☒

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

☒

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 September 30, 2016 and December 31, 2015 (unaudited)

3

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

5

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

5

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

7

Consolidated Schedule of Investments as of September 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

September 30, 2016

December 31, 2015

Assets

Investments:

Non-control/Non-affiliate investments (cost of $1,352,633 and $1,238,539, respectively)

$

1,309,696

$

1,192,652

Control investments (cost of $22,285 and $0, respectively)

4,991

—

Affiliate investments (cost of $13,326 and $13,742, respectively)

5,923

7,986

Total investments, at value (cost of $1,388,244 and $1,252,281, respectively)

1,320,610

1,200,638

Cash and cash equivalents

69,012

95,196

Restricted cash

8,980

9,191

Interest receivable

10,861

9,239

Other assets

9,961

9,720

Total assets

$

1,419,424

$

1,323,984

Liabilities

Accounts payable and accrued liabilities

$

16,649

$

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 $117,004 and $129,300, respectively) ⁽¹⁾

115,531

126,995

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

108,659

108,179

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

237,663

100,128

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

187,333

186,829

Total liabilities

$

665,835

$

606,850

Net assets consist of:

Common stock, par value

77

73

Capital in excess of par value

802,521

752,244

Unrealized depreciation on investments ⁽²⁾

(68,880

)

(52,808

)

Accumulated realized gains on investments

31,420

27,993

Distributions in excess of net investment income

(11,549

)

(10,368

)

Total net assets

$

753,589

$

717,134

Total liabilities and net assets

$

1,419,424

$

1,323,984

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

76,400

72,118

Net asset value per share

$

9.86

$

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 $1.2 million in net unrealized depreciation on other assets and accrued liabilities, including escrow receivables, estimated taxes payable and Citigroup warrant participation agreement liabilities as of September 30, 2016 and December 31, 2015.

(Dollars in thousands)

September 30, 2016

December 31, 2015

Assets

Restricted Cash

$

8,980

$

9,191

Total investments, at value (cost of $245,868 and $258,748, respectively)

243,216

257,657

Total assets

$

252,196

$

266,848

Liabilities

2021 Asset-Backed Notes, net (principal of $117,004 and $129,300, respectively) ⁽¹⁾

$

115,531

$

126,995

Total liabilities

$

115,531

$

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 September 30,

Nine Months Ended September 30,

2016

2015

2016

2015

Investment income:

Interest income

Non-control/Non-affiliate investments

$

39,907

$

40,256

$

115,887

$

105,861

Control investments

15

—

15

—

Affiliate investments

30

83

145

278

Total interest income

39,952

40,339

116,047

106,139

Fees

Non-control/Non-affiliate investments

5,149

6,793

11,531

11,611

Control investments

1

—

1

—

Affiliate investments

—

—

—

1

Total fees

5,150

6,793

11,532

11,612

Total investment income

45,102

47,132

127,579

117,751

Operating expenses:

Interest

8,717

7,818

23,306

23,243

Loan fees

1,432

1,072

3,698

4,166

General and administrative

4,114

4,504

12,095

12,190

Employee compensation:

Compensation and benefits

5,621

7,969

15,637

17,621

Stock-based compensation

1,442

2,179

5,616

7,166

Total employee compensation

7,063

10,148

21,253

24,787

Total operating expenses

21,326

23,542

60,352

64,386

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

—

—

—

(1

)

Net investment income

23,776

23,590

67,227

53,364

Net realized gain on investments

Non-control/Non-affiliate investments

7,870

6,366

3,427

8,424

Total net realized gain on investments

7,870

6,366

3,427

8,424

Net change in unrealized appreciation (depreciation) on investments

Non-control/Non-affiliate investments

(1,387

)

(25,032

)

(11,005

)

(34,585

)

Control investments

—

—

(3,421

)

—

Affiliate investments

553

(849

)

(1,646

)

1,543

Total net unrealized depreciation on investments

(834

)

(25,881

)

(16,072

)

(33,042

)

Total net realized and unrealized gain (loss)

7,036

(19,515

)

(12,645

)

(24,618

)

Net increase in net assets resulting from operations

$

30,812

$

4,075

$

54,582

$

28,746

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

Basic

$

0.32

$

0.33

$

0.91

$

0.76

Change in net assets resulting from operations per common share:

Basic

$

0.41

$

0.05

$

0.74

$

0.40

Diluted

$

0.41

$

0.05

$

0.74

$

0.40

Weighted average shares outstanding

Basic

74,122

71,462

72,685

68,897

Diluted

74,157

71,496

72,702

69,123

Dividend distributions declared per common share:

Basic

$

0.31

$

0.31

$

0.93

$

0.93

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

—

—

—

(33,042

)

8,424

53,364

—

28,746

Public offering, net of offering expenses

7,591

8

100,084

—

—

—

—

100,092

Issuance of common stock due to stock option exercises

51

—

428

—

—

—

—

428

Retired shares from net issuance

(29

)

—

(423

)

—

—

—

—

(423

)

Issuance of common stock under restricted stock plan

676

1

(1

)

—

—

—

—

—

Retired shares for restricted stock vesting

(595

)

(1

)

(3,997

)

—

—

—

—

(3,998

)

Issuance of common stock as stock dividend

123

—

1,589

—

—

—

—

1,589

Dividend distributions

—

—

—

—

—

(65,238

)

—

(65,238

)

Stock-based compensation ⁽¹⁾

—

—

7,231

—

—

—

—

7,231

Balance at September 30, 2015

72,109

$

73

$

757,646

$

(50,118

)

$

22,503

$

(6,969

)

$

(342

)

$

722,793

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

—

—

—

(16,072

)

3,427

67,227

—

54,582

Public offering, net of offering expenses

4,273

4

50,173

—

—

—

—

50,177

Acquisition of common stock under repurchase plan

(450

)

(1

)

(4,789

)

—

—

—

—

(4,790

)

Issuance of common stock due to stock option exercises

42

—

426

—

—

—

—

426

Retired shares from net issuance

(6

)

—

—

—

—

—

—

—

Issuance of common stock under restricted stock plan

552

1

(1

)

—

—

—

—

—

Retired shares for restricted stock vesting

(240

)

—

(2,560

)

—

—

—

—

(2,560

)

Issuance of common stock as stock dividend

111

—

1,343

—

—

—

—

1,343

Dividend distributions

—

—

—

—

—

(68,408

)

—

(68,408

)

Stock-based compensation ⁽¹⁾

—

—

5,685

—

—

—

—

5,685

Balance at September 30, 2016

76,400

$

77

$

802,521

$

(68,880

)

$

31,420

$

(11,207

)

$

(342

)

$

753,589

(1)

Stock-based compensation includes $69 and $65 of restricted stock and option expense related to director compensation for the nine months ended September 30, 2016 and 2015, respectively.

For the Nine Months Ended September 30,

2016

2015

Cash flows from operating activities:

Net increase in net assets resulting from operations

$

54,582

$

28,746

Adjustments to reconcile net increase in net assets resulting from

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

Purchase of investments

(461,772

)

(532,048

)

Principal and fee payments received on investments

340,584

379,247

Proceeds from the sale of investments

16,701

16,523

Net unrealized depreciation on investments

16,072

33,042

Net realized loss (gain) on investments

(3,427

)

(8,424

)

Accretion of paid-in-kind principal

(5,317

)

(2,796

)

Accretion of loan discounts

(5,524

)

(6,369

)

Accretion of loan discount on Convertible Senior Notes

82

185

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

(16,679

)

(10,493

)

Change in deferred loan origination revenue

(253

)

1,275

Unearned fees related to unfunded commitments

(308

)

(271

)

Amortization of debt fees and issuance costs

2,987

3,498

Depreciation

152

152

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

5,685

7,231

Change in operating assets and liabilities:

Interest and fees receivable

(1,622

)

925

Prepaid expenses and other assets

228

4,833

Accounts payable

56

171

Accrued liabilities

(729

)

6,065

Net cash used in operating activities

(58,502

)

(78,512

)

Cash flows from investing activities:

Purchases of capital equipment

(227

)

(158

)

Reduction of restricted cash

211

7,302

Net cash (used in) provided by investing activities

(16

)

7,144

Cash flows from financing activities:

Issuance of common stock, net

50,177

100,092

Repurchase of common stock, net

(4,790

)

(4,498

)

Retirement of employee shares

(2,134

)

(3,993

)

Dividend distributions paid

(67,065

)

(63,649

)

Issuance of 2024 Notes Payable

141,945

—

Repayments of 2019 Notes Payable

—

(20,000

)

Repayments of 2017 Asset-Backed Notes

—

(16,049

)

Repayments of 2021 Asset-Backed Notes

(12,296

)

—

Borrowings of credit facilities

193,276

53,365

Repayments of credit facilities

(243,276

)

(53,365

)

Cash paid for debt issuance costs

(4,858

)

—

Cash paid for redemption of Convertible Senior Notes

(17,604

)

(65

)

Fees paid for credit facilities and debentures

(1,041

)

(282

)

Net cash provided by (used in) financing activities

32,334

(8,444

)

Net decrease in cash and cash equivalents

(26,184

)

(79,812

)

Cash and cash equivalents at beginning of period

95,196

227,116

Cash and cash equivalents at end of period

$

69,012

$

147,304

Supplemental non-cash investing and financing activities:

Dividend distributions reinvested

$

1,343

$

1,589

(1)

Stock-based compensation includes $69 and $65 of restricted stock and option expense related to director compensation for the nine months ended September 30, 2016 and 2015, respectively.

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)(14A)

Biotechnology Tools

Senior Secured

September 2019

Interest rate PRIME + 6.45%

or Floor rate of 9.95%

$

6,000

$

5,935

$

5,996

Subtotal: 1-5 Years Maturity

5,935

5,996

Subtotal: Biotechnology Tools (0.80%)*

5,935

5,996

Communications & Networking

Under 1 Year Maturity

Avanti Communications Group⁽⁴⁾⁽⁹⁾

Communications & Networking

Senior Secured

October 2019

Interest rate FIXED 10.00%

$

7,500

6,787

5,981

Achilles Technology Management Co II, Inc.^(6)(13)(14B)

Communications & Networking

Senior Secured

August 2017

PIK Interest 10.50%

$

1,001

991

991

OpenPeak, Inc.⁽⁷⁾

Communications & Networking

Senior Secured

April 2017

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

$

12,211

8,975

—

Subtotal: Under 1 Year Maturity

16,753

6,972

1-5 Years Maturity

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

Communications & Networking

Senior Secured

January 2018

Interest rate FIXED 10.95%,

PIK Interest 5.00%

$

16,758

16,900

—

Spring Mobile Solutions, Inc.^(12)(14B)

Communications & Networking

Senior Secured

January 2019

Interest rate PRIME + 6.70%

or Floor rate of 9.95%

$

3,000

3,010

3,002

Subtotal: 1-5 Years Maturity

19,910

3,002

Subtotal: Communications & Networking (1.32%)*

36,663

9,974

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%

$

4,302

4,628

4,071

Consumer & Business Products

Senior Secured

November 2016

Interest rate PRIME + 8.75%

or Floor rate of 12.00%

$

156

156

137

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

$

4,458

4,784

4,208

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

4,884

4,208

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

15,249

5,000

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%

$

2,428

2,430

2,434

Subtotal: 1-5 Years Maturity

17,679

7,434

Subtotal: Consumer & Business Products (1.54%)*

22,563

11,642

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%

$

3,316

$

3,617

$

3,617

Subtotal: Under 1 Year Maturity

3,617

3,617

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

21,005

20,949

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

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 4.75%

or Floor rate of 9.00%

$

16,500

16,413

16,390

Aprecia Pharmaceuticals Company^(14A)

Drug Delivery

Senior Secured

January 2020

Interest rate PRIME + 5.75%

or Floor rate of 9.25%

$

20,000

19,555

19,555

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

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 8.00%

or Floor rate of 11.25%

$

9,130

9,484

9,403

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 7.00%

or Floor rate of 10.25%

$

2,736

2,763

2,759

Total BioQ Pharma Incorporated

$

11,866

12,247

12,162

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

Drug Delivery

Senior Secured

November 2017

Interest rate PRIME + 7.40%

or Floor rate of 10.65%

$

2,145

2,255

2,255

Edge Therapeutics, Inc.^(14A)(17)

Drug Delivery

Senior Secured

February 2020

Interest rate PRIME + 4.65%

or Floor rate of 9.15%

$

15,000

14,927

15,008

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

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.25%

or Floor rate of 9.50%

$

6,588

6,611

6,625

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%

$

13,636

13,774

13,718

Subtotal: 1-5 Years Maturity

106,787

106,662

Subtotal: Drug Delivery (14.63%)*

110,404

110,279

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

Cerecor, Inc.^(11)(14A)