x

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

¨

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

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)

Large accelerated filer

x

Accelerated filer

¨

Non-accelerated filer

¨

Smaller reporting company

¨

PART I. FINANCIAL INFORMATION

3

Item 1.

Consolidated Financial Statements

3

Consolidated Statement of Assets and Liabilities as of June 30, 2016 and December 31, 2015 (unaudited)

3

Consolidated Statement of Operations for the three and six months ended June 30, 2016 and 2015 (unaudited)

5

Consolidated Statement of Changes in Net Assets for the six months ended June 30, 2016 and 2015 (unaudited)

6

Consolidated Statement of Cash Flows for the six months ended June 30, 2016 and 2015 (unaudited)

7

Consolidated Schedule of Investments as of June 30, 2016 (unaudited)

8

Consolidated Schedule of Investments as of December 31, 2015 (unaudited)

22

Notes to Consolidated Financial Statements (unaudited)

37

Item 2.

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

69

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

99

Item 4.

Controls and Procedures

100

PART II. OTHER INFORMATION

101

Item 1.

Legal Proceedings

101

Item 1A.

Risk Factors

101

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

102

Item 3.

Defaults Upon Senior Securities

102

Item 4.

Mine Safety Disclosures

102

Item 5.

Other Information

102

Item 6.

Exhibits and Financial Statement Schedules

103

SIGNATURES

105

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2016

December 31, 2015

Assets

Investments:

Non-control/Non-affiliate investments (cost of $1,334,302 and $1,238,539, respectively)

$

1,292,934

$

1,192,652

Control investments (cost of $21,294 and $0, respectively)

4,000

—

Affiliate investments (cost of $13,799 and $13,742, respectively)

5,844

7,986

Total investments, at value (cost of $1,369,395 and $1,252,281, respectively)

1,302,778

1,200,638

Cash and cash equivalents

59,715

95,196

Restricted cash

3,605

9,191

Interest receivable

9,453

9,239

Other assets

19,620

9,720

Total assets

$

1,395,171

$

1,323,984

Liabilities

Accounts payable and accrued liabilities

$

16,681

$

17,241

Long-Term Liabilities (Convertible Senior Notes), net (principal of $0 and $17,604) ⁽¹⁾

—

17,478

Wells Facility

—

50,000

2021 Asset-Backed Notes, net (principal of $129,300 and $129,300, respectively) ⁽¹⁾

127,461

126,995

2019 Notes, net (principal of $110,364 and $110,364, respectively) ⁽¹⁾

108,499

108,179

2024 Notes, net (principal of $244,945 and $103,000, respectively) ⁽¹⁾

237,570

100,128

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

187,165

186,829

Total liabilities

$

677,376

$

606,850

Net assets consist of:

Common stock, par value

75

73

Capital in excess of par value

774,339

752,244

Unrealized depreciation on investments ⁽²⁾

(68,046

)

(52,808

)

Accumulated realized gains on investments

23,550

27,993

Distributions in excess of net investment income

(12,123

)

(10,368

)

Total net assets

$

717,795

$

717,134

Total liabilities and net assets

$

1,395,171

$

1,323,984

Shares of common stock outstanding ($0.001 par value, 200,000,000 and 100,000,000 authorized, respectively)

74,320

72,118

Net asset value per share

$

9.66

$

9.94

(1)

The Company’s SBA Debentures, 2019 Notes, 2024 Notes, 2021 Asset-Backed Notes, and Convertible Senior Notes, as each term is defined herein, are presented net of the associated debt issuance costs for each instrument. See “Note 2 – Summary of Significant Accounting Policies” and “Note 4 – Borrowings”.

(2)

Amounts include $1.4 million and $1.2 million, respectively, in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, estimated taxes payable and Citigroup warrant participation agreement liabilities.

(Dollars in thousands)

June 30, 2016

December 31, 2015

Assets

Restricted Cash

$

3,605

$

9,191

Total investments, at value (cost of $271,886 and $258,748, respectively)

269,452

257,657

Total assets

$

273,057

$

266,848

Liabilities

2021 Asset-Backed Notes, net (principal of $129,300 and $129,300, respectively) ⁽¹⁾

$

127,461

$

126,995

Total liabilities

$

127,461

$

126,995

(1)

The Company’s 2021 Asset-Backed Notes are presented net of the associated debt issuance costs for each instrument. See “Note 2 – Summary of Significant Accounting Policies” and “Note 4 – Borrowings”.

Three Months Ended June 30,

Six Months Ended June 30,

2016

2015

2016

2015

Investment income:

Interest income

Non-control/Non-affiliate investments

$

39,571

$

35,144

$

75,980

$

65,605

Affiliate investments

50

96

115

195

Total interest income

39,621

35,240

76,095

65,800

Fees

Non-control/Non-affiliate investments

3,917

2,886

6,382

4,819

Affiliate investments

—

—

—

1

Total fees

3,917

2,886

6,382

4,820

Total investment income

43,538

38,126

82,477

70,620

Operating expenses:

Interest

7,572

7,571

14,589

15,425

Loan fees

1,278

1,580

2,267

3,093

General and administrative

4,401

4,069

7,980

7,687

Employee compensation:

Compensation and benefits

5,331

5,857

10,016

9,653

Stock-based compensation

1,602

2,267

4,174

4,987

Total employee compensation

6,933

8,124

14,190

14,640

Total operating expenses

20,184

21,344

39,026

40,845

Loss on debt extinguishment (Long-Term Liabilities - Convertible Senior Notes)

—

(1

)

—

(1

)

Net investment income

23,354

16,781

43,451

29,774

Net realized gain (loss) on investments

Non-control/Non-affiliate investments

25

(1,254

)

(4,443

)

2,058

Total net realized gain (loss) on investments

25

(1,254

)

(4,443

)

2,058

Net change in unrealized appreciation (depreciation) on investments

Non-control/Non-affiliate investments

(8,159

)

(12,854

)

(9,618

)

(9,554

)

Control investments

(3,421

)

—

(3,421

)

—

Affiliate investments

(2,324

)

79

(2,199

)

2,392

Total net unrealized depreciation on investments

(13,904

)

(12,775

)

(15,238

)

(7,162

)

Total net realized and unrealized loss

(13,879

)

(14,029

)

(19,681

)

(5,104

)

Net increase in net assets resulting from operations

$

9,475

$

2,752

$

23,770

$

24,670

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

Basic

$

0.32

$

0.23

$

0.59

$

0.43

Change in net assets resulting from operations per common share:

Basic

$

0.13

$

0.03

$

0.32

$

0.35

Diluted

$

0.13

$

0.03

$

0.32

$

0.35

Weighted average shares outstanding

Basic

72,746

71,368

71,959

67,596

Diluted

72,762

71,593

71,965

67,901

Dividend distributions declared per common share:

Basic

$

0.31

$

0.31

$

0.62

$

0.62

Undistributed

Net Investment

Income/

Provision

Unrealized

Accumulated

(Distributions

for Income

Capital in

Appreciation

Realized

in Excess of

Taxes on

Common Stock

excess

(Depreciation)

Gains (Losses)

Investment

Investment

Net

Shares

Par Value

of par value

on Investments

on Investments

Income)

Gains

Assets

Balance at December 31, 2014

64,715

$

65

$

657,233

$

(17,076

)

$

14,079

$

4,905

$

(342

)

$

658,864

Net increase (decrease) in net assets resulting from operations

—

—

—

(7,162

)

2,058

29,774

—

24,670

Public offering, net of offering expenses

7,591

8

100,084

—

—

—

—

100,092

Issuance of common stock due to stock option exercises

36

—

428

—

—

—

—

428

Retired shares from net issuance

(28

)

—

(423

)

—

—

—

—

(423

)

Issuance of common stock under restricted stock plan

603

1

(1

)

—

—

—

—

—

Retired shares for restricted stock vesting

(514

)

(1

)

(3,399

)

—

—

—

—

(3,400

)

Issuance of common stock as stock dividend

90

—

1,199

—

—

—

—

1,199

Dividend distributions

—

—

—

—

—

(42,766

)

—

(42,766

)

Stock-based compensation ⁽¹⁾

—

—

5,027

—

—

—

—

5,027

Balance at June 30, 2015

72,493

$

73

$

760,148

$

(24,238

)

$

16,137

$

(8,087

)

$

(342

)

$

743,691

Balance at December 31, 2015

72,118

$

73

$

752,244

$

(52,808

)

$

27,993

$

(10,026

)

$

(342

)

$

717,134

Net increase (decrease) in net assets resulting from operations

—

—

—

(15,238

)

(4,443

)

43,451

—

23,770

Public offering, net of offering expenses

2,201

2

23,668

—

—

—

—

23,670

Acquisition of common stock under repurchase plan

(450

)

(1

)

(4,789

)

—

—

—

—

(4,790

)

Issuance of common stock due to stock option exercises

11

—

118

—

—

—

—

118

Retired shares from net issuance

—

—

—

—

—

—

—

—

Issuance of common stock under restricted stock plan

547

1

(1

)

—

—

—

—

—

Retired shares for restricted stock vesting

(192

)

—

(2,122

)

—

—

—

—

(2,122

)

Issuance of common stock as stock dividend

85

—

997

—

—

—

—

997

Dividend distributions

—

—

—

—

—

(45,206

)

—

(45,206

)

Stock-based compensation ⁽¹⁾

—

—

4,224

—

—

—

—

4,224

Balance at June 30, 2016

74,320

$

75

$

774,339

$

(68,046

)

$

23,550

$

(11,781

)

$

(342

)

$

717,795

(1)

Stock-based compensation includes $50,000 of restricted stock and option expense related to director compensation.

For the Six Months Ended June 30,

2016

2015

Cash flows from operating activities:

Net increase in net assets resulting from operations

$

23,770

$

24,670

Adjustments to reconcile net increase in net assets resulting from

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

Purchase of investments

(330,750

)

(373,422

)

Principal and fee payments received on investments

221,331

154,208

Proceeds from the sale of investments

6,041

7,494

Net unrealized depreciation on investments

15,238

7,162

Net realized loss (gain) on investments

4,443

(2,058

)

Accretion of paid-in-kind principal

(3,243

)

(1,584

)

Accretion of loan discounts

(3,776

)

(3,412

)

Accretion of loan discount on Convertible Senior Notes

82

123

Loss on debt extinguishment (Long-Term Liabilities - Convertible Senior Notes)

—

1

Payment of loan discount on Convertible Senior Notes

—

(5

)

Accretion of loan exit fees

(10,968

)

(6,624

)

Change in deferred loan origination revenue

(44

)

1,758

Unearned fees related to unfunded commitments

(113

)

1,074

Amortization of debt fees and issuance costs

1,839

2,669

Depreciation

104

111

Stock-based compensation and amortization of restricted stock grants

4,224

5,027

Change in operating assets and liabilities:

Interest and fees receivable

(214

)

227

Prepaid expenses and other assets

(9,041

)

2,744

Accounts payable

56

(732

)

Accrued liabilities

(879

)

200

Net cash used in operating activities

(81,900

)

(180,369

)

Cash flows from investing activities:

Purchases of capital equipment

(146

)

(80

)

Reduction of restricted cash

5,586

850

Net cash provided by investing activities

5,440

770

Cash flows from financing activities:

Issuance of common stock, net

23,670

100,092

Repurchase of common stock, net

(4,790

)

—

Retirement of employee shares

(2,004

)

(3,395

)

Dividend distributions paid

(44,209

)

(41,567

)

Issuance of 2024 Notes Payable

141,945

—

Repayments of 2019 Notes Payable

—

(20,000

)

Repayments of 2017 Asset-Backed Notes

—

(16,049

)

Borrowings of credit facilities

170,985

50,000

Repayments of credit facilities

(220,985

)

(378

)

Cash paid for debt issuance costs

(4,722

)

—

Cash paid for redemption of Convertible Senior Notes

(17,604

)

(65

)

Fees paid for credit facilities and debentures

(1,307

)

(168

)

Net cash provided by financing activities

40,979

68,470

Net decrease in cash and cash equivalents

(35,481

)

(111,129

)

Cash and cash equivalents at beginning of period

95,196

227,116

Cash and cash equivalents at end of period

$

59,715

$

115,987

Supplemental non-cash investing and financing activities:

Dividend distributions reinvested

$

997

$

1,199

(1)

Stock-based compensation includes $50,000 of restricted stock and option expense related to director compensation.

Portfolio Company

Sub-Industry

Type of

Investment⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost⁽²⁾

Value⁽³⁾

Debt Investments

Biotechnology Tools

1-5 Years Maturity

Exicure, Inc.⁽¹¹⁾

Biotechnology Tools

Senior Secured

September 2019

Interest rate PRIME + 6.45%

or Floor rate of 9.95%

$

6,000

$

5,898

$

5,898

Subtotal: 1-5 Years Maturity

5,898

5,898

Subtotal: Biotechnology Tools (0.82%)*

5,898

5,898

Communications & Networking

Under 1 Year Maturity

OpenPeak, Inc.⁽⁷⁾

Communications & Networking

Senior Secured

April 2017

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

$

12,370

9,134

—

Subtotal: Under 1 Year Maturity

9,134

—

1-5 Years Maturity

Avanti Communications Group⁽⁴⁾⁽⁹⁾

Communications & Networking

Senior Secured

October 2019

Interest rate FIXED 10.00%

$

7,500

6,740

5,650

SkyCross, Inc. ^{(6)(7)(13)(14B)(15)}

Communications & Networking

Senior Secured

January 2018

Interest rate PRIME + 7.70%

or Floor rate of 10.95%,

PIK Interest 5.00%

$

16,758

16,900

—

Spring Mobile Solutions, Inc.^(14B)

Communications & Networking

Senior Secured

January 2019

Interest rate PRIME + 6.70%

or Floor rate of 9.95%

$

3,000

2,984

2,967

Subtotal: 1-5 Years Maturity

26,624

8,617

Subtotal: Communications & Networking (1.20%)*

35,758

8,617

Consumer & Business Products

Under 1 Year Maturity

Antenna79 (p.k.a. Pong Research Corporation)^{(13)(14B)(14D)(15)}

Consumer & Business Products

Senior Secured

November 2016

Interest rate PRIME + 6.75%

or Floor rate of 10.00%,

PIK Interest 2.50%

$

4,274

4,373

3,687

Consumer & Business Products

Senior Secured

November 2016

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

$

156

156

156

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

$

4,430

4,529

3,843

Miles, Inc. (p.k.a. Fluc, Inc.)⁽⁸⁾

Consumer & Business Products

Convertible Debt

March 2017

Interest rate FIXED 4.00%

$

100

100

—

Subtotal: Under 1 Year Maturity

4,629

3,843

1-5 Years Maturity

Nasty Gal^(14B)(15)

Consumer & Business Products

Senior Secured

May 2019

Interest rate PRIME + 5.45%

or Floor rate of 8.95%

$

15,000

15,119

15,119

Second Time Around (Simplify Holdings, LLC)^(14A)(15)

Consumer & Business Products

Senior Secured

February 2019

Interest rate PRIME + 7.25%

or Floor rate of 10.75%

$

2,500

2,490

2,481

Subtotal: 1-5 Years Maturity

17,609

17,600

Subtotal: Consumer & Business Products (2.99%)*

22,238

21,443

Portfolio Company

Sub-Industry

Type of

Investment⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost⁽²⁾

Value⁽³⁾

Drug Delivery

Under 1 Year Maturity

Celsion Corporation^(10)(14A)

Drug Delivery

Senior Secured

June 2017

Interest rate PRIME + 8.00%

or Floor rate of 11.25%

$

4,355

$

4,616

$

4,616

Subtotal: Under 1 Year Maturity

4,616

4,616

1-5 Years Maturity

AcelRx Pharmaceuticals, Inc.^{(9)(10)(14A)(15)}

Drug Delivery

Senior Secured

October 2017

Interest rate PRIME + 3.85%

or Floor rate of 9.10%

$

20,466

21,059

21,002

Agile Therapeutics, Inc.^(10)(14A)

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 4.75%

or Floor rate of 9.00%

$

16,500

16,465

16,382

Aprecia Pharmaceuticals Company^(14A)

Drug Delivery

Senior Secured

January 2020

Interest rate PRIME + 5.75%

or Floor rate of 9.25%

$

20,000

19,415

19,415

BIND Therapeutics, Inc.^(14B)(15)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 5.10%

or Floor rate of 8.35%

$

8,345

8,820

8,820

BioQ Pharma Incorporated^{(10)(14A)(14B)}

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 8.00%

or Floor rate of 11.25%

$

10,000

10,296

10,166

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 7.00%

or Floor rate of 10.25%

$

3,000

3,006

2,990

Total BioQ Pharma Incorporated

$

13,000

13,302

13,156

Celator Pharmaceuticals, Inc.^(10)(14A)

Drug Delivery

Senior Secured

June 2018

Interest rate PRIME + 6.50%

or Floor rate of 9.75%

$

12,839

12,975

12,975

Dance Biopharm, Inc.^(7)(14A)(15)

Drug Delivery

Senior Secured

November 2017

Interest rate PRIME + 7.40%

or Floor rate of 10.65%

$

2,165

2,275

1,000

Edge Therapeutics, Inc.^(10)(14A)

Drug Delivery

Senior Secured

March 2018

Interest rate PRIME + 5.45%

or Floor rate of 9.95%

$

4,359

4,376

4,389

Egalet Corporation^(11)(14A)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.15%

or Floor rate of 9.40%

$

15,000

15,155

15,206

Pulmatrix Inc.^(8)(10)(14A)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.25%

or Floor rate of 9.50%

$

7,000

6,973

6,964

ZP Opco, Inc (p.k.a. Zosano Pharma)^(10)(14A)

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 2.70%

or Floor rate of 7.95%

$

15,000

15,068

14,900

Subtotal: 1-5 Years Maturity

135,883

134,209

Subtotal: Drug Delivery (19.34%)*

140,499

138,825

Portfolio Company

Sub-Industry

Type of

Investment⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost⁽²⁾

Value⁽³⁾

Drug Discovery & Development

Under 1 Year Maturity

Neuralstem, Inc.^(14A)(15)

Drug Discovery & Development

Senior Secured

April 2017

Interest rate PRIME + 6.75%

or Floor rate of 10.00%

$

6,109

$

6,278

$

6,278

Subtotal: Under 1 Year Maturity

6,278