HTGC 10-Q Quarter ended June 30, 2015

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, 2015 (unaudited) and December 31, 2014

3

Consolidated Statement of Operations for the three and six month periods ended June 30, 2015 and 2014 (unaudited)

5

Consolidated Statement of Changes in Net Assets for the three and six month periods ended June 30, 2015 and 2014 (unaudited)

6

Consolidated Statement of Cash Flows for the six month periods ended June 30, 2015 and 2014 (unaudited)

7

Consolidated Schedule of Investments as of June 30, 2015 (unaudited)

8

Consolidated Schedule of Investments as of December 31, 2014

22

Notes to Consolidated Financial Statements (unaudited)

36

Item 2.

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

65

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

105

Item 4.

Controls and Procedures

106

PART II. OTHER INFORMATION

107

Item 1.

Legal Proceedings

107

Item 1A. Risk Factors

107

Item 2.

Unregistered Sales of Equity Securities and Use of Proceeds

109

Item 3.

Defaults Upon Senior Securities

109

Item 4.

Mine Safety Disclosures

109

Item 5.

Other Information

109

Item 6.

Exhibits and Financial Statement Schedules

109

SIGNATURES

111

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

June 30, 2015

December 31, 2014

Assets

Investments:

Non-control/Non-affiliate investments (cost of $1,245,406 and $1,019,799, respectively)

$

1,228,202

$

1,012,738

Affiliate investments (cost of $15,600 and $15,538, respectively)

10,453

7,999

Total investments, at value (cost of $1,261,006 and $1,035,337, respectively)

1,238,655

1,020,737

Cash and cash equivalents

115,987

227,116

Restricted cash

11,810

12,660

Interest receivable

9,226

9,453

Other assets

20,875

29,257

Total assets

$

1,396,553

$

1,299,223

Liabilities

Accounts payable and accrued liabilities

$

12,977

$

14,101

Long-term Liabilities (Convertible Senior Notes)

17,399

17,345

Wells Facility

49,622

—

2017 Asset-Backed Notes

—

16,049

2021 Asset-Backed Notes

129,300

129,300

2019 Notes

150,364

170,364

2024 Notes

103,000

103,000

Long-term SBA Debentures

190,200

190,200

Total liabilities

$

652,862

$

640,359

Net assets consist of:

Common stock, par value

73

65

Capital in excess of par value

760,148

657,233

Unrealized depreciation on investments ⁽¹⁾

(24,238

)

(17,076

)

Accumulated realized gains on investments

16,137

14,079

Undistributed net investment income (Distributions in excess of net investment income)

(8,429

)

4,563

Total net assets

$

743,691

$

658,864

Total liabilities and net assets

$

1,396,553

$

1,299,223

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

72,493

64,715

Net asset value per share

$

10.26

$

10.18

(1)

Amounts includes $1.9 million in net unrealized depreciation on investments, other assets, and accrued liabilities including escrow receivables, estimated taxes payable, and Citigroup warrant participation agreement liabilities.

(Dollars in thousands)

June 30, 2015

December 31, 2014

Assets

Restricted Cash

$

11,810

$

12,660

Total investments, at value (cost of $226,338 and $296,314, respectively)

224,710

291,464

Total assets

$

236,520

$

304,124

Liabilities

Asset-Backed Notes

$

129,300

$

145,349

Total liabilities

$

129,300

$

145,349

Three Months Ended June 30,

Six Months Ended June 30,

2015

2014

2015

2014

Investment income:

Interest income

Non-Control/Non-Affiliate investments

$

35,144

$

30,384

$

65,605

$

59,766

Affiliate investments

96

152

195

1,616

Total interest income

35,240

30,536

65,800

61,382

Fees

Non-Control/Non-Affiliate investments

2,886

3,454

4,819

8,366

Affiliate investments

—

11

1

23

Total fees

2,886

3,465

4,820

8,389

Total investment income

38,126

34,001

70,620

69,771

Operating expenses:

Interest

7,571

6,534

15,425

13,682

Loan fees

1,580

1,091

3,093

3,167

General and administrative

4,069

2,126

7,687

4,587

Employee Compensation:

Compensation and benefits

5,857

3,233

9,653

7,454

Stock-based compensation

2,267

2,466

4,987

4,026

Total employee compensation

8,124

5,699

14,640

11,480

Total operating expenses

21,344

15,450

40,845

32,916

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

(1

)

—

(1

)

—

Net investment income

16,781

18,551

29,774

36,855

Net realized gain (loss) on investments

Non-Control/Non-Affiliate investments

(1,254

)

2,470

2,058

7,343

Total net realized gain (loss) on investments

(1,254

)

2,470

2,058

7,343

Net increase in unrealized appreciation (depreciation) on investments

Non-Control/Non-Affiliate investments

(12,854

)

(4,378

)

(9,554

)

(5,418

)

Affiliate investments

79

(3,452

)

2,392

(3,404

)

Total net unrealized appreciation (depreciation) on investments

(12,775

)

(7,830

)

(7,162

)

(8,822

)

Total net realized and unrealized gain (loss)

(14,029

)

(5,360

)

(5,104

)

(1,479

)

Net increase in net assets resulting from operations

$

2,752

$

13,191

$

24,670

$

35,376

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

Basic

$

0.23

$

0.30

$

0.43

$

0.59

Change in net assets per common share:

Basic

$

0.03

$

0.21

$

0.35

$

0.57

Diluted

$

0.03

$

0.20

$

0.35

$

0.55

Weighted average shares outstanding

Basic

71,368

61,089

67,596

60,980

Diluted

71,593

62,588

67,901

62,642

Dividends declared per common share:

Basic

$

0.31

$

0.31

$

0.62

$

0.62

Undistributed

net investment

income/

Unrealized

Accumulated

(Distributions

Provision for

Capital in

Appreciation

Realized

in excess of

Income Taxes

Common Stock

excess

(Depreciation)

Gains (Losses)

investment

on Investment

Net

Shares

Par Value

of par value

on Investments

on Investments

income)

Gains

Assets

Balance at December 31, 2013

61,837

$

62

$

656,594

$

3,598

$

(15,240

)

$

5,335

$

(342

)

$

650,007

Net increase (decrease) in net assets

resulting from operations

—

—

—

(8,822

)

7,343

36,855

—

35,376

Public offering, net of offering expenses

650

1

9,457

—

—

—

—

9,458

Issuance of common stock due to

stock option exercises

104

—

1,342

—

—

—

—

1,342

Retired shares from net issuance

(82

)

—

(1,237

)

—

—

—

—

(1,237

)

Issuance of common stock under

restricted stock plan

982

1

(1

)

—

—

—

—

—

Retired shares for restricted stock

vesting

(285

)

—

(2,207

)

—

—

—

—

(2,207

)

Issuance of common stock as

stock dividend

45

—

664

—

—

—

—

664

Dividends distributed

—

—

—

—

—

(38,555

)

—

(38,555

)

Stock-based compensation

—

—

4,061

—

—

—

—

4,061

Balance at June 30, 2014

63,251

$

64

$

668,673

$

(5,224

)

$

(7,897

)

$

3,635

$

(342

)

$

658,909

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

Dividends distributed

—

—

—

—

—

(42,766

)

—

(42,766

)

Stock-based compensation

—

—

5,027

—

—

—

—

5,027

Balance at June 30, 2015

72,493

$

73

$

760,148

$

(24,238

)

$

16,137

$

(8,087

)

$

(342

)

$

743,691

For the Six Months Ended June 30,

Cash flows from operating activities:

2015

2014

Net increase in net assets resulting from operations

$

24,670

$

35,376

Adjustments to reconcile net increase in net assets resulting from

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

Purchase of investments

(373,422

)

(286,837

)

Principal and fee payments received on investments

154,208

204,966

Proceeds from the sale of investments

7,494

10,271

Net unrealized depreciation on investments

7,162

8,822

Net realized gain on investments

(2,058

)

(7,343

)

Accretion of paid-in-kind principal

(1,584

)

(1,337

)

Accretion of loan discounts

(3,412

)

(5,170

)

Accretion of loan discount on Convertible Senior Notes

123

541

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

(6,624

)

(6,091

)

Change in deferred loan origination revenue

1,758

(349

)

Unearned fees related to unfunded commitments

1,074

(598

)

Amortization of debt fees and issuance costs

2,669

2,889

Depreciation

111

106

Stock-based compensation and amortization of restricted stock grants

5,027

4,061

Change in operating assets and liabilities:

Interest and fees receivable

227

262

Prepaid expenses and other assets

2,744

(2,410

)

Accounts payable

(732

)

571

Accrued liabilities

200

(4,849

)

Net cash provided by (used in) operating activities

(180,369

)

(47,119

)

Cash flows from investing activities:

Purchases of capital equipment

(80

)

(57

)

Reduction of (investment in) restricted cash

850

2,780

Net cash provided by (used in) investing activities

770

2,723

Cash flows from financing activities:

Issuance of common stock, net

100,092

9,873

Issuance (retirement) of employee shares

(3,395

)

(2,102

)

Dividends paid

(41,567

)

(37,891

)

Repayments of 2019 Notes Payable

(20,000

)

—

Repayments of 2017 Asset-Backed Notes

(16,049

)

(43,010

)

Repayments of Long-Term SBA Debentures

—

(34,800

)

Borrowings of credit facilities

50,000

—

Repayments of credit facilities

(378

)

—

Cash Paid for redemption of Convertible Senior Notes

(65

)

—

Fees paid for credit facilities and debentures

(168

)

(34

)

Net cash provided by (used in) financing activities

68,470

(107,964

)

Net decrease in cash and cash equivalents

(111,129

)

(152,360

)

Cash and cash equivalents at beginning of period

227,116

268,368

Cash and cash equivalents at end of period

$

115,987

$

116,008

Supplemental non-cash investing and financing activities:

Dividends Reinvested

$

1,199

$

664

Paid-in-kind Principal

$

2,012

$

1,365

Portfolio Company

Sub-Industry

Type of

Investment ⁽¹⁾

Maturity Date

Interest Rate and Floor

Principal Amount

Cost ⁽²⁾

Value ⁽³⁾

Debt Investment

Communications & Networking

1-5 Years Maturity

OpenPeak, Inc. ^(10)(12)

Communications & Networking

Senior Secured

April 2017

Interest rate PRIME + 8.75% or

Floor rate of 12.00%, 7.45% Exit Fee

$

10,440

$

10,788

$

6,352

SkyCross, Inc. ^(11)(12)(13)

Communications & Networking

Senior Secured

January 2018

Interest rate PRIME + 7.70% or

Floor rate of 10.95%,

PIK Interest 5.00%, 7.60% Exit Fee

$

22,000

21,781

19,594

Subtotal: 1-5 Years Maturity

32,569

25,946

Subtotal: Communications & Networking (3.49%)*

32,569

25,946

Consumer & Business Products

Under 1 Year Maturity

Antenna79 (p.k.a. Pong Research Corporation) ^(11)(13)

Consumer & Business Products

Senior Secured

June 2016

Interest rate PRIME + 7.75% or

Floor rate of 11.00%

$

1,033

1,033

1,033

Subtotal: Under 1 Year Maturity

1,033

1,033

1-5 Years Maturity

Antenna79 (p.k.a. Pong Research Corporation) ^{(11)(12)(13)(16)}

Consumer & Business Products

Senior Secured

December 2017

Interest rate PRIME + 6.75% or

Floor rate of 10.00%,

PIK Interest 2.50%, 5.65% Exit Fee

$

4,892

4,870

4,967

Fluc, Inc. ⁽⁸⁾

Consumer & Business Products

Convertible Debt

March 2017

Interest rate FIXED 4.00%

$

100

100

—

IronPlanet, Inc. ⁽¹²⁾

Consumer & Business Products

Senior Secured

November 2017

Interest rate PRIME + 6.20% or

Floor rate of 9.45%, 9.45% Exit Fee

$

37,500

37,508

37,306

The Neat Company ^(11)(12)(13)

Consumer & Business Products

Senior Secured

September 2017

Interest rate PRIME + 7.75% or

Floor rate of 11.00%,

PIK Interest 1.00%, 3.00% Exit Fee

$

18,414

18,079

18,079

Subtotal: 1-5 Years Maturity

60,557

60,352

Subtotal: Consumer & Business Products (8.25%)*

61,590

61,385

Drug Delivery

1-5 Years Maturity

AcelRx Pharmaceuticals, Inc. ^{(9)(10)(12)(13)}

Drug Delivery

Senior Secured

October 2017

Interest rate PRIME + 3.85% or

Floor rate of 9.10%, 4.25% Exit Fee

$

22,760

22,964

23,124

Agile Therapeutics, Inc ^(10)(12)

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 5.75% or

Floor rate of 9.00%, 3.70% Exit Fee

$

16,500

16,009

16,009

BIND Therapeutics, Inc. ^(12)(13)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 5.10% or

Floor rate of 8.35%, 6.11% Exit Fee

$

15,000

14,893

14,944

BioQuiddity Incorporated ^(10)(12)

Drug Delivery

Senior Secured

May 2018

Interest rate PRIME + 8.00% or

Floor rate of 11.25%, 6.00% Exit Fee

$

10,000

10,024

10,094

Celator Pharmaceuticals, Inc. ^(10)(12)

Drug Delivery

Senior Secured

June 2018

Interest rate PRIME + 6.50% or

Floor rate of 9.75%, 3.95% Exit Fee

$

15,000

14,909

14,945

Celsion Corporation ^(10)(12)

Drug Delivery

Senior Secured

June 2017

Interest rate PRIME + 8.00% or

Floor rate of 11.25%, 3.50% Exit Fee

$

8,223

8,257

8,376

Dance Biopharm, Inc. ^(12)(13)

Drug Delivery

Senior Secured

November 2017

Interest rate PRIME + 7.40% or

Floor rate of 10.65%, 4.00% Exit Fee

$

3,321

3,342

3,349

Edge Therapeutics, Inc. ^(10)(12)

Drug Delivery

Senior Secured

March 2018

Interest rate PRIME + 5.95% or

Floor rate of 9.95%, 1.50% Exit Fee

$

6,000

5,920

5,844

Egalet Corporation ⁽¹²⁾

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.15% or

Floor rate of 9.40%, 3.85% Exit Fee

$

15,000

14,853

15,040

Neos Therapeutics, Inc. ^(12)(13)

Drug Delivery

Senior Secured

October 2017

Interest rate PRIME + 5.75% or

Floor rate of 9.00%, 4.25% Exit Fee

$

5,000

4,898

4,948

Drug Delivery

Senior Secured

October 2017

Interest rate PRIME + 7.25% or

Floor rate of 10.50%, 4.25% Exit Fee

$

10,000

9,914

10,014

Drug Delivery

Senior Secured

October 2017

Interest rate FIXED 9.00%,

2.13% Exit Fee

$

10,000

10,000

9,927

Total Neos Therapeutics, Inc.

$

25,000

24,812

24,889

Pulmatrix Inc. ^(8)(12)

Drug Delivery

Senior Secured

July 2018

Interest rate PRIME + 6.25% or

Floor rate of 9.50%, 3.50% Exit Fee

$

7,000

6,786

6,786

ZP Opco, Inc (pka Zosano Pharma) ^(10)(12)

Drug Delivery

Senior Secured

December 2018

Interest rate PRIME + 4.70% or

Floor rate of 7.95%, 2.87% Exit Fee

$

15,000

14,789

14,898

Subtotal: 1-5 Years Maturity

157,558

158,298

Subtotal: Drug Delivery (21.29%)*

157,558

158,298

Portfolio Company

Sub-Industry

Type of

Investment ⁽¹⁾