Good day, ladies and gentlemen, and welcome to the Horizon Technology Finance Corporations Second Quarter 2014 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Later, we'll conduct a question-and-answer session, and instructions will follow at that time. (Operator Instructions) As a remainder, this conference call is being recorded. I'll now to like to turn the conference over to Megan Bacon, you may begin.

Welcome to the Horizon Technology Finance second quarter 2014 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'd like to point out that the Q2 press release is available on the company’s Web site 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 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 a 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'd like to turn the call over to Rob Pomeroy.

Good morning and thank you all for joining us. Before I review the financial performance for the second quarter, I'd like to first speak to two important strategic initiatives that we undertook in the first half of 2014. The first is the consideration of changes to the investment management agreement between Horizon and our advisor. Horizon explored various options that could better align the interest between our external advisor and shareholders. While there is very little precedent for externally-managed BDCs that have amended their investment management agreement, we did consider the fee arrangements and structures of all externally-managed BDCs as we work to amend our agreement. Yesterday, we announced changes to the agreement that were approved by our Board of Directors on August 1st and are effective as of July 1, 2014. The first change is to make permanent removal of management fees on cash and cash equivalents. Previously the advisor at times has waived such fees as it did for the second quarter. Now, the reduced fees are permanent. The second initiative we undertook was to enter the SBIC license application process. Previously we had been unable to consider this process due to matters related to the ownership of our advisor. This was recently resolved without any financial impact on the public company. As a result, in July, we submitted our management assessment questionnaire to the small business administration; the first step in the approval process for an SBIC license. This is a long process, and there is no guarantee of ultimately obtaining a license, but we have started the journey. We believe the actions we've action will enhance shareholders value over both the near-term and long-term. Highlighting our operating performance for the second quarter, we're in net investment income of 1.8 million or $0.19 per share for the…

Thank you, Rob. Good morning, everyone. During the second quarter, we continue to execute on our discipline investment strategy, seeking in originating quality investments in venture capital sponsor technology and life science companies that 1018^^^ offered strong current pay yields with additional upside potential from warrants or success fees. As we have previously mentioned over the past 18 months, we have focused our origination efforts in the venture capital back technology market sectors of software, Internet-related and semiconductor companies. In the life science market, we're primarily focused on the medical device sector. Our reason for specifically targeting these sectors was our strong belief that they provided the best opportunity for quality higher yields and long-term upside through warrants at attractive valuations and success fees related to near-term M&A activity. In the second quarter, we began to bear the fruits of our efforts as our portfolio yield for the quarter surged to 16.4% increasing our portfolio yield for the first half of the year to 15%. In addition, our average onboarding yield of 12.6% for the quarter demonstrates our continued success in adding new transactions to our portfolio that lock-in strong yields in building the same potential of prepayment fees and term payments, success fees and warrants like those we actually received in 2013 and the first half of 2014. As a remainder our onboarding yield consist of the contractual interest rate, commitment fees and ETPs, but does not include additional potential for increased yield from warrant gains, prepayment fees, success fees or accelerated income from ETPs upon loan prepayments. At the end of the second quarter, we held warrant and equity positions in 79 portfolio companies, and had success fee provisions in an additional eight portfolio companies. As an example of additional yield we received from our portfolio in the…

Thanks, Gerry, and good morning everyone. Our consolidated financial results for the second quarter have been presented in our earnings release distributed after the market closed yesterday. We also filed our form 10-Q with the SEC last night as well as an 8-K with a copy of our revised investment management agreement. For the three months ended June 30th, total investment income was 8.7 million compared to 8.8 million for the second quarter of 2013. This modest year-over-year decrease was primarily due to lower interest income on investments resulting from the decreased average size of the loan portfolio, partially offset by higher fee income. New loans funded in the second quarter had an average onboarding yield of 12.6% consistent with recent quarter. Total investment income for the quarter included 7.7 million from interest income on investment as well as approximately $1 million of fee income. For the second quarter our portfolio yields was 16.4% compared to 14.5% for the second quarter of 2013. The primary change from quarter-to-quarter to portfolio yields are driven by the timing of new loan fundings and timing and extent of loan group payments and related fee income within the portfolio. The company’s total expenses were 6.8 million for the second quarter as compared to 5.1 million for the second quarter of 2013. Interest expense increased year-over-year primarily die to the acceleration of $1.1 million unamortized debt issuance costs and $750,000 prepaymen6t charge both related to the termination of our term loan facility. We do not expect any ongoing obligations or expenses associated with the termination of prepayment of this facility. Beginning in the third quarter, our quarterly interest expense is expected to be reduced by approximately $300,000 or $0.03 per share. These anticipated cost savings are a result of the elimination of debt issue costs…

Thank you. (Operator Instructions) We have a question from Robert Dodd of Raymond James. Your line is open. Robert Dodd – Raymond James: Hi, guys. Congratulations on, I think, a lot of things this quarter. On the prepayment side, I can -- I mean there has been one since the end of the quarter. I may have missed it, if you had mentioned another one. Any additional color on are you getting indications from any other portfolio companies etcetera that maybe early prepayments this quarter? And obviously that goes to the other part. These are the questions, 2.1 million in amortization, accelerated amortization etcetera, the fees embedded within the interest income line; if you can give any -- how much of that's the curve-in base number versus what was the one-time benefit in that 2.1?

Yes. Hi, this is Gerry. So the answer to the first part of that, I mean I’ve noticed it that many times prepayments are referred to as one-time events, and the reality is in the venture debt portfolio there are really no one-time events. It’s just not as predictable. If you look at 2012, we had about $42 million of early terminations. In 2013 we had about $46 million of early terminations, which is about 20%-25% of our portfolio. This year we had so far 33 million, also I would note that 11 million of that came from forced liquidation of portfolio companies, so about 22 million so far in the first half of the year had come from voluntary prepayments. So, we are again consistently running on that basis at about 20% to 25% turnover. I can tell you relative to the third quarter as I sit here today I'm not aware of any additional early terminations, but it’s also -- I'd note that it’s pretty early in the quarter, so events can happen pretty quick relative to M&A activity especially. And even now with IPOs not being known until maybe the last month of the process, those can come upon us pretty quickly, but I am not aware of that. So I think that’s one way to look at it. The other thing I'd note that relative to the prepayment types of fees that we build into the transactions we are doing today, they are very consistent with what we have been doing over the last few years relative to the percentage of prepayment fees in that time, the final payments we are getting. So when there is an acceleration the fees we get from that should be consistent with what we have gotten in the past. Robert Dodd – Raymond James: Okay, got it. Thank you. I usually assume about 10 million a quarter, it’s just the 26 was somewhat larger. So obviously I just thought of it. On the expense side, the professional fees, again, alleviated this quarter we expected that given you were always hoping non-accrual loans and the credit facility issue. Should we expect that to drop back down to the level it was at the beginning of ’13 next quarter or there are still expenses to come there and resolving some other matter?

That's a good question. I think what we had over the past couple of quarters was a trend up in that professional expense largely attributable to the non-accrual loans. I think what you will see for the second half of the year and certainly into the first quarter of ’15 as a trend in the other direction. What’s hard right now is to give guidance specifically on what that number will be, but clearly trending into a downward trend on that line. I think it will take it on them for us to get back to a more normalized level that you may have seen in 2013. Robert Dodd – Raymond James: Okay, perfect. And just one more if I can and I’ll hop back in the queue. On the SBA, obviously you went through this process and there were issues in the past. You believe there is a result? Have you got an indication from the SBA that they think the matter is cleared up from your council or whoever, maybe both, giving indications that the thing is cleared up and it’s worth another show? Or have you got an indication that something will compete from the SBA that they think the issue is resolved and have encouraged the reapplication.

Robert Dodd – Raymond James: Yes, got it. I appreciate it. Thanks, guys.

Thank you. The next question is from Troy Ward of KBW. Your line is open. Troy Ward – KBW: Great. Thank you. First of all, just congratulations on the quarter and on the movement that you did in the external mg agreement, I think that's speaks highly of the future. Gerry, you spoke some of the trends from the National Venture Capital Association and one of the things that struck me was in the second quarter the number of VC funds that raised capital hit a seven year high. How do you think about the capital formation at the VC funds and how that potentially impacts your business going forward? Do you view that as a positive or -- I know typically it’s not a positive for the IRR if you look back at the correlation between VC fundraising and VC IRRs, but how do you view that from your side on the venture debt?

Yes. One thing, great things about venture debt is we're a preference over everything that they do. We generally maintain our yields even, and I know what you mean is where that market can heat up if it’s overcapitalized and they start making investments. First of all, I don’t believe that that is the case by any stretch yet. Relative to the fundraising, really there were two groups of VCs that are raising funds. One of it was mega funds. They are really big funds that have one obviously demonstrated really good historical performance over a long period of time. And they are raising big money and they have to -- as a result generally speaking, they are making very large investments in order to put that capital to work. The other group is really what I call the emerging VCs. And these are partners that have come out of some of these big funds who can -- who have good attribution relative to transactions that they did at their other VC company where limited partners are getting behind them because of what they believe is their personal success rate. The ones that have had trouble, significant trouble raising capital and still are even though fundraising has improved dramatically, and once in the middle of mid sized funds who haven’t yet or may be won’t able to be able to demonstrate really strong returns. So we continue to focus on those kind of VCs that we feel have a lot of energy, understand the value of venture debt relative to their portfolio companies. I mean one of the things that came out of the great fall in 2000 was VC began to recognize that they couldn’t be the only source of funding for their portfolio companies, diversification of funding and…

I mean I think the only thing that we have seen obviously is the JOBS Act, which favorably impacted technology and life science companies relative to their ability to be able to file to go public without letting the whole world know, especially their competitors and potential acquirers if they've done that. And that has -- as we've seen over the last few quarters I think that has a very positive effect. I'm not aware of any other banking regulations other than the ones that you guys are actually -- a couple of things that you're tracking relative to -- our congress might be up to which again could have a favorable impact on that. I'm not aware of anything. I haven't heard of anything in the marketplace relative to that that's impacting VC in investment decision. Troy Ward – KBW: Okay. And then one final one, I think I heard in your commentary that you're going to become more active in new public companies within the life sciences' realm here going forward. Can you give us a little more color on that? And what are you seeing from that perspective to make you excited about that?

Yes, I can. First of all, we're watching it closely. We're in fact seeing greater demand in the last really 90 days for public life science companies that have probably recently raised capital, meaning in the last year and a half. They may not have especially in 2014, it may not have raised as much as they would have liked to based on valuations in order to get public. And so, there is still a gap between what they need to raise in order to bring their products with the clinical trials, and what they raised in the IPO. We've seen this happened before. I don’t know if you guys remember Pharmasset, which was a very good deal for us. Ultimately we got a significant warrant gain there. But that's exactly how we get into that transaction. They went out try to raise $70 million, I think it was in 2007, and they only raised 45 million and yet they had three products in clinical trials and they really needed the 70 million in order to keep advancing those. And so, we provided $30 million of debt. We've seen more opportunities along that line very recently. And what we're watching and hoping for is that, that will balance out the demand and supply credit available to these companies and increase pricing to some degree. So, we can find those opportunities more attractive. I'm not quite there yet, but I'm liking what I'm seeing. So we'll see how it goes here in the second half of the year. Troy Ward – KBW: Great. Thanks, guys.

Thank you. The next question is from Ron Jewsikow of Wells Fargo Securities. Your line is open. Ron Jewsikow – Wells Fargo: Yes, good morning and thanks for taking my questions. I guess just first, I think we're pleased, I'm sure your shareholders are about the amendment of the external manager agreement, but just a few asset-specific questions I guess. First, N30 Pharma, we saw the preferred equity pieces markdown to zero, I believe, and could you walk us through what's going on with that business given that you do have a senior investment ahead of it that's maturing here shortly?

Yes. So, N30, these are private companies, so we try not to disclose too much about them. But they're a company that has been a customer for us for several years, worked on aspects, drugs for asthma and cystic fibrosis. At times it has been showing great promise, and other times had struggle a little bit to raise money. It looks now like the -- our analysis of the value of our warrant has been reduced to zero, but we still believe that the loan is secured. Ron Jewsikow – Wells Fargo: All right. And then just one more question on this quarter's new investment, it looks like largest [one M blocks] (ph), it doesn’t look like you got any equity warrants with that. Is that a function of valuation or is that just deal specific with this transaction?

Yes. So what we look at relative to taking warrants versus taking success fees is what the value -- if we otherwise like an investment opportunity, first of all, but we look at the valuation of the company at the time we're making our loan, and we look at the window of opportunity for additional increased value over the period, which we believe will lead to an exit. And in some cases, and this will be an example of one, we believe the time available for them to continue to build value over the valuation at the time we made the loan was very short. And so, in that transaction we decided to take a success fee, instead of a warrant, which we believe was the right direction to go in. First of all, success fee is a preference to everything. So, irrespective of what happens, that's something if there is an exit we'll in fact lock in, which is good. And by the way, that's exactly what we did with Newport Media. We funded Newport Media at the end of 2012, like the opportunity a lot, thought the valuation was pretty high. We thought it, given their revenues there would be an exit within 18 to 24-month period. So we took a success fee instead of a warrant and actually that turned out to be spot on based on the exit that they just has. Ron Jewsikow – Wells Fargo: Makes total sense. Thanks for taking my question, guys.

Thank you. (Operator Instructions) The next question is from Casey Alexander of Gilford Securities. Your line is open. Casey Alexander – Gilford: Hi, good morning.

Good morning.

Good morning, Casey. Casey Alexander – Gilford: Your discussion of potentially doing some public life science companies, does that potentially include add-ons to some of the public life science companies that are already in your portfolio that are at a similar situation?

We haven't -- I don’t believe we had any request for that, but clearly there is a couple in our portfolio that we think are doing quite well. It could be rising stars, but that has not been requested. Casey Alexander – Gilford: Okay. Secondly, the Horizon Funding Trust is amortizing fairly quickly. Was there no re-investment period for the Horizon Funding Trust or -- and is it been mandated to amortize some of these deals that paid off or is it just been you felt that was the correct opportunity?

Casey, that’s a good observation. Actually the structure from the beginning was a static pool with no reinvestment period, and it has a borrowing-based feature where as the loans within the asset pool pay down, so does the liability side. So, for example, this quarter we had a number of prepayments that actually were in that vehicle. So we had a little bit of acceleration on the debt side as well, which is why you saw the leverage come down this quarter. So it is coming down about as expected. We had originally signaled that the weighted average life was about a year and a half when we first did the deal just about a year ago. And so, we're pretty much on track with that given where we're today. Casey Alexander – Gilford: All right. Okay, great. Thanks for taking my questions.

Thank you. There are no further questions in queue at this time. I'll turn the call back over to Rob Pomeroy for closing remarks.

Well, we appreciate your questions as always, and your interest in the Horizon story. We believe the steps we have taken during the second quarter and first half of the year has considerably strengthened Horizon's future prospects. Permanent changes made with the Horizon's investment management agreement combined with the improvement in the cost and efficiency of our debt capital will have a meaningful impact on future results. In addition, we plan to continue to execute our investment strategy by capitalizing on select high quality venture debt opportunities for preserving the ability to benefit from additional upside via warrants. And we look forward to keeping you apprised of our progress. Thank you.

This concludes Horizon's Technology conference call. You may now disconnect. Good day.