Good morning and welcome to Horizon Technology Finance’s Fourth Quarter 2013 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; instructions will follow at that time. I would now like to turn the call over Megan Bacon of Horizon Technology Finance for introductions and the reading of the Safe Harbor statement. Please go ahead.

Thank you, and welcome to the Horizon Technology Finance fourth quarter 2013 conference call. Representing the company today are Rob Pomeroy, Chairman and Chief Executive Officer; Gerry 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 will 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 believes, expects, anticipates, intends, or similar expressions are used to identify forward-looking statements. These forward-looking statements are subject to the inherent uncertainties in predicting future results and conditions. Certain 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, 2013. The company undertakes no obligation 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. During the fourth quarter and full year 2013, Horizon delivered positive results by actively managing its existing portfolio and capitalizing on profitable liquidity events. We are pleased to have achieved a strong overall yield on our loan investments which enabled our company to earn net investment income that has exceeded our dividend since implementing our current dividend policy in November 2012. We believe our dynamic venture portfolio positions Horizon well to continue to produce high current pay interest income and attractive fees, while maintaining the opportunity to realize significant warrant gains as we remain focused on providing stable dividends to shareholders. Some highlights of our performance include net investment income was $3.4 million or $0.35 per share for the fourth quarter and $13.3 million or $1.38 per share for the full year. In the fourth quarter, we originated $19 million in new loans to 8 companies, bringing the total to 18 new companies added to our portfolio for the year. Total originations for the year were $88 million. In the second half of 2013, we began to structure a majority of our new loans with floating rates. For the fourth quarter, 47% of new debt investments included floating rate adjustments and at year-end, 89% of our committed backlog was floating rate. We ended 2013 with a venture loan portfolio at fair value of $221 million to 49 companies as well as warrants and equity with an aggregate fair value of $6 million in 73 portfolio companies. Of those 73 portfolio companies, 11 are public with an aggregate fair value of $2 million, providing the potential for near-term realization. Our portfolio yield was 15.5% for the fourth quarter and 14.4% for the full year, underscoring the stability of the strong returns we…

Thank you, Rob. And good morning, everyone. In the fourth quarter of 2013 and to-date in 2014, our advisor originated approximately $62 million in new loan investments of which we funded approximately $34 million and partnered with other lenders for the remaining $28 million. These sizable deal originations are directly related to the strength of our dedicated venture lending platform and reflect positive demand for our debt products through the end of 2013 and the onset of 2014. In the fourth quarter, we funded 8 portfolio companies totaling $19 million. Onboarding yields for this transactions remained strong, averaging 12.6%. For the full year 2013 onboarding yields also averaged 12.6%. Of note, in addition to maintaining our attractive yields, 39% of new loans funded during the second half of 2013, including floating rate -- concluded floating rate interest -- interest rates which will allow us to benefit from potential Horizon rates. Going forward, we will maintain our focus on transactions that include floating rate adjustments. At the end of Q4, our pipeline remained relatively strong with over $100 million of new investment opportunities being evaluated and negotiated, enabling Horizon to select the highest quality investments available. Although there’d be no assurance that transactions in our pipeline will be funded, our proved and committed backlog as of today totals $8 million with 88% priced at floating interest rates. Turning to our core markets, as we predicted last year, we are now seeing significant activity in the technology sector related to both IPOs and M&A. Of the 24 venture backed IPOs completed in the fourth quarter 10 were technology companies. In addition, 66 of the 81 M&A transactions completed in the fourth quarter were technology related companies including our own portfolio company Fiberlink Communications. We believe our focus on quality technology related debt…

Thanks, Gerry, and good morning, everyone. Our consolidated financial results for the three months and year ended December 31, 2013, have been presented in our earnings release distributed after the market closed yesterday and we also filed our Form 10-K with the SEC last night. For the 3 months ended December 31st, total investment income increased 10.5% to $8.8 million compared to $7.9 million for the fourth quarter of 2012. This increase was primarily due to the increased average size of our loan portfolio. New loans funded in the fourth quarter had an average onboarding yield of 12.6%. Total investment income for the quarter included $7.9 million from investment income related to interest income on investments as well as approximately $850,000 of fee income associated with loan prepayments from three of our portfolio companies. And success fees of $400,000 in connection with the sale of one of our portfolio companies. For the year ended December 31st total investment income increased 26% to $33.6 million compared to $26.7 million in the prior year period. For the fourth quarter our portfolio yield was 15.5% compared to 14.7% for the fourth quarter of 2012. The portfolio yield for the year ended December 31, 2013 and 2012 was 14.4% and 14.2% respectively. But primary changes from quarter-to-quarter to portfolio yields are driven by the timing of new loan investments and timing and extend of prepayments and related prepayment fees within the portfolio. The company’s total expenses were $5.3 million for the fourth quarter as compared to $4.3 million for the fourth quarter of 2012. Interest expense increased year-over-year primarily due to the increased average borrowings following the issuance in June of fixed rate asset backed notes in an aggregate principal amount of $90 million. During the fourth quarter we reduced the outstanding balance of…

Thank you Chris. We are pleased by our performance in 2013 and remain excited by our future prospects. Management will continue to focus on deploying capital efficiently and profitably, while maintaining an opportunistic approach to increasing our financial flexibility in support of Horizon's long-term growth objectives. Our strong track record in generating attractive risk adjusted returns from both high yielding loans and warrant gains has enabled Horizon to build a leading industry brand and positions our company well to drive shareholder value in 2014 and beyond. 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 5, 2014. We'll be happy to take questions you may have at this time.

(Operator Instructions). Our first question comes from the line of Andrew Kerai of National Securities. Your line is open. Please go ahead.

Yes, hi good morning and thank you for taking my questions.

Good morning.

I'm just looking at the clean-tech sector. Again, appreciate the commentary on Solar Bridge. Do you guys plan to exit the other two investments in the near term that are on nonaccrual within that space?

We're working on that right now Andrew. Yes.

Okay, great. Thank you. And then just another question, Chris, on the $0.05 impact from the non-accruals in Q1. So, if I'm understanding that correctly, then it's reasonable to assume that your Q1 NII is going to come in a little below the dividend payout, is that correct?

That’s fair. Yes, yes. So basically the [nipple is] the difference, is what the impact off of the fourth quarter actuals were.

Right, right, fair enough. Thank you.

Thank you. Our next question comes from the line of Troy Ward of KBW. Your line is open. Please go ahead.

Great. Thank you and good morning. Andrew actually just hit on a couple of my questions. But Rob can you just speak -- you talked about selling additional non-accruals here to kind of recapture some of that fair value and protect that. Can you speak to the operational performance of these companies, just considering their VC, what do you think the opportunity is to sale these at the current fair value?

Well we settled Solar Bridge you know that. One of the companies is in Chapter 11 and there is ongoing process with an auction soon so that that should be cleared up in the next quarter or two. The other company is actively trying to raise capital and so again we expect that they’ll either be successful in that in the next coming quarter or two.

Okay. And then the one you talked about Chapter 11 and that Cereplast which is public information of course. We saw where the company was awarded a small dip loan and there will be a hearing on March 20th. Is the March 20th hearing, is that going to determine if you have control of the assets and if there will be a sale of the assets, is that what that hearing’s for?

In the case of Cereplast, it’s in the Chapter 11 process. There will be a series of hearings that will allow the company execute its attempt to reorganize under Chapter 11. But the other company that is also in Chapter 11 is Xtreme Power.

Okay. I am sorry. I didn’t know which type of one. That’s the one you were referring to. Okay. Do you expect higher legal expenses in the coming two quarters as you deal with these companies working through that process?

We did have higher level of professional fees in the fourth quarter and we would expect some of that to continue as we work our way through these.

Okay. And then one last one you talked about the Solar Bridge restructuring is that preferred piece that you are going to retain, will it have a yield on it?

No, it’s a previous preferred share, preferred equity.

Okay, great. Great. Thanks guys.

Thank you. Our next question comes from line of Chris York of JMP Securities. Your line is open. Please go ahead.

Good morning guys, thanks for taking my questions. What are your thoughts on amending or changing your expense structure to potentially align your interests with shareholders?

Right now we are continuing with the plan that we have.

So just continue to execute on your strategy and you haven’t put much thought onto that, is that the kind of way to think about it?

Well one of the ways you reduce your overall cost is if you maintain your -- if you grow the size of the overall assets, but with external management the contract has the management fee and incentive fee as outlined.

Okay, that’s it from me, thanks.

Thank you. (Operator Instructions). Our next question comes from the line of Robert Dodd of Raymond James. Your line is open. Please go ahead.

Hi guys, thank you this is actually Fin O'Shea in for Robert Dodd this morning. Just a couple of questions. Regarding the move to floating rate securities, you mentioned earlier on in the call. Does that indicate (inaudible) in the capital structure? And back to the solar, was there anything specific this quarter that can draw a lot of markdowns, say primary specific event in this space or do they all need financing at the end of their project lives something like that?

Yes. I will take that. So the switch to floating rate really is just the different interest income structure for the same products we have always [want], so rather than a fixed rate, we have gone to a floating rate.

So you were able to put just change the terms of the loans?

Yes, that is correct, this is Gerry. Yes, that is correct. Because I mentioned there is a -- there has been a fairly significant shift in the competitive landscape of our market and we actually found ourselves in Q4 in this quarter, specially on the tech side, specifically on the tech side, where there is -- we found less competition for the transactions that we have been on which gives us obviously the ability to be more aggressive and how we price those and we have been looking at moving to floating rate interest products since the middle of last year and this has allowed us to accelerate that and that’s one of the major benefits with that from the competitive landscape as it exists today.

Okay.

With respect to your question about the solar space, I mean each company has its own facts and circumstances and capital raising issues that brought the stress to the head, but the overwriting team is that the venture equity investment in support for this sector has been difficult for about last year and half, two years.

Okay. That’s very helpful. Thank you.

Thank you. Our next question comes from the line of Jon Bock of Wells Fargo Securities. Your line is open. Please go ahead.

Good morning and thank you for taking my questions. Maybe a bit of a bigger picture item here. As we look at the venture space and Gerry and Rob and Chris, correct me if I’m wrong, the ability to drive down and draw more overtime, it’s something that’s important to VC spots or so normally you will see an investment with perhaps a $20 million investment in which 5 is drawn and 15 will be drawn overtime. That implies that you need a significant amount of liquidity in order to fund those types of transactions at venture sponsors and if they can do appreciate that flexibility yet here at 0.9 and at vast liquidity very limited, and I’m trying to put it in a positive way, I mean we appreciate that but it is limited, can you speak to the competitive advantage that you would offer versus someone who has adequately capitalized and likely able to meet VC’s needs in a number of different ways as opposed to the liquidity constraint that you are operating under here?

Yes, so I’ll take that. As I have mentioned last quarter and this quarter, we have not been actively pursuing kind of the larger type late stage life science companies which typically have the great features that you talked about. So most of what we have been doing really in the second half of 2013 and even in 2014 have been technology deals which require a significantly less capital, it may still be tranche but we're talking about relatively small amounts in that $2 million to $5 million range. So, we have been able to manage really that portfolio and that backlog relatively efficiently based on the capital we have. I think to get to your question about the competitive advantage, our competitive advantage in our marketplace is our track record with the VCs. They know us very well. We have a lot of their portfolio companies in our portfolio. And so we generally are going to get a look at just about everything. And if there is something that is too big for us, of course as you know we also have very good partners in the marketplace that we partner with. Some of them marine markets, some of them kind of rely on us, with their origination on venture [debt side] because they don't have a platform for it. So, we very efficiently manage that process and that hasn't been a big issue for us. Although, I will say that we watch it pretty closely. So, that's how we would mention it.

Yes. Fair enough. And then maybe two more global questions, I mean people have come and asked about kind of earnings and the earnings profile. Rob are you comfortable with paying out a return to capital your dividend for a while or do you think it'd be best to perhaps reduce it closer to what you believe lower earnings power this business could be?

Just couple of points Jon. First of all we do have $0.66 per share of spillover income. So, even in a quarter where we would have a shortfall for the time being it would not be return of capital. So that's important consideration, we believe that we stated that our dividend policy is to establish a dividend and can be covered by NII overtime. And we believe that one look it in the rear view mirror, we have demonstrated that capability and we are confident that we can do so going forward.

Okay. And then last question as it relates to track record and I find a very good tie in with Mr. York’s question as it relates to fee structure. So correct me if I am wrong guys, but in the first quarter 2011, we were looking at $17.23 book value, today $14.14. Can you explain, with that reduction in NAV, why one should take an NOI or incentive fee and/or outperformance fee if we see that amount of book value degradation, while your peers have not shown the same?

I don’t really have a good answer for that Jonathon.

That’s fair. Thank you very much for taking my questions.

Thank you. Our next question comes from the line of Jim Young of West Family Investments. Your line is open. Please go ahead.

Yes. Rob, you mentioned that you’re pleased with the 2013 results. And your stock is down over 7% and down over 10% at [1.48]. And I am trying to just reconcile those 2 and I am trying to understand, think about what changes may we expect in 2014? Are there fundamental issues with your credit underwriting process or are your loans that you’re extending not being priced appropriately for the risks that you’re actually assuming, so any clarity you can provide would be very helpful?

So, our outlook Jim really is includes a couple of things that I think we tried to mention in the script is that we do expect to recover from these non-accruals and as a result, get the cash back so we can redeploy profitably. We did have suffer I think disproportionately by some of investments in the solar related space, turned out to be a much more difficult space than we anticipated when we entered it. We made a corrective action to exit that market about a year and half ago and some of these problems have hit the beach reasonably although we expect to come out the other side in decent shape. We believe that our portfolio is very, highly profitable as demonstrated by our 14.4% yield on that portfolio during last year and the year before. Consistently earning that kind of top-line yield with improved cost of debt and leverage as we think over the long haul that as we demonstrated for nearly 20 years, the venture lending space is a very, very profitable place to invest.

Thank you. Our next question comes from the line of David Miyazaki of Confluence Investment. Your line open. Please go ahead.

Thank you. A question for you, when you are talking about floating rate and the shift to that duration (inaudible) your portfolio; I hear that from a lot VCs that there is a shift to floating rate but if I think about what you are doing there to try and protect Horizon’s income from rising interest rates, ultimately the risk is still out there. So now, you have shifted it to your borrower. How do they address the fact that interest rates may rise? Because in the end, you may have a floating rate coupon but if we go up in LIBOR, pick a number, a couple or 300 basis points, then they are going to be stretched in covering their own debt servicing costs. So, how do they address that interest rate risk?

That’s a good question. Our structures do provide some top level of ceiling on the interest rates, so that we enjoy the protection of interest rate, rising interest rates within a limit. So on the high ends, it still is -- financing makes sense for them and their plan. Remember what venture landing is all about; it’s a less diluted form of capital for these companies as they develop their technology products. And so, they are looking at the alternative of equity. And so as long as they can have -- can forecast the cost of this capital within a range, it makes sense for them.

Yes.

Very value added for them as opposed to taking a similar amount in equity.

Yes, I understand that and that they will incur debt costs that are higher. But ultimately if they can protect their equity cost, and they can have higher returns, so I understand what you are saying. But I just don’t always have a sense of security, when I hear that you’re shifting to anyone, is shifting to a floating rate posture, because that means that you are collecting from somebody who is not wearing that. Do they every -- I would suspect that they are not of the opinion that they ought to swap that out with some sort of an interest rate swap fixed their cost?

That’s the borrower’s decision. We try to look at in our asset liability mix and the cost of our debt, which is largely fixed now try to provide ourselves some contraction. Previously, we would have considered swaps to protect ourselves, now the borrower can look at swaps. The product provides some protection for us, because it has a ceiling protection for the borrower. So, within the realm of all of corporate finance, we think this is still a good move for us and for our customer.

Yes. I just -- do you ever think that maybe it’s better for you to wear that interest rate risk and swap it out on your own side and allow them to have a lower fixed rate number?

We actually have done that for many years and the market has clearly said that we should pass that cost on to our portfolio company. The end of day will be down the road when (inaudible) rates rise. But today there is a clear message in the market that lenders should push some of that off to their (inaudible) and that’s what we’ve done. We will see how that plays out.

Okay. Second thing, I just wanted to ask about with the number of workouts that you are having to deal with; one of the primary concepts in venture lending is that you have an interest in the intellectual property of the company that is drawing and developing. And this is part of the recovery in the event that there is a bankruptcy or default. How, as you look at your situation here with the non-accruals, how valuable is that intellectual property actually turning out to be and what -- how well did you underwrite it or is it 100% what you expected, or is it something less?

Yes, it really is what drives the value and the potential product recovery, the fact that we are secured by the entire enterprise value is what is giving us the opportunity to liquidate these companies and get recoveries.

I think if you look at the most recent kind of full recovery that we’ve just went through on ACT, it was in fact the intellectual property to drug candidates that we are able to position to effectively do a deal with that we think is going to be -- have significant upside. And it was really all about the IP.

And do you feel like that thesis is still intact for the solar exposure that you have right now?

Yes.

Okay. So generally speaking, we would expect as you work through these non-accruals that there should be pretty good recovery?

Correct.

Okay. I did want to follow-up on a couple of the questions I came up with, because I think that I’ve talked about this issue with you guys more on a one on one basis in the past with regard to cost structure of external versus internal. But I have to say that I thought that your comment about costs coming down as you become larger, didn’t make a lot of sense to me in an external structure, because as you become larger that’s just not going to happen. And I think that’s something that you do -- you should consider and against the backdrop of what one of the early analysts was talking about with your fee structure versus your NAV performance. If you don’t have a response to that right now, I would encourage you take the next 90 days and come up with a good one for us next quarter, because it really is something that if you’re not thinking about it, then I think that that’s an issue. And if you are thinking about it, then we would like to hear about it.

Fair enough.

Alright. Thank you.

Thank you. And with no further questions in queue, I’d like to turn the conference back over to Mr. Rob Pomeroy for any closing remarks.

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

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