

Interest rate 11.00%

  $ 5,473,469     5,424,121     5,424,121
    Preferred Stock Warrants       67,484     47,488
                 

Total Oatsystems, Inc.

    5,491,605     5,471,609

Proficiency, Inc. (1.04%) (5)

  Software   Senior Debt      
   

Matures July 2008

     
   

Interest rate 12.00%

  $ 4,000,000     3,968,821     3,968,821
    Preferred Stock Warrants       96,370     97,459
                 

Total Proficiency, Inc.

    4,065,191     4,066,280

PSS Systems, Inc. (0.09%) (4)

  Software   Senior Debt      
   

Matures March 2010

     
   

Interest rate 10.74%

  $ 350,000     304,485     304,485
    Preferred Stock Warrants       51,205     51,186
                 

Total PSS Systems, Inc.

    355,690     355,671

Savvion, Inc. (1.21%) (4)

  Software   Senior Debt      
   

Matures March 2009

     
   

Interest rate Prime + 3.45%

  $ 1,695,633     1,695,633     1,695,633
    Revolving Line of Credit      
   

Matures March 2007

     
   

Interest rate Prime + 2.00%

  $ 3,000,000     3,000,000     3,000,000
    Preferred Stock Warrants       52,135     36,694
                 

Total Savvion, Inc.

    4,747,768     4,732,327

Sportvision, Inc. (0.01%)

  Software   Preferred Stock Warrants       39,339     24,312
                 

Total Sportvision, Inc.

    39,339     24,312

Talisma Corp. (0.28%) (4)

  Software   Subordinated Debt      
   

Matures December 2007

     
   

Interest rate 11.25%

  $ 1,076,689     1,069,883     1,069,883
    Preferred Stock Warrants       49,000     12,880
                 

Total Talisma Corp.

    1,118,883     1,082,763
                 

Total Software (9.89%)

    38,341,060     38,568,470
                 

 

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Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Agami Systems, Inc. (1.66%) (4)

  Electronics & Computer Hardware  

Senior Debt

Matures August 2009

     
         
   

Interest rate 11.00%

  $ 6,385,715   $ 6,324,658   $ 6,324,658
    Preferred Stock Warrants       85,601     142,504
                 

Total Agami Systems, Inc.

    6,410,259     6,467,162

Luminus Devices, Inc. (3.38%) (4)

 

Electronics &

Computer Hardware

 

Senior Debt

Matures August 2009

     
         
   

Interest rate 12.50%

  $ 13,194,417     13,005,316     13,005,316
    Preferred Stock Warrants       183,290     133,735
    Preferred Stock Warrants       83,529     75,868
                 

Total Luminus Devices, Inc.

    13,272,135     13,214,919

NetEffect, Inc. (0.64%)

 

Electronics &

Computer Hardware

 

Senior Debt

Matures May 2010

     
         
   

Interest rate 11.95%

  $ 2,500,000     2,458,726     2,458,726
    Preferred Stock Warrants       43,632     42,335
                 

Total NetEffect, Inc.

    2,502,358     2,501,061

NeoScale Systems, Inc. (0.77%)

 

Electronics &

Computer Hardware

 

Senior Debt

Matures October 2009

     
         
   

Interest rate 10.75%

  $ 3,000,000     2,982,305     2,982,305
    Preferred Stock Warrants       23,593     29,598
                 

Total NeoScale Systems, Inc.

    3,005,898     3,011,903

SiCortex, Inc. (0.04%)

 

Electronics &

Computer Hardware

 

Preferred Stock Warrants

      164,051     159,469
         
                 

Total SiCortex, Inc.

    164,051     159,469

Sling Media, Inc. (0.48%)

 

Electronics &

Computer Hardware

  Preferred Stock Warrants       38,968     1,373,104
         
    Preferred Stock       500,000     500,000
                 

Total Sling Media, Inc.

    538,968     1,873,104

VeriWave, Inc. (0.56%)

 

Electronics &

Computer Hardware

 

Senior Debt

Matures May 2010

     
         
   

Interest rate 10.75%

  $ 2,163,271     2,112,140     2,112,140
    Preferred Stock Warrants       54,230     53,243
                 

Total VeriWave, Inc.

    2,166,370     2,165,383

ViDeOnline Communications, Inc. (0.08%) (4)

 

Electronics &

Computer Hardware

 

Preferred Stock Warrants

      —       295,901
         
                 

Total ViDeOnline Communications, Inc.

    —       295,901
                 

Total Electronics & Computer Hardware (7.61%)

    28,060,039     29,688,902
                 

Aegerion Pharmaceuticals, Inc. (2.57%) (4)

 

Specialty

Pharmaceuticals

 

Senior Debt

Matures August 2010

     
         
   

Interest rate Prime + 2.50%

  $ 10,000,000     9,937,545     9,937,545
    Preferred Stock Warrants       69,207     69,059
                 

Total Aegerion Pharmaceuticals, Inc.

    10,006,752     10,006,604

Quatrx Pharmaceuticals Company (4.21%) (4)

 

Specialty

Pharmaceuticals

 

Senior Debt

Matures January 2010

     
         
   

Interest rate Prime + 3.00%

  $ 16,567,142     16,429,421     16,429,421
    Preferred Stock Warrants       220,354     —  

Quatrx Pharmaceuticals Company (0.19%)

    Preferred Stock       750,001     750,001
                 

Total Quatrx Pharmaceuticals Company

    17,399,776     17,179,422

 

8


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Panacos Pharmaceuticals, Inc. (2.55%)

 

Specialty

Pharmaceuticals

 

Senior Debt

Matures January 2011

     
         
   

Interest rate 11.20%

  $ 10,000,000   $ 9,144,567   $ 9,144,567
    Common Stock Warrants       876,297     803,781
                 

Total Panacos Pharmaceuticals, Inc.

    10,020,864     9,948,348
                 

Total Specialty Pharmaceuticals (9.52%)

    37,427,392     37,134,374
                 

BabyUniverse, Inc. (1.31%) (4)

  Consumer & Business Products  

Senior Debt

Matures July 2009

     
         
   

Interest rate Prime + 2.35%

  $ 5,000,000     4,783,184     4,783,184
    Common Stock Warrants       325,224     307,587
                 

Total BabyUniverse, Inc.

    5,108,408     5,090,771

Market Force Information, Inc. (0.43%) (4)

 

Consumer & Business

Products

 

Senior Debt

Matures May 2009

     
         
   

Interest rate 10.45%

  $ 1,541,514     1,527,721     1,527,721
    Preferred Stock Warrants       23,823     141,940

Market Force Information, Inc. (0.13%)

    Preferred Stock       500,000     500,000
                 

Total Market Force Information, Inc.

    2,051,544     2,169,661

Wageworks, Inc. (3.11%) (4)

  Consumer & Business Products  

Senior Debt

Matures November 2008

     
   

Interest rate Prime + 4.00%

  $ 11,127,398     11,031,412     11,031,412
    Preferred Stock Warrants       251,964     1,106,668

Wageworks, Inc. (0.06%)

    Preferred Stock       249,995     249,995
                 

Total Wageworks, Inc.

    11,533,371     12,388,075
                 

Total Consumer & Business Products (5.04%)

    18,693,323     19,648,507
                 

Ageia Technologies, Inc. (1.55%) (4)

  Semiconductors   Senior Debt      
   

Matures August 2008

     
   

Interest rate 10.25%

  $ 6,001,890     5,966,071     5,966,071
    Convertible Debt       61,880     61,880
    Preferred Stock Warrants       99,190     —  

Ageia Technologies, Inc. (0.13%)

    Preferred Stock       500,000     500,000
                 

Total Ageia Technologies

    6,627,141     6,527,951

Cradle Technologies (0.00%)

  Semiconductors   Preferred Stock Warrants       79,150     —  
                 

Total Cradle Technologies

    79,150     —  

iWatt Inc. (1.30%) (4)

  Semiconductors   Senior Debt      
   

Matures September 2009

     
   

Interest rate Prime + 2.75%

  $ 1,824,490     1,791,859     1,791,859
    Revolving Line of Credit      
   

Matures September 2007

     
   

Interest rate Prime + 1.75%

  $ 3,235,000     3,235,000     3,235,000
    Preferred Stock Warrants       45,684     54,384
                 

Total iWatt Inc.

    5,072,543     5,081,243

NEXX Systems, Inc. (2.82%) (4)

  Semiconductors   Senior Debt      
   

Matures February 2010

     
   

Interest rate Prime + 2.75%

  $ 5,000,000     4,852,775     4,852,775
    Revolving Line of Credit      
   

Matures December 2009

     
   

Interest rate Prime + 1.75%

  $ 6,000,000     6,000,000     6,000,000
    Preferred Stock Warrants       164,613     153,966
                 

Total NEXX Systems, Inc.

    11,017,388     11,006,741
                 

Total Semiconductors (5.80%)

    22,796,222     22,615,935
                 

 

9


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Labopharm USA, Inc. (1.19%) (4)(5)

  Drug Delivery   Senior Debt      
   

Matures July 2008

     
   

Interest rate 11.95%

  $ 4,539,328   $ 4,651,897   $ 4,651,897
                 

Total Labopharm USA, Inc.

    4,651,897     4,651,897

Transcept Pharmaceuticals, Inc. (2.29%) (4)

  Drug Delivery   Senior Debt      
   

Matures October 2009

     
   

Interest rate 10.69%

  $ 8,667,943     8,604,549     8,604,549
    Preferred Stock Warrants       35,630     120,553
    Preferred Stock Warrants       51,067     189,460

Transcept Pharmaceuticals, Inc. (0.13%)

    Preferred Stock       500,000     500,000
                 

Total Transcept Pharmaceuticals, Inc.

    9,191,246     9,414,562
                 

Total Drug Delivery (3.61%)

    13,843,143     14,066,459
                 

BARRX Medical, Inc. (0.39%)

  Therapeutic   Preferred Stock       1,500,000     1,500,000
                 

Total BARRX Medical, Inc.

    1,500,000     1,500,000

EKOS Corporation (1.28%)

  Therapeutic   Senior Debt      
   

Matures November 2010

     
   

Interest rate Prime + 2.00%

  $ 5,000,000     4,833,783     4,833,783
    Preferred Stock Warrants       174,528     169,449
                 

Total EKOS Corporation

    5,008,311     5,003,232

Gynesonics, Inc. (0.49%) (4)

  Therapeutic   Senior Debt      
   

Matures October 2009

     
   

Interest rate 9.50%

  $ 1,881,146     1,869,862     1,869,862
    Preferred Stock Warrants       17,552     53,047

Gynesonics, Inc. (0.06%)

    Preferred Stock       250,000     250,000
                 

Total Gynesonics, Inc.

    2,137,414     2,172,909

Novasys Medical, Inc. (2.05%) (4)

  Therapeutic   Senior Debt      
   

Matures January 2010

     
   

Interest rate 9.70%

  $ 8,000,000     8,000,000     8,000,000
                 

Total Novasys Medical, Inc.

    8,000,000     8,000,000

Power Medical Interventions, Inc. (0.01%)

  Therapeutic   Common Stock Warrants       20,687     27,371
                 

Total Power Medical Interventions, Inc.

    20,687     27,371
                 

Total Therapeutic (4.28%)

    16,666,412     16,703,512
                 

Hedgestreet, Inc. (0.86%) (4)

 

Internet Consumer &

Business Services

 

Senior Debt

Matures March 2009

     
         
   

Interest rate 11.30%

  $ 3,329,307     3,301,086     3,301,086
    Preferred Stock Warrants       54,956     39,075
                 

Total Hedgestreet, Inc.

    3,356,042     3,340,161

Invoke Solutions, Inc. (0.56%) (4)

 

Internet Consumer &

Business Services

 

Senior Debt

Matures December 2008

     
         
   

Interest rate 11.25%

  $ 2,187,234     2,161,526     2,161,526
    Preferred Stock Warrants       49,722     36,816
                 

Total Invoke Solutions, Inc.

    2,211,248     2,198,342

Prism Education Group Inc. (0.51%)

 

Internet Consumer &

Business Services

 

Senior Debt

Matures December 2010

     
         
   

Interest rate 11.25%

  $ 2,000,000     1,958,261     1,958,261
    Preferred Stock Warrants       42,757     41,601
                 

Total Prism Education Group Inc.

    2,001,018     1,999,862

RazorGator Interactive Group, Inc. (0.64%) (4)

 

Internet Consumer &

Business Services

 

Senior Debt

Matures January 2008

     
         
   

Interest rate 9.95%

  $ 1,903,620     1,901,445     1,901,445
    Preferred Stock Warrants       13,050     552,355
    Preferred Stock Warrants       28,478     25,071

RazorGator Interactive Group, Inc. (0.44%)

    Preferred Stock       1,000,000     1,708,178
                 

Total RazorGator Interactive Group, Inc.

    2,942,973     4,187,049
                 

Total Internet Consumer & Business Services (3.01%)

    10,511,281     11,725,414
                 

 

10


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

Lilliputian Systems, Inc. (2.18%) (4)

  Energy   Senior Debt      
   

Matures March 2010

     
   

Interest rate 9.75%

  $ 8,500,000   $ 8,468,986   $ 8,468,986
    Preferred Stock Warrants       48,460     34,462
                 

Total Lilliputian Systems, Inc.

    8,517,446     8,503,448
                 

Total Energy (2.18%)

    8,517,446     8,503,448
                 

Active Response Group, Inc. (2.56%)

  Information Services   Senior Debt      
   

Matures March 2012

     
   

Interest rate Libor + 6.55%

  $ 10,000,000     9,956,988     9,956,988
    Preferred Stock Warrants       38,434     37,835
    Common Stock Warrants       7,650     7,531
                 

Total Active Response Group, Inc.

    10,003,072     10,002,354

Buzznet, Inc. (0.06%)

  Information Services   Senior Debt      
   

Matures March 2010

     
   

Interest rate 10.25%

  $ 250,000     242,344     242,344
    Preferred Stock Warrants       8,613     8,496
                 

Total Buzznet, Inc.

    250,957     250,840

Solutionary, Inc. (1.54%)

  Information Services   Senior Debt      
   

Matures June 2010

     
   

Interest rate LIBOR + 5.50%

  $ 5,500,000     5,413,580     5,413,580
    Revolving Line of Credit      
   

Matures June 2010

     
   

Interest rate LIBOR + 5.00%

  $ 500,000     500,000     500,000
    Preferred Stock Warrants       93,827     92,363

Solutionary, Inc. (0.07%)

    Preferred Stock       250,000     250,000
                 

Total Solutionary, Inc.

    6,257,407     6,255,943

Wallop Technologies, Inc. (0.06%)

  Information Services   Senior Debt      
   

Matures March 2010

     
   

Interest rate 10.00%

  $ 237,207     230,564     230,564
    Preferred Stock Warrants       7,473     7,332
                 

Total Wallop Technologies, Inc.

    238,037     237,896
                 

Total Information Services (4.29%)

    16,749,473     16,747,033
                 

Novadaq Technologies, Inc. (0.37%)

  Diagnostic   Common Stock       1,735,157     1,461,740
                 

Total Novadaq Technologies, Inc.

    1,735,157     1,461,740

Optiscan Biomedical, Corp. (0.17%) (4)

  Diagnostic   Senior Debt      
   

Matures March 2008

     
   

Interest rate 15.00%

  $ 617,389     594,022     594,022
    Preferred Stock Warrants       80,486     54,638

Optiscan Biomedical, Corp. (0.26%)

    Preferred Stock       1,000,000     1,000,000
                 

Total Optiscan Biomedical, Corp.

    1,674,508     1,648,660

Xillix Technologies Corp. (0.41%) (4)(5)(7)

  Diagnostic   Senior Debt      
   

Matures December 2008

     
   

Interest rate 12.40%

  $ 1,750,374     1,602,518     1,602,518
    Common Stock Warrants       313,108     —  
                 

Total Xillix Technologies Corp.

    1,915,626     1,602,518
                 

Total Diagnostic (1.21%)

    5,325,291     4,712,918
                 

Guava Technologies, Inc. (1.38%) (4)

  Biotechnology Tools   Senior Debt      
   

Matures July 2009

     
   

Interest rate Prime + 3.25%

  $ 4,389,223     4,331,505     4,331,505
    Revolving Line of Credit      
   

Matures December 2007

     
   

Interest rate Prime + 2.00%

  $ 1,000,000     1,000,000     1,000,000
    Preferred Stock Warrants       105,399     72,635
                 

Total Guava Technologies, Inc.

    5,436,904     5,404,140

 

11


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(6)

 

Principal

Amount

  Cost (2)   Value (3)

NuGEN Technologies, Inc. (0.26%)

  Biotechnology Tools   Senior Debt      
   

Matures March 2010

     
   

Interest rate 11.70%

  $ 1,000,000   $ 958,899   $ 958,899
    Preferred Stock Warrants       44,837     44,138
                 

Total NuGEN Technologies, Inc.

    1,003,736     1,003,037
                 

Total Biotechnology Tools (1.64%)

    6,440,640     6,407,177
                 

Rubicon Technology Inc. (2.08%) (4)

  Advanced Specialty Materials & Chemicals  

Senior Debt

Matures December 2010

     
         
   

Interest rate Prime + 3.375%

  $ 5,100,000     5,023,863     5,023,863
    Revolving Line of Credit      
   

Matures April 2008

     
   

Interest rate Prime + 0.25%

  $ 3,000,000     3,000,000     3,000,000
    Preferred Stock Warrants       81,708     78,991
                 

Total Rubicon Technology Inc.

    8,105,571     8,102,854
                 

Total Advanced Specialty Materials & Chemicals (2.08%)

    8,105,571     8,102,854
                 

Waterfront Media Inc. (1.28%) (4)

  Media/Content/Info   Senior Debt      
   

Matures December 2010

     
   

Interest rate Prime + 3.00%

  $ 3,000,000     2,946,966     2,946,966
    Revolving Line of Credit      
   

Matures March 2008

     
   

Interest rate Prime + 1.25%

  $ 2,000,000     2,000,000     2,000,000
    Preferred Stock Warrants       59,663     58,576
                 

Total Waterfront Media Inc.

    5,006,629     5,005,542
                 

Total Media/Content/Info (1.28%)

    5,006,629     5,005,542
                 

Total Investments (106.84%)

  $ 411,011,161   $ 416,705,087
                 

* Value as a percent of net assets
(1) Preferred and common stock, warrants, and equity interests are generally non-income producing.
(2) Gross unrealized appreciation, gross unrealized depreciation, and net appreciation totaled $7,412,168, $1,718,242 and $5,693,926, respectively.
(3) Except for warrants in seven publicly traded companies and common stock in two publicly traded companies, all investments are restricted at June 30, 2007 and were valued at fair value as determined in good faith by 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.
(4) Debt and warrant investments of this portfolio company have been pledged as collateral under the Credit Facility. Citigroup has an equity participation right on loans collateralized under the Credit Facility. The value of their participation right on unrealized gains in the related equity investments was approximately $602,000 at June 30, 2007 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at June 30, 2007.
(5) Non-U.S. company or the company's principal place of business is outside the United States.
(6) All investments are less than 5% owned.
(7) Non-income producing at the relevant period end.

See notes to consolidated financial statements (unaudited).

 

12


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(unaudited)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(7)

 

Principal

Amount

  Cost (2)   Value (3)

Acceleron Pharmaceuticals, Inc. (1.74%)* (4)

  Biopharmaceuticals   Senior Debt      
   

Matures June 2009

     
   

Interest rate 10.25%

  $ 4,069,607   $ 3,987,624   $ 3,987,624
    Preferred Stock Warrants       69,106     417,115
    Preferred Stock Warrants       34,996     34,393

Acceleron Pharmaceuticals, Inc. (0.44%)

    Preferred Stock       1,000,000     1,111,112
                 

Total Acceleron Pharmaceuticals, Inc

    5,091,726     5,550,244

Aveo Pharmaceuticals, Inc. (5.88%) (4)

  Biopharmaceuticals   Senior Debt      
   

Matures September 2009

     
   

Interest rate 10.75%

  $ 15,000,000     14,849,099     14,849,099
    Preferred Stock Warrants       144,056     115,212
    Preferred Stock Warrants       46,288     43,771
                 

Total Aveo Pharmaceuticals, Inc

    15,039,443     15,008,082

Elixir Pharmaceuticals, Inc. (3.92%)

  Biopharmaceuticals   Senior Debt      
   

Matures June 2010

     
   

Interest rate Prime + 2.45%

  $ 10,000,000     9,857,610     9,857,610
    Preferred Stock Warrants       74,755     73,334
    Preferred Stock Warrants       74,755     73,334
                 

Total Elixir Pharmaceuticals, Inc.

    10,007,120     10,004,278

EpiCept Corporation (3.84%)

  Biopharmaceuticals   Senior Debt      
   

Matures August 2009

     
   

Interest rate 11.70%

  $ 10,000,000     9,312,750     9,312,750
    Common Stock Warrants       794,633     507,592
                 

Total EpiCept Corporation

    10,107,383     9,820,342

Guava Technologies, Inc. (2.26%) (4)

  Biopharmaceuticals   Senior Debt      
   

Matures July 2009

     
   

Interest rate Prime + 3.25%

  $ 5,266,485     5,193,710     5,193,710
    Revolving Line of Credit      
   

Matures December 2007

     
   

Interest rate Prime + 2.00%

  $ 500,000     500,000     500,000
    Preferred Stock Warrants       105,399     83,940
                 

Total Guava Technologies, Inc

    5,799,109     5,777,650

Labopharm USA, Inc. (2.58%) (4)(5)

  Biopharmaceuticals   Senior Debt      
   

Matures July 2008

     
   

Interest rate 11.95%

  $ 6,675,417     6,598,870     6,598,870
                 

Total Labopharm USA, Inc.

    6,598,870     6,598,870

Merrimack Pharmaceuticals, Inc. (2.61%) (4)

  Biopharmaceuticals   Convertible Senior Debt      
   

Matures October 2008

     
   

Interest rate 11.15%

  $ 6,043,382     5,967,550     6,254,550
    Preferred Stock Warrants       155,456     409,159
                 

Total Merrimack Pharmaceuticals, Inc.

    6,123,006     6,663,709

Paratek Pharmaceuticals, Inc. (2.62%) (4)

  Biopharmaceuticals   Senior Debt      
   

Matures June 2008

     
   

Interest rate 11.10%

  $ 6,651,586     6,586,705     6,586,705
    Preferred Stock Warrants       137,396     110,553
                 

Total Paratek Pharmaceuticals, Inc.

    6,724,101     6,697,258

Portola Pharmaceuticals, Inc. (4.41%) .

  Biopharmaceuticals   Senior Debt      
   

Matures September 2010

     
   

Interest rate Prime + 1.75%

  $ 11,250,000   $ 11,145,804   $ 11,145,804
    Preferred Stock Warrants       113,668     107,489
                 

Total Portola Pharmaceuticals, Inc

    11,259,472     11,253,293

Quatrx Pharmaceuticals Company (7.05%) (4)

  Biopharmaceuticals   Senior Debt      
   

Matures January 2010

     
   

Interest rate Prime + 3.00%

  $ 18,000,000     17,834,735     17,834,735
    Preferred Stock Warrants       220,354     179,708
                 

Total Quatrx Pharmaceuticals Company

    18,055,089     18,014,443

Sirtris Pharmaceuticals, Inc. (3.91%) (4)

  Biopharmaceuticals   Senior Debt      
   

Matures April 2011

     
   

Interest rate 10.60%

  $ 10,000,000     9,924,495     9,924,495
    Preferred Stock Warrants       88,829     70,986
                 

Total Sirtris Pharmaceuticals, Inc.

    10,013,324     9,995,481

 

13


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(7)

 

Principal

Amount

  Cost (2)   Value (3)

TransOral Pharmaceuticals, Inc. (3.92%) (4)

  Biopharmaceuticals   Senior Debt      
   

Matures October 2009

     
   

Interest rate 10.69%

  $ 10,000,000     9,921,976     9,921,976
    Preferred Stock Warrants       35,630     28,265
    Preferred Stock Warrants       51,067     50,548
                 

Total TransOral Pharmaceuticals, Inc.

    10,008,673     10,000,789
                 

Total Biopharmaceuticals (45.18%)

    114,827,316     115,384,439
                 

Atrenta, Inc. (2.03%) (4)

  Software   Senior Debt      
   

Matures June 2009

     
   

Interest rate 11.50%

  $ 5,000,000     4,929,298     4,929,298
    Preferred Stock Warrants       102,396     200,285
    Preferred Stock Warrants       33,760     65,719

Atrenta, Inc. (0.10%)

    Preferred Stock       250,000     250,000
                 

Total Atrenta, Inc

    5,315,454     5,445,302

Blurb, Inc. (0.10%)

  Software   Senior Debt      
   

Matures December 2009

     
   

Interest rate 9.55%

  $ 250,000     237,454     237,454
    Preferred Stock Warrants       12,904     12,653
                 

Total Blurb, Inc

    250,358     250,107

Compete, Inc. (1.52%) (4)

  Software   Senior Debt      
   

Matures March 2009

     
   

Interest rate Prime + 3.50%

  $ 3,884,338     3,839,045     3,839,045
    Preferred Stock Warrants       62,067     49,247
                 

Total Compete, Inc.

    3,901,112     3,888,292

Forescout Technologies, Inc. (0.78%)

  Software   Senior Debt      
   

Matures August 2009

     
   

Interest rate 11.15%

  $ 2,000,000     1,950,584     1,950,584
    Preferred Stock Warrants       55,593     50,800
                 

Total Forescout Technologies, Inc.

    2,006,177     2,001,384

GameLogic, Inc. (1.17%) (4)

  Software   Senior Debt      
   

Matures December 2009

     
   

Interest rate Prime + 4.125%

  $ 3,000,000   $ 2,957,416   $ 2,957,416
    Preferred Stock Warrants       52,604     41,860
                 

Total GameLogic, Inc

    3,010,020     2,999,276

Gomez, Inc. (0.48%) (4)

  Software   Senior Debt      
   

Matures December 2007

     
   

Interest rate 12.25%

  $ 1,212,506     1,201,811     1,201,811
    Preferred Stock Warrants       35,000     18,832
                 

Total Gomez, Inc.

    1,236,811     1,220,643

HighRoads, Inc. (0.77%) (4)

  Software   Senior Debt      
   

Matures February 2009

     
   

Interest rate 11.65%

  $ 1,954,723     1,923,844     1,923,844
    Preferred Stock Warrants       44,466     35,484
                 

Total HighRoads, Inc

    1,968,310     1,959,328

Intelliden, Inc. (1.17%)

  Software   Senior Debt      
   

Matures February 2010

     
   

Interest rate 13.20%

  $ 3,000,000     2,984,169     2,984,169
    Preferred Stock Warrants       17,542     16,688
                 

Total Intelliden, Inc.

    3,001,711     3,000,857

Inxight Software, Inc. (1.60%) (4)

  Software   Senior Debt      
   

Matures February 2008

     
   

Interest rate 10.00%

  $ 4,073,794     4,051,059     4,051,059
    Preferred Stock Warrants       55,963     29,800
                 

Total Inxight Software, Inc.

    4,107,022     4,080,859

Oatsystems, Inc. (2.36%) (4)

  Software   Senior Debt      
   

Matures September 2009

     
   

Interest rate 11.00%

  $ 6,000,000     5,973,007     5,973,007
    Preferred Stock Warrants       33,742     26,881
                 

Total Oatsystems, Inc.

    6,006,749     5,999,888

 

14


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(7)

 

Principal

Amount

  Cost (2)   Value (3)

Proficiency, Inc. (1.43%) (5)

  Software   Senior Debt      
   

Matures July 2008

     
   

Interest rate 12.00%

  $ 4,000,000     3,951,815     3,548,185
    Preferred Stock Warrants       96,370     115,977
                 

Total Proficiency, Inc.

    4,048,185     3,664,162

Savvion, Inc. (1.58%) (4)

  Software   Senior Debt      
   

Matures March 2009

     
   

Interest rate Prime + 3.45%

  $ 1,000,000     1,000,000     1,000,000
    Revolving Line of Credit      
   

Matures March 2007

     
   

Interest rate Prime + 2.00%

  $ 3,000,000     2,991,311     2,991,311
    Preferred Stock Warrants       52,135     41,743
                 

Total Savvion, Inc

    4,043,446     4,033,054

Sportvision, Inc. (0.01%)

  Software   Preferred Stock Warrants       39,339     29,667
                 

Total Sportvision, Inc.

    39,339     29,667

Talisma Corp. (0.74%) (4)

  Software   Subordinated Debt      
   

Matures December 2007

     
   

Interest rate 11.25%

  $ 1,873,774   $ 1,858,802   $ 1,858,802
    Preferred Stock Warrants       49,000     25,259
                 

Total Talisma Corp

    1,907,802     1,884,061
                 

Total Software (15.84%)

    40,842,496     40,456,880
                 

BabyUniverse, Inc. (1.90%) (4)

  Consumer & Business Products  

Senior Debt

Matures July 2009

     
         
   

Interest rate Prime + 2.35%

  $ 5,000,000     4,728,980     4,728,980
    Common Stock Warrants       325,224     146,299
                 

Total BabyUniverse, Inc

    5,054,204     4,875,279

Market Force Information, Inc. (0.70%) (4)

  Consumer & Business Products  

Senior Debt

Matures May 2009

     
         
   

Interest rate 10.45%

  $ 1,777,064     1,759,510     1,759,510
    Preferred Stock Warrants       23,823     19,197
                 

Total Market Force Information, Inc

    1,783,333     1,778,707

Wageworks, Inc. (5.89%) (4)

  Consumer & Business Products  

Senior Debt

Matures November 2008

     
         
   

Interest rate Prime + 4.00%

  $ 14,036,422     13,904,441     13,904,441
    Preferred Stock Warrants       251,964     1,140,998

Wageworks, Inc. (0.10%)

    Preferred Stock       249,995     249,995
                 

Total Wageworks, Inc

    14,406,400     15,295,434
                 

Total Consumer & Business Products (8.59%)

    21,243,937     21,949,420
                 

IKANO Communications, Inc. (0.03%)

 

Communications

& Networking

 

Preferred Stock Warrants

      45,460     33,391
         
    Preferred Stock Warrants       72,344     55,530
                 

Total IKANO Communications, Inc.

    117,804     88,921

Interwise, Inc. (0.83%) (4)

 

Communications

& Networking

 

Senior Debt

Matures August 2008

     
         
   

Interest rate 17.50%

  $ 2,094,999     1,869,542     1,869,542
    Preferred Stock Warrants       268,401     244,653
                 

Total Interwise, Inc

    2,137,943     2,114,195

Pathfire, Inc. (1.84%) (4)

 

Communications

& Networking

 

Senior Debt

Matures December 2008

     
         
   

Interest rate Prime + 3.65%

  $ 4,713,221     4,672,795     4,672,795
    Preferred Stock Warrants       63,276     16,918
                 

Total Pathfire, Inc

    4,736,071     4,689,713

Ping Identity Corporation (1.05%) (4)

 

Communications

& Networking

 

Senior Debt

Matures June 2009

     
         
   

Interest rate 11.50%

  $ 2,569,123     2,530,953     2,530,953
    Preferred Stock Warrants       51,801     160,500
                 

Total Ping Identity Corporation

    2,582,754     2,691,453

Rivulet Communications, Inc. (1.37%) (4)

 

Communications

& Networking

 

Senior Debt

Matures September 2009

     
         
   

Interest rate 10.60%

  $ 3,500,000   $ 3,459,966   $ 3,459,966
    Preferred Stock Warrants       50,710     40,352

Rivulet Communications, Inc. (0.10%)

    Preferred Stock       250,000     250,000
                 

Total Rivulet Communications, Inc.

    3,760,676     3,750,318

 

15


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(7)

 

Principal

Amount

  Cost (2)   Value (3)

Simpler Networks Corp. (2.20%) (4)

  Communications & Networking   Senior Debt      
         
   

Matures July 2009

     
   

Interest rate 11.75%

  $ 5,000,000     4,886,659     4,886,659
    Preferred Stock Warrants       160,241     742,688

Simpler Networks Corp. (0.20%)

    Preferred Stock       500,000     500,000
                 

Total Simpler Networks Corp.

    5,546,900     6,129,347
                 

Total Communications & Networking (7.62%)

    18,882,148     19,463,947

Adiana, Inc. (0.53%) (4)

  Medical Devices & Equipment   Senior Debt      
         
   

Matures June 2008

     
   

Interest rate Prime + 6.00%

  $ 1,346,551     1,312,938     1,312,938
    Preferred Stock Warrants       67,225     52,427

Adiana, Inc. (0.20%)

    Preferred Stock       500,000     500,000
                 

Total Adiana, Inc.

    1,880,163     1,865,365

BARRX Medical, Inc. (0.59%)

  Medical Devices & Equipment  

Preferred Stock

      1,500,000     1,500,000
         
                 

Total BARRX Medical, Inc

    1,500,000     1,500,000

Gynesonics, Inc. (0.80%)

  Medical Devices & Equipment   Senior Debt      
         
   

Matures October 2009

     
   

Interest rate 9.50%

  $ 2,000,000     1,986,209     1,986,209
    Preferred Stock Warrants       17,552     54,735
                 

Total Gynesonics, Inc

    2,003,761     2,040,944

Novasys Medical, Inc. (3.13%) (4)

  Medical Devices & Equipment   Senior Debt      
         
   

Matures January 2010

     
   

Interest rate 9.70%

  $ 8,000,000     8,000,000     8,000,000
                 

Total Novasys Medical, Inc

    8,000,000     8,000,000

Optiscan Biomedical, Corp. (0.40%) (4)

  Medical Devices & Equipment   Senior Debt      
         
   

Matures March 2008

     
   

Interest rate 15.00%

  $ 1,006,259     967,314     967,314
    Preferred Stock Warrants       80,486     64,478

Optiscan Biomedical, Corp. (0.39%)

    Preferred Stock       1,000,000     1,000,000
                 

Total Optiscan Biomedical, Corp

    2,047,800     2,031,792

Power Medical Interventions, Inc. (0.01%)

  Medical Devices & Equipment   Common Stock Warrants       20,687     30,200
         
                 

Total Power Medical Interventions, Inc

    20,687     30,200

Xillix Technologies Corp. (1.53%) (4)(5)(6)

  Medical Devices & Equipment   Senior Debt      
         
   

Matures December 2008

     
   

Interest rate 12.40%

  $ 3,975,834   $ 3,775,493   $ 3,775,493
    Common Stock Warrants       313,108     122,206
                 

Total Xillix Technologies Corp

    4,088,601     3,897,699
                 

Total Medical Devices & Equipment (7.58%)

    19,541,012     19,366,000
                 

Hedgestreet, Inc. (1.67%) (4)

  Internet Consumer & Business Services   Senior Debt   $ 4,263,806     4,226,674     4,226,674
         
   

Matures March 2009

Interest rate 11.30%

     
    Preferred Stock Warrants       54,956     44,836
                 

Total Hedgestreet, Inc

    4,281,630     4,271,510

Invoke Solutions, Inc. (0.97%) (4)

  Internet Consumer & Business Services   Senior Debt   $ 2,466,574     2,438,574     2,438,574
         
   

Matures December 2008

Interest rate 11.25%

     
    Preferred Stock Warrants       43,826     35,741
                 

Total Invoke Solutions, Inc.

    2,482,400     2,474,315

RazorGator Interactive Group, Inc. (1.25%) (4)

  Internet Consumer & Business Services   Senior Debt      
         
   

Matures January 2008

Interest rate 9.95%

  $ 2,637,626     2,633,276     2,633,276
    Preferred Stock Warrants       13,050     570,026

RazorGator Interactive Group, Inc. (0.67%)

    Preferred Stock       1,000,000     1,708,178
                 

Total RazorGator Interactive Group, Inc.

    3,646,326     4,911,480
                 

Total Internet Consumer & Business Services (4.56%)

    10,410,356     11,657,305
                 

Agami Systems, Inc. (2.75%) (4)

  Electronics & Computer Hardware   Senior Debt      
         
   

Matures August 2009

     
   

Interest rate 11.00%

  $ 7,000,000     6,924,288     6,924,288
    Preferred Stock Warrants       85,601     79,040
                 

Total Agami Systems, Inc.

    7,009,889     7,003,328

 

16


Table of Contents

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)

 

Portfolio Company

 

Industry

 

Type of Investment (1)(7)

 

Principal

Amount

  Cost (2)   Value (3)

Cornice, Inc. (1.44%) (4)

  Electronics & Computer Hardware        
    Senior Debt      
   

Matures November 2008

     
   

Interest rate Prime + 4.50%

  $ 3,524,664     3,459,755     3,459,755
    Preferred Stock Warrants       101,597     80,181
    Preferred Stock Warrants       35,353     27,571
    Preferred Stock Warrants       135,403     106,862
                 

Total Cornice, Inc

    3,732,108     3,674,369

Luminus Devices, Inc. (5.88%) (4)

  Electronics & Computer Hardware   Senior Debt   $ 15,000,000     14,765,514     14,765,514
         
   

Matures August 2009

     
   

Interest rate 12.50%

     
    Preferred Stock Warrants       183,290     161,106
    Preferred Stock Warrants       83,529     83,466
                 

Total Luminus Devices, Inc.

    15,032,333     15,010,086

NeoScale Systems, Inc. (1.17%) (4)

  Electronics & Computer Hardware   Senior Debt   $ 3,000,000   $ 2,978,373   $ 2,978,373
         
   

Matures October 2009

     
   

Interest rate 10.75%

     
    Preferred Stock Warrants       23,593     22,525
                 

Total NeoScale Systems, Inc

    3,001,966     3,000,898

Sling Media, Inc. (0.56%)

  Electronics & Computer Hardware   Preferred Stock Warrants       38,968     936,565
         
    Preferred Stock       500,000     500,000
                 

Total Sling Media, Inc

    538,968     1,436,565

ViDeOnline Communications, Inc. (0.18%) (4)

  Electronics & Computer Hardware   Senior Debt      
         
   

Matures May 2009

     
   

Interest rate 15.00%

  $ 461,158     461,158     461,158
    Preferred Stock Warrants       —       —  
                 

Total ViDeOnline Communications, Inc

    461,158     461,158
                 

Total Electronics & Computer Hardware (11.98%)

    29,776,422     30,586,404
                 

Ageia Technologies, Inc. (2.76%) (4)

  Semiconductors   Senior Debt      
   

Matures August 2008

     
   

Interest rate 10.25%

  $ 7,027,806     6,975,456     6,975,456
    Preferred Stock Warrants       99,190     73,604

Ageia Technologies, Inc. (0.20%)

    Preferred Stock       500,000     500,000
                 

Total Ageia Technologies

    7,574,646     7,549,060

Cradle Technologies (0.02%)

  Semiconductors   Preferred Stock Warrants       79,150     63,647
                 

Total Cradle Technologies

    79,150     63,647

iWatt Inc. (1.27%) (4)

  Semiconductors   Senior Debt      
   

Matures September 2009

     
   

Interest rate Prime + 2.75%

  $ 2,000,000     1,959,537     1,959,537
    Revolving Line of Credit      
   

Matures September 2007

     
   

Interest rate Prime + 1.75%

  $ 1,250,000     1,250,000     1,250,000
    Preferred Stock Warrants       45,684     41,417
                 

Total iWatt Inc

    3,255,221     3,250,954

NEXX Systems, Inc. (1.96%) (4)

  Semiconductors   Senior Debt      
   

Matures February 2010

     
   

Interest rate Prime + 2.75%

  $ 4,000,000     3,919,015     3,919,015
    Revolving Line of Credit      
   

Matures December 2009

     
   

Interest rate Prime + 1.75%

  $ 1,000,000     1,000,000     1,000,000
    Preferred Stock Warrants       83,116     83,938
                 

Total NEXX Systems, Inc.

    5,002,131     5,002,953
                 

Total Semiconductors (6.21%)

    15,911,148     15,866,614
                 

Lilliputian Systems, Inc. (3.33%) (4)

  Energy   Senior Debt      
   

Matures March 2010

     
   

Interest rate 9.75%

  $ 8,500,000   $ 8,463,170   $ 8,463,170
    Preferred Stock Warrants       48,460     39,572
                 

Total Lilliputian Systems, Inc.

    8,511,630     8,502,742
                 

Total Energy (3.33%)

    8,511,630     8,502,742
                 

Total Investments (110.89%)

  $ 279,946,465   $ 283,233,751
                 

 

17


Table of Contents

* Value as a percent of net assets.
(1) Preferred and common stock, warrants, and equity interests are generally non-income producing.
(2) Gross unrealized appreciation, gross unrealized depreciation, and net appreciation totaled $4,919,518, $1,632,232 and $3,287,286, respectively.
(3) Except for warrants in three publicly traded companies, all investments are restricted at December 31, 2006 and were valued at fair value as determined in good faith by 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.
(4) Debt and warrant investments of this portfolio company have been pledged as collateral under the Credit Facility. Citigroup has an equity participation right on loans collateralized under the Credit Facility. The value of their participation right on unrealized gains in the related equity investments was approximately $377,000 at December 31, 2006 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at December 31, 2006.
(5) Non-U.S. company or the company’s principal place of business is outside the United States.
(6) Debt is on non-accrual status at December 31, 2006, and is therefore considered non-income producing.
(7) All investments are less than 5% owned.

See notes to consolidated financial statements.

 

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HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)

 

     Three Months Ended June 30,     Six Months Ended June 30,  
     2007     2006     2007     2006  

Investment income:

        

Interest

   $ 11,791,547     $ 6,175,831     $ 20,827,536     $ 11,810,370  

Fees

     1,483,213       612,080       2,126,171       1,464,674  
                                

Total investment income

     13,274,760       6,787,911       22,953,707       13,275,044  

Operating expenses:

        

Interest

     1,763,285       1,357,893       2,449,250       3,034,875  

Loan fees

     250,313       286,688       516,420       537,481  

Employee compensation:

        

Compensation and benefits

     2,014,763       1,127,238       3,954,324       2,332,320  

Stock-based compensation

     292,705       130,000       546,455       253,000  
                                

Total employee compensation

  

 

2,307,468

 

 

 

1,257,238

 

 

 

4,500,779

 

 

 

2,585,320

 

General and administrative

     1,713,931       1,418,584       3,022,167       2,603,977  
                                

Total operating expenses

     6,034,997       4,320,403       10,488,616       8,761,653  

Net investment income before provision for income taxes and investment gains and losses

     7,239,763       2,467,508       12,465,091       4,513,391  

Provision (benefit) for income taxes

     —         (771,823 )     —         988,177  
                                

Net investment income

     7,239,763       3,239,331       12,465,091       3,525,214  

Net realized gain (loss) on investments

     (335,629 )     1,599,422       (45,926 )     (140,949 )

Net increase (decrease) in unrealized appreciation on investments

     1,365,634       (1,472,381 )     2,181,687       2,487,100  
                                

Net realized and unrealized gain

     1,030,005       127,041       2,135,761       2,346,151  
                                

Net increase in net assets resulting from operations

   $ 8,269,768     $ 3,366,372     $ 14,600,852     $ 5,871,365  
                                

Net investment income before provision for income taxes and investment gains and losses per common share:

        

Basic

   $ 0.29     $ 0.19     $ 0.52     $ 0.40  
                                

Diluted

   $ 0.29     $ 0.19     $ 0.51     $ 0.39  
                                

Change in net assets per common share:

        

Basic

   $ 0.33     $ 0.26     $ 0.61     $ 0.52  
                                

Diluted

   $ 0.33     $ 0.26     $ 0.60     $ 0.51  
                                

Weighted average shares outstanding

        

Basic

     25,190,000       12,859,000       24,037,000       11,394,000  
                                

Diluted

     25,401,000       12,945,000       24,248,000       11,479,000  
                                

See notes to consolidated financial statements (unaudited).

 

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HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)

 

     Common Stock   

Capital in excess

of par value

  

Unrealized
Appreciation

on Investments

  

Accumulated
Realized Gains(Losses)

on Investments

   

Distributions in
Excess of

Investment Income

   

Net

Assets

 
   Shares    Par
Value
            

Balance at December 31, 2005

   9,801,965    $ 9,802    $ 114,524,833    $ 353,093    $ 481,694     $ (1,017,092 )     114,352,330  

Net increase in net assets resulting from operations

   —        —        —        2,487,100      (140,949 )     3,525,214       5,871,365  

Issuance of common stock

   432,900      433      4,999,567      —        —         —         5,000,000  
                     —    

Issuance of common stock in Rights Offering, net of offering costs

   3,411,992      3,412      33,860,028      —        —         —         33,863,440  

Dividends declared

   —        —        —        —        —         (6,011,049 )     (6,011,049 )

Stock-based compensation

   —        —        253,000      —        —         —         253,000  
                                                  

Balance at June 30, 2006

   13,646,857    $ 13,647    $ 153,637,428    $ 2,840,193    $ 340,745     $ (3,502,927 )   $ 153,329,086  
                                                  

Balance at December 31, 2006

   21,927,034    $ 21,927    $ 257,234,729    $ 2,860,654    $ (1,972,014 )   $ (2,732,474 )   $ 255,412,822  

Net increase in net assets resulting from operations

   —        —        —        2,181,687      (45,926 )     12,465,091       14,600,852  

Issuance of common stock in lieu of directors’ compensation

   23,334      23      326,070      —        —         —         326,093  

Issuance of common stock in public offerings, net of offering costs

   10,040,000      10,040      128,469,177      —        —         —         128,479,217  

Issuance of common stock from warrant exercises

   256,128      256      2,707,017      —        —         —         2,707,273  

Issuance of common stock under dividend reinvestment plan

   124,880      125      1,777,841      —        —         —         1,777,966  

Dividends declared

   —        —        —        —        —         (13,826,603 )     (13,826,603 )

Stock-based compensation

   —        —        546,455      —        —         —         546,455  
                                                  

Balance at June 30, 2007

   32,371,376    $ 32,371    $ 391,061,289    $ 5,042,341    $ (2,017,940 )   $ (4,093,986 )   $ 390,024,075  
                                                  

See notes to consolidated financial statements (unaudited).

 

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HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)

 

     Six Months Ended June 30,  
     2007     2006  

Cash flows from operating activities:

    

Net increase in net assets resulting from operations

   $ 14,600,852     $ 5,871,365  

Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:

    

Purchase of investments

     (180,685,616 )     (65,850,000 )

Principal payments received on investments

     49,989,346       48,823,968  

Proceeds from sale of investments

     873,002       2,594,002  

Net unrealized appreciation on investments

     (2,406,640 )     541,407  

Net unrealized appreciation on investments due to lender

     224,953       (23,001 )

Net realized loss on investments

  

 

45,926

 

    (2,280,541 )

Warrant values for unfunded loans

     (164,056 )     —    

Accretion of loan discounts

     (1,107,224 )     (709,406 )

Accretion of loan exit fees

     (676,555 )     (276,981 )

Depreciation

     99,538       20,638  

Stock-based compensation

     546,455       253,000  

Common stock issued in lieu of Director compensation

     326,093       —    

Amortization of deferred loan origination revenue

     (1,483,139 )     (1,162,048 )

Change in operating assets and liabilities:

    

Interest receivable

     (1,351,575 )     (475,402 )

Prepaid expenses and other assets

     (622,281 )     888,091  

Income tax receivable

     29,294       (533,423 )

Deferred tax asset

     —         1,454,000  

Accounts payable

     (5,129 )     529,903  

Income tax payable

     —         (1,709,000 )

Accrued liabilities

     (952,552 )     799,019  

Deferred loan origination revenue

     2,971,537       1,654,160  
                

Net cash used in operating activities

     (119,747,771 )     (9,590,249 )

Cash flows from investing activities:

    

Purchases of capital equipment

     (131,636 )     (27,627 )

Other long-term assets

     269,168       (385,207 )
                

Net cash provided by (used in) investing activities

     137,532       (412,834 )

Cash flows from financing activities:

    

Proceeds from issuance of common stock, net

     131,186,490       38,863,440  

Dividends paid

     (12,048,637 )     (6,011,049 )

Borrowings of credit facilities

     124,000,000       —    

Repayments of credit facilities

     (131,300,000 )     (15,000,000 )

Fees paid for credit facilities and debentures

     (1,166,000 )     —    
                

Net cash provided by financing activities

  

 

110,671,853

 

    17,852,391  
                

Net (decrease) increase in cash

     (8,938,386 )     7,849,308  

Cash and cash equivalents at beginning of period

     16,404,214       15,362,447  
                

Cash and cash equivalents at end of period

   $ 7,465,828     $ 23,211,755  
                

Supplemental Disclosure:

    

Interest paid

   $ 2,239,011     $ 2,792,179  

Income taxes paid

   $ —       $ 1,775,000  

Stock issued under dividend reinvestment plan

   $ 1,777,966     $ —    

See notes to consolidated financial statements (unaudited).

 

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HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business and Unaudited Interim Consolidated Financial Statements Basis of Presentation

Hercules Technology Growth Capital, Inc. (the “Company”) is a specialty finance company that provides debt and equity growth capital to technology-related and life-science companies at all stages of development. The Company sources its investments through its principal office located in Silicon Valley, as well as through its additional offices in the Boston, Massachusetts, Boulder, Colorado, Chicago, Illinois, Costa Mesa, California and Columbus, Ohio areas. The Company was incorporated under the General Corporation Law of the State of Maryland in December 2003. The Company commenced operations on February 2, 2004 and commenced investment activities in September 2004.

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 taxed as a corporation under Subchapter C of the Internal Revenue Code of 1986, (the “Code”). Effective January 1, 2006, the Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Code (see Note 5).

In January 2005, the Company formed Hercules Technology II, L.P. (“HT II”) and Hercules Technology SBIC Management, LLC (HTM). HTM is a wholly-owned subsidiary of the Company. The Company is the sole limited partner of HTII and HTM is the general partner. (see Note 4).

In July 2005, the Company formed Hercules Funding I LLC and Hercules Funding Trust I, an affiliated statutory trust, and executed a securitized credit facility with Citigroup Global Markets Realty Corp. (see Note 4).

In December 2006, the Company established Hydra Management LLC and Hydra Management Co. Inc., a general partner and investment management group, respectively, should it determine in the future to pursue a relationship with an externally managed fund.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The accompanying consolidated interim financial statements are presented in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and pursuant to the requirements for reporting on Form 10-Q and Article 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, apart from the reclassification described in Note 2, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period, have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the 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, 2006. 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. Certain prior period information has been reclassified to conform to current period presentation.

2. Reclassification

When the Company exits an investment and realizes a gain or loss, the Company makes an accounting entry to reverse any unrealized appreciation or depreciation, respectively, that the Company previously recorded to reflect the appreciated or depreciated value of the investment. The Company recorded a reversal of $3.3 million from unrealized depreciation and recorded a realized loss of $3.3 million for the nine months ended September 30, 2006. During the fourth quarter of 2005, the Company recorded an unrealized depreciation of approximately $3.3 million in one portfolio company. As disclosed in Footnote 16 — Subsequent Events to the financial statements filed on Form 10-K for the year ended December 31, 2005, the assets of the portfolio company were sold in January 2006, and a realized loss was incurred. The difference between the unrealized depreciation as recorded in 2005 and the actual realized loss was not material. The Company did not reverse the loss from an unrealized depreciation to a realized loss in the first quarter of 2006, instead only recording the reversal in the third quarter of 2006. The accompanying comparative consolidated financial statements for the six-month period ended June 30, 2006 reflect the reversal with the previously recorded net unrealized depreciation of approximately $798,000 resulting in an unrealized appreciation of $2.5 million and the previously realized gain of $3.1 million resulting in a net realized loss of approximately $141,000. This reversal does not affect the reported Net Investment