Good morning, and welcome to Horizon Technology Finance's Fourth Quarter and Full Year 2012 Conference Call. Today's call is being recorded. All lines have been placed on mute. We will conduct a question-and-answer session after the opening remarks and instructions will follow at that time. I would now like to turn the call over to Nick Rust of The IGB Group for introductions and the reading of the Safe Harbor statement. Please go ahead, sir.

Thank you, and welcome to the Horizon Technology Finance fourth quarter and full year 2012 conference call. Representing the Company today are Rob Pomeroy, Chairman and Chief Executive Officer; Jerry Michaud, President; and Chris Mathieu, Chief Financial Officer. Before we begin, I would like to point out that Q4 press release is available on the Company's website at www.horizontechnologyfinancecorp.com. Now, I'll read the following Safe Harbor statement. During this conference call, Horizon Technology Finance will make certain forward-looking statements including statements with regard to the future performance of the Company. Words such as believe, expect, anticipate, intend, or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties and predicting future results and conditions. Current factors could cause actual results to differ on material basis from those projected in these forward-looking statements, and some of these factors are detailed in the 'Risk Factor' discussion in the Company's filings with the Securities and Exchange Commission, including the Company's Form 10-K for the year ended December 31, 2012. The company undertakes no obligations to update or revise any forward-looking statements, whether as a result of new information, future events, or otherwise. At this time, I would like to turn the call over to Rob Pomeroy.

Good morning, and thank you all for joining us. For today's call, I will discuss our fourth quarter and full year 2012 highlights. Jerry will then provide a market overview. After that, Chris will review our financial results as well as our investment portfolio. Chris, Jerry, and I will then be happy to take your questions. We are pleased by our performance for the fourth quarter and full year 2012 as management continues to expand Horizon's earning assets while maintaining a high credit quality of our overall portfolio. During the fourth quarter, we utilized our strong market origination capabilities to increase both new loan commitments and gross fundings to record levels. We also achieved strong fee income from prepayments and realized a modest gain from the sale of warrants in support of our financial results. For the fourth quarter, we earned net investment income of $0.36 per share, covering our monthly dividends to clear for the first quarter of 2013 totaling $0.345 per share. We will discuss our new monthly dividend policy in more detail a little later on the call. In further highlighting our performance, we ended 2012 with an investment portfolio of $228.6 million, an increase of over 28% compared to the end of 2011, despite a high level of prepayment activity in both the fourth quarter and full-year 2012. As we stated in the past, prepayments are unpredictable and can have a material impact on net investment income. While prepayments serve as a fundamental aspect of the venture lending model, they are best measured over a 12 month period to more accurately assess their impact on NII. To date in the first quarter, we have had no material prepayments. However, as with the timing of new loan fundings, prepayments often occur near the end of the quarter.…

Thank you, Rob, and good morning everyone. Throughout the year, we steadily increased our investment activity as new loan commitments and gross fundings totaled $203.2 million and $184 million respectively. This is since we have achieved deploying capital into high-yielding assets and using our credit facilities to leverage returns while generating income from loan prepayments and other fees, is reflective of the successful execution of our venture lending business model. Also reflective of our successful execution in 2012 is the expansion of our warrant portfolio by more than 30% with warrants now held in 62 companies. As a reminder, Horizon is a direct origination shop and we underwrite all of our loans in-house with a focus on capital preservation. Although we are not equity investors, we still share in a portfolio of companies' future success through the warrants we receive as part of each transaction. We will continue to monitor our opportunities to monetize our growing inventory of warrant positions and augment total returns. Let me now turn to the fourth quarter. We maintained our strong market momentum as investment levels increased for the sixth consecutive quarter. We continue to experience strong demand for our value-added loan products and are pleased to have ended the year on a particularly strong note. During the fourth quarter, we funded 11 companies totaling $66.5 million, a record high for our Company. We added seven new companies to our portfolio, which increased the total number of companies in which we hold warrants to 62. We opportunistically increased the amount of our investment and warrant positions in four of our existing portfolio companies. In the fourth quarter, we made 11 new loan commitments in the amount of $77.4 million. It grew our portfolio by 3.5% in the fourth quarter from $220.9 million at the end…

Thanks Jerry. I'd like you to turn your attention now to Horizon's financial performance. Our consolidated financial results for the three months and year ended December 31, 2012 have been presented in our earnings release distributed after the market closed yesterday. We also filed our 10-K last night after the market. Our total investment income for the fourth quarter of 2012 was $7.9 million compared to $6.2 million for the fourth quarter of 2011. This increase of approximately 28% was primarily due to the increased average size of our loan portfolio. Total investment income for the quarter included $7.5 million from interest income. Total investment income also included approximately $450,000 of fee income associated with prepayment fees from six of our portfolio companies and other loan amendment fees. While we experienced stronger than usual prepayment activity in the fourth quarter, these prepayments have served to further enhance Horizon's overall returns to stockholders. For the year ended December 31, total investment income increased 10.9% to $26.7 million as compared to $24.1 million in the prior year period. Total investment income in 2012 of $26.7 million consisted of $25.3 million in interest income from investments. Fee income of approximately $1.4 million was primarily from prepayment fees from a total of 13 portfolio companies during 2012. Our weighted-average portfolio yield was 14.7% for the fourth quarter compared to 13.6% for the third quarter and 14.3% for the fourth quarter last year. Our weighted-average portfolio yield for the full year ended December 31, 2012 and 2011 were 14.2% and 14.6% respectively. The Company's total expenses were $4.3 million for the fourth quarter as compared to $2.7 million for the quarter ended December 31, 2011. For the year ended December 31, 2012, total expenses were $14.4 million as compared to $13.3 million in the prior…

Thank you, Chris. We are pleased with our performance throughout 2012, which demonstrates the strength of Horizon's unique business model. We remain committed to generating a stable stream of interest income through a high-quality portfolio of venture loans, while maintaining the opportunity to enhance total returns via warrants. By executing our investment strategy as we have consistently done in the past, we intend to further strengthen Horizon's leading industry brand and drive shareholder value over the long term. So we hope that you take away from this call the following key points for HRZN; portfolio growth of over 28% for 2012; portfolio yield of over 14%; NII of $0.36 per share covering our monthly dividend of $0.115 per month per share for April, May, and June; and the credit issues addressed with still strong overall credit performance. Before we open the floor for questions, I would like to note that we plan to hold our next conference call to report first quarter results during the week of May 6, 2013. We'll be happy to take questions you may have at this time.

(Operator Instructions) Our first question comes from the line of Jonathan Bock from Wells Fargo Securities. Your line is open, please go ahead.

Thank you for taking my questions. Just a few housekeeping questions first. I wanted to ensure, when you put the loans on non-accrual in the fourth quarter, there was no interest income from those loans that flowed into income at all during the quarter, it was an adjust, they were placed on non-accrual maybe in the quarter, but had both interest income into fourth quarter earnings, (indiscernible), correct?

It's a hybrid of that. So, two of the accounts we had no income in the quarter, so we put it on non-accrual effective October 1 and then one of the transactions we had a small amount in the fourth quarter's income and then it went on non-accrual for the rest of the quarter. Kind of put it in perspective, it's about $375,000 was taken off the P&L by putting a non-accrual and it will be about $420,000 in the first quarter, about $0.04 a share impact.

Great, thank you. And Rob, I wanted to make sure I understood this correctly, so you did mention that on Satcon, the creditors do expect a return, correct, as this entity works its way through bankruptcy, is that correct?

Yes, the process continues, it is in Chapter 7 liquidation, moved from Chapter 11. There will be some proceeds from the sales of assets, but as we've said today, not enough to clear even the most senior debt.

Okay, and that brings up the question of second-lien in venture debt, and if I'm not mistaken, Satcon was a second-lien investment?

That's correct.

So, is it possible – are both Cereplast and ACT Biotech also second-lien?

No, they are both first-lien deals.

Okay. So, maybe then Rob, and of course Jerry, the benefits of second-lien, can you walk us through what that provides in light of the fact that at least for the Satcon example, being a second lien creditor, it was a difficult position to be in? I'm just trying to see how you would contract the risk and reward between first lien senior secured and a second lien venture debt investment?

Sure, this is Jerry. So, first of all, over a very long period of time, over a universe of life science technology transactions, we have found no correlation between the first and second lien. In other words, in our history, we have had losses from senior lien life science transactions, where there was absolutely no other debt in the company whatsoever but there was some sort of failure of the technology, or whatever the case may be. Obviously in the case of Satcon, very different situation, public company, tech sector. So, that's not really the correlation when we're looking at a transaction. We're kind of underwriting to some very basic fundamentals on our underwritings tool, and to the extent that those exist, whether it's a first-lien or second-lien deal at the end of the day, is only a definition of the transaction. You know, total debt compared to the equity that has been raised, total debt to the enterprise value, all those things that we traditionally look at, are consistent with every transaction we underwrite, they were consistent with Satcon clearly when we underwrote the deal and in fact there was actually at one point significant improvement in Satcon during early 2011 compared to when we had underwrote it. So, we obviously look at every transaction when they get distressed like this to see if there was any things we could have looked at and takeaways, but the reality is that over very, very long track record, numerous portfolios, it's not about first-lien, second-lien, there were other events relative to specific transaction that have generally driven the company to move from a very favorable position to a more distressed position.

I appreciate the color. One question, Chris. I know you mentioned that there's $46 million outstanding on the Wells line and an additional $10 million with Fortress, can you give us a sense of current liquidity or current available borrowing capacity subject to borrowing base limitations?

Sure. We have availability under both facilities where we could draw approximately $50 million today as of the end of the year. So, we had liquidity at the end of the year of $50 million.

So in light of that, and also in light of just the near-term credit situations and obviously working itself through, can you maybe give us a sense of how you're looking at the potential growth in the equity balance over the course of the year and whether or not that is anything kind of on top of mind at this point?

Based on the current liquidity of $50 million and our expectation of having just natural portfolio prepayments and prepayments that we've experienced over some period of time, I think Jerry mentioned that we think about the portfolio growing at a kind of a $10 million per quarter clip on a net growth basis. So, between the current liquidity from the leverage we have, the leverage commitments we have, plus the normal principal coming back, we can be in the market to grow the portfolio in that kind of $10 million range per quarter.

Thank you. Our next question comes from the line of Boris Pialloux from National Securities. Your line is open, please go ahead.

Thanks for taking my questions. Just had a quick question regarding competition. You mentioned that you saw a lot of competition in the late-stage sector. Is that on the biotech or do you see all type of sectors where you have competition or competitive pressures?

No, it's been primarily very kind of late stage clinical late Phase 2, Phase 3 type companies where the transactions have gotten in our view are extremely large in the kind of running – it used to be a $25 million venture debt deal on a life science phase for late stage technology company, was a large deal, they got done, there was usually a substantial amount of both liquidity in the company as well as enterprise value related to the technology platforms that they had in clinical trials. And what we're seeing today is kind of a breakthrough of that kind of financing where we're talking $30 million, $40 million, $50 million type deals where competition isn't just between venture lenders, it's between venture lenders and royalty companies who have raised substantial amounts of liquidity over the last couple of years and are putting into these. We'd see those transactions being more like a venture capital platform where you're taking a few risks and probably only maybe one or five are going to actually work and cover the risk. That's not the venture debt model. The venture debt model is, we've got to get a return of our capital and get a reasonable economics on the transaction. So when venture debt starts competing for those types of transactions, I think you got to be really careful. So, we've seen both by the economics of those deals come down over the last certainly six months and we've seen the deals get – and what we believe our view is, a little bit too large for where debt should be playing such a significant role in the outcome of still clinical development technologies.

Okay, and the second question is regarding your – I mean it's related to the previous question before, do you have any debt to equity target where you feel comfortable with?

So we're at 0.65 right now and I think we're comfortable going to kind of 0.8 to 1.

Thank you. Our next question comes from the line of Robert Dodd from Raymond James. Your line is open, please go ahead.

Kind of a general for your allocation, it looks like six of the more recently deals were in software. Obviously you've talked about there being issues and competition in life sciences and maybe risk with sequestration. I mean can you give us an idea about what you're primarily looking for sector vice, if you've got a target about where you'd like to focus through the course of this year?

Yes, we're certainly feeling more comfortable. First of all, software, that's a very broad market, so it can be in a lot of different areas, and so you have some diversification even within those transactions. But we definitely like companies that are demonstrating growth in terms of revenue traction and customer traction, software-as-a-service where the revenues are more sticky, we like to see that where companies are moving towards profitability so there's not as much pressure on the investors to continue to have to invest capital and the money is truly being used for growth. Those are areas where we're seeing some really interesting opportunities, where companies are doing a lot of really creative things and there's significant demand for product as a result of that. So, we definitely like that sector, we definitely like the medical device sector, we've seen a number of companies that have completed now their clinical trials and are beginning to move into the product commercialization stage. They have still got pretty attractive valuations relative to the warrants we get, so we certainly continue to like that market. I want to be careful. We still like the life science drug development market. A lot has been a cornerstone of what we've done, but we're just being more cautious and looking at the models, the actual models for each transaction and making sure that they are using the appropriate amount of strategic financing. There's certainly nothing wrong with using some leverage as well as who their equity sponsors are and how well-financed those investors are in their commitment to the companies.

Thank you. On kind of going back to the competition question, I mean it looks in the new origination in the fourth quarter, it looks like you held the coupon pretty steady, maybe even up a tiny bit versus the blended. I mean are you giving up anything else in terms of terms? I mean obviously adjusting a little bit towards second-lien to get it, but I mean end-of-term payments, origination fees, are any of those terms shifting (indiscernible)?

Yes, not too much, and that's why I was careful to point out that we were pretty selective relative to the market segments we went after. We kind of saw that starting to happen really kind of over the year progress, and so we were very focused going into the second half of the year and especially into the fourth quarter about what kinds of transactions we were going to be looking for. And I think that helped us a lot because that's what was in our pipeline. We had already started that process and so we were able to actually in the fourth quarter improve our cash on cash yield, so that would be – let me define that for you, that would be the interest rate, the commitment fees, and end-of-term payments. We're actually able to increase our yield from the third quarter and actually we increased our yield every quarter, from the first to the fourth quarter, and there was a combination of making sure we were focused on the right market segments first of all, and then we did in fact do more second lien transactions in the fourth quarter, as I had mentioned, at the end of the third quarter, given that we had the Fortress line in place and of course that helped us from a yield perspective as well.

Right, and then one last one kind of on the capital position. Obviously we've had some discussions (indiscernible) there's a note in the K saying you have no intention to – indicating that no intention to pursue that in the near term. Can you give us any color on why not, given one of the issues that presented in the past seems to be dealt with?

Yes, I mean the issues that existed when we went through the application back in 2011 continue and we really right now are not in a position to move ahead and we just don't like giving out an impression that we're doing that.

Thank you. (Operator Instructions) Our next question comes from the line of Greg Mason from KBW. Your line is open, please go ahead.

One housekeeping question. I believe you said it, but I think I missed it, I want to make sure I get the right number, the prepayment fee income that happened in the fourth quarter, do you have that number?

$450,000.

Great, thank you. And then, Rob, you talked about that you finished paying out all of the capital gains that you had in the past and the special dividend, and going forward, any future gains you expect to be spilled over. Is that a change in kind of your dividend policy of what you want to do with capital gains and kind of your thought process behind that?

Yes, I think we announced this, we talked about this certainly back in November and when we changed our dividend policy, we really are focused on trying to cover our dividend with NII over time and that we will look at the realized gains or the spill-over income and make decisions based on what to do with them over time as they present themselves. So, that is the switch from where we were from sort of August of 2011 when we decided, made the decision to augment the NII with realized gains.

Okay, great. And then, you talked about, it sounds like you expect to be able to meet all of your investment capacity this year based on funds coming back in and the available borrowing at your current facilities, are you planning on asking for shareholder approval to issue stock below book again, or how are you viewing kind of below book issuances in light of kind of your guidance for capital deployment expectations?

We will ask for the below NAV vote. Our view always is that we will only raise additional equity capital when it's beneficial to our shareholders to do so, based on market conditions and opportunities we're looking at, leverage availability of that capital when it's raised and our ability to deploy it, but we have no immediate plans to do so.

Thank you, and I'm showing no further questions in queue, and would like to turn the conference back over to Mr. Rob Pomeroy for any closing remarks.

I'd like to thank everyone again for joining us on today's call and for following Horizon story. We look forward to sharing our progress with you again in the future.

This concludes Horizon Technology Finance Corporation's conference call. Thank you and have a great day.