Edgar Filing: HERCULES TECHNOLOGY GROWTH CAPITAL INC

Form 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

FORM 10-Q

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For The Quarterly Period Ended June 30, 2007

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 814-00702

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

(Exact Name of Registrant as Specified in its Charter)

Maryland

743113410

(State or Jurisdiction of

Incorporation or Organization)

(IRS Employer

Identification No.)


400 Hamilton Ave., Suite 310 Palo Alto, California 94301		94301
(Address of Principal Executive Offices)		(Zip Code)

(650) 289-3060

(Registrant’s Telephone Number, Including Area Code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large Accelerated Filer ¨ Accelerated Filer x Non-Accelerated Filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) YES ¨ NO x

On August 6, 2007, there were 32,373,043 shares outstanding of the Registrant’s common stock, $0.001 par value.

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

FORM 10-Q TABLE OF CONTENTS


PART I. FINANCIAL INFORMATION		3

Item 1.	Consolidated Financial Statements	3

	Consolidated Statements of Assets and Liabilities as of June 30, 2007 (unaudited) and December 31, 2006	3

	Consolidated Schedule of Investments as of June 30, 2007 (unaudited)	4

	Consolidated Schedule of Investments as of December 31, 2006	13

	Consolidated Statements of Operations for the three and six-month periods ended June 30, 2007 and 2006 (unaudited)	19

	Consolidated Statements of Changes in Net Assets for the six-month periods ended June 30, 2007 and 2006 (unaudited)	20

	Consolidated Statements of Cash Flows for the six-month periods ended June 30, 2007 and 2006 (unaudited)	21

	Notes to Consolidated Financial Statements (unaudited)	22

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	32

Item 3.	Quantitative and Qualitative Disclosures About Market Risk	41

Item 4.	Controls and Procedures	41

PART II. OTHER INFORMATION

Item 1.	Legal Proceedings	42

Item 1a.	Risk Factors	42

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	42

Item 3.	Defaults Upon Senior Securities	43

Item 4.	Submission of Matters to a Vote of Security Holders	43

Item 5.	Other Information	43

Item 6.	Exhibits	44

Signatures		45

PART I: FINANCIAL INFORMATION

In this Quarterly Report, the “Company,” “Hercules,” “we,” “us” and “our” refer to Hercules Technology Growth Capital, Inc. and its wholly owned subsidiaries and its affiliated securitization trusts unless the context otherwise requires.

ITEM 1.

CONSOLIDATED FINANCIAL STATEMENTS

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF ASSETS AND LIABILITIES


	June 30, 2007 (unaudited)			December 31, 2006
Assets
Investments, at value (cost of $411,011,161 and $279,946,465, respectively)	$	416,705,087		$	283,233,751
Deferred loan origination revenue		(4,939,369	)		(3,450,971	)
Cash and cash equivalents		7,465,828			16,404,214
Interest receivable		4,934,961			2,906,831
Other assets		3,570,301			2,048,384

Total assets		427,736,808			301,142,209

Liabilities
Accounts payable		535,247			540,376
Accrued liabilities		3,477,486			4,189,011
Short-term loans payable		21,700,000			41,000,000
Long-term loans payable		12,000,000			—

Total liabilities		37,712,733			45,729,387

Net assets	$	390,024,075		$	255,412,822

Net assets consist of:
Par value	$	32,371		$	21,927
Capital in excess of par value		391,061,289			257,234,729
Unrealized appreciation on investments		5,042,341			2,860,654
Accumulated realized gains (losses) on investments		(2,017,940	)		(1,972,014	)
Distributions in excess of investment income		(4,093,986	)		(2,732,474	)

Total net assets	$	390,024,075		$	255,412,822

Shares of common stock outstanding ($0.001 par value, 60,000,000 authorized)		32,371,376			21,927,034

Net asset value per share	$	12.05		$	11.65

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(unaudited)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Acceleron Pharmaceuticals, Inc. (1.04%)*⁽⁴⁾	Drug Discovery	Senior Debt
		Matures June 2009
		Interest rate 10.25%	$	3,663,796	$	3,596,060	$	3,596,060
		Preferred Stock Warrants				69,106		409,707
		Preferred Stock Warrants				34,996		31,290
Acceleron Pharmaceuticals, Inc. (0.28%)		Preferred Stock				1,000,000		1,111,112

Total Acceleron Pharmaceuticals, Inc.						4,700,162		5,148,169
Aveo Pharmaceuticals, Inc. (3.66%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures September 2009
		Interest rate 10.75%	$	14,289,198		14,166,591		14,166,591
		Preferred Stock Warrants				144,056		84,408
		Preferred Stock Warrants				46,288		32,845

Total Aveo Pharmaceuticals, Inc.						14,356,935		14,283,844
Elixir Pharmaceuticals, Inc. (2.57%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures June 2010
		Interest rate Prime + 2.45%	$	10,000,000		9,878,968		9,878,968
		Preferred Stock Warrants				149,510		132,908

Total Elixir Pharmaceuticals, Inc.						10,028,478		10,011,876
EpiCept Corporation (2.60%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures August 2009
		Interest rate 11.70%	$	9,129,887		8,571,497		8,571,497
		Common Stock Warrants				794,633		1,568,705

Total EpiCept Corporation						9,366,130		10,140,202
Memory Pharmaceuticals Corp. (2.84%) ⁽⁴⁾	Drug Discovery	Senior Debt
		Matures February 2011
		Interest rate 11.45%	$	11,000,000		9,362,449		9,362,449
		Common Stock Warrants				1,750,585		1,698,732

Total Memory Pharmaceuticals Corp.						11,113,034		11,061,181
Merrimack Pharmaceuticals, Inc. (1.27%)⁽⁴⁾	Drug Discovery	Convertible Senior Debt
		Matures October 2008
		Interest rate 11.15%	$	5,833,308		4,380,225		4,570,225
		Preferred Stock Warrants				155,456		388,729

Total Merrimack Pharmaceuticals, Inc.						4,535,681		4,958,954
Neosil, Inc. (0.51%)	Drug Discovery	Senior Debt
		Matures May 2010
		Interest rate 10.75%	$	2,000,000		1,921,817		1,921,817
		Preferred Stock Warrants				82,782		83,423

Total Neosil, Inc.						2,004,599		2,005,240
Paratek Pharmaceuticals, Inc. (1.21%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures June 2008
		Interest rate 11.10%	$	4,675,325		4,633,343		4,633,343
		Preferred Stock Warrants				137,396		91,625

Total Paratek Pharmaceuticals, Inc.						4,770,739		4,724,968
Portola Pharmaceuticals, Inc. (3.87%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures September 2010
		Interest rate Prime + 1.75%	$	15,000,000		14,875,281		14,875,281
		Preferred Stock Warrants				151,557		205,290

Total Portola Pharmaceuticals, Inc.						15,026,838		15,080,571

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Sirtris Pharmaceuticals, Inc. (2.68%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures April 2011
		Interest rate 10.60%	$	10,000,000	$	9,933,376	$	9,933,376
		Common Stock Warrants				88,829		504,743
Sirtris Pharmaceuticals, Inc. (0.14%)		Common Stock				500,000		559,524

Total Sirtris Pharmaceuticals, Inc.						10,522,205		10,997,643

Total Drug Discovery (22.67%)						86,424,801		88,412,648

IKANO Communications, Inc. (5.78%)⁽⁴⁾	Communications & Networking	Senior Debt Matures March 2011
	Communications & Networking	Senior Debt Matures March 2011
		Interest rate 11.00%	$	22,500,000		22,500,000		22,500,000
		Preferred Stock Warrants				45,460		27,138
		Preferred Stock Warrants				72,344		46,217

Total IKANO Communications, Inc.						22,617,804		22,573,355
Interwise, Inc. (0.06%)⁽⁴⁾	Communications & Networking	Senior Debt Preferred Stock Warrants				268,401		230,765
	Communications & Networking	Senior Debt Preferred Stock Warrants				268,401		230,765

Total Interwise, Inc.						268,401		230,765
Ping Identity Corporation (0.57%)⁽⁴⁾	Communications & Networking	Senior Debt Matures June 2009
	Communications & Networking	Senior Debt Matures June 2009
		Interest rate 11.50%	$	2,112,811		2,082,820		2,082,820
		Preferred Stock Warrants				51,801		155,432

Total Ping Identity Corporation						2,134,621		2,238,252
Purcell Systems, Inc. (2.01%)	Communications & Networking	Senior Debt Matures June 2009
	Communications & Networking	Senior Debt Matures June 2009
		Interest rate Prime + 3.50%	$	2,500,000		2,380,622		2,380,622
		Revolving Line of Credit
		Matures June 2008
		Interest rate Prime + 2.00%	$	5,334,473		5,334,473		5,334,473
		Preferred Stock Warrants				122,789		119,360

Total Purcell Systems, Inc.						7,837,884		7,834,455
Rivulet Communications, Inc. (0.90%)⁽⁴⁾	Communications & Networking	Senior Debt Matures September 2009
	Communications & Networking	Senior Debt Matures September 2009
		Interest rate 10.60%	$	3,500,000		3,467,973		3,467,973
		Preferred Stock Warrants				50,710		35,677
Rivulet Communications, Inc. (0.06%)		Preferred Stock				250,000		250,000

Total Rivulet Communications, Inc.						3,768,683		3,753,650
Seven Networks, Inc. (3.08%)	Communications & Networking	Senior Debt Matures April 2010
	Communications & Networking	Senior Debt Matures April 2010
		Interest rate Prime + 3.75%	$	10,000,000		10,000,000		10,000,000
		Revolving Line of Credit
		Matures April 2008
		Interest rate Prime + 3.00%	$	2,000,000		1,841,383		1,841,383
		Preferred Stock Warrants				173,967		167,521

Total Seven Networks, Inc.						12,015,350		12,008,904
Simpler Networks Corp. (1.26%)⁽⁴⁾	Communications & Networking	Senior Debt Matures July 2009
	Communications & Networking	Senior Debt Matures July 2009
		Interest rate 11.75%	$	4,264,256		4,174,366		4,174,366
		Preferred Stock Warrants				160,241		727,740
Simpler Networks Corp. (0.13%)		Preferred Stock				500,000		500,000

Total Simpler Networks Corp.						4,834,607		5,402,106

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Tectura Corporation (5.57%)	Communications & Networking	Senior Debt Matures March 2012
	Communications & Networking	Senior Debt Matures March 2012
		Interest rate LIBOR + 6.15%	$	9,726,182	$	9,677,668	$	9,677,668
		Revolving Line of Credit
		Matures March 2008
		Interest rate LIBOR + 5.15%	$	12,000,000		12,000,000		12,000,000
		Preferred Stock Warrants				51,067		49,368

Total Tectura Corporation						21,728,735		21,727,036
Teleflip, Inc. (0.13%)⁽⁴⁾	Communications & Networking	Senior Debt Matures May 2010
	Communications & Networking	Senior Debt Matures May 2010
		Interest rate Prime + 2.75%	$	500,000		489,784		489,784
		Preferred Stock Warrants				10,508		9,837

Total Teleflip, Inc.						500,292		499,621
Wireless Channels, Inc. (3.18%)	Communications & Networking	Senior Debt-Second Lien Matures April 2010
	Communications & Networking	Senior Debt-Second Lien Matures April 2010
		Interest rate 9.25%	$	2,378,824		2,240,922		2,240,922
		Senior Debt-Second Lien
		Matures April 2010
		Interest rate Prime + 4.25%	$	10,000,000		10,000,000		10,000,000
		Preferred Stock Warrants				155,139		152,828

Total Wireless Channels, Inc.						12,396,061		12,393,750

Total Communications & Networking (22.73%)						88,102,438		88,661,894

Atrenta, Inc. (1.26%)⁽⁴⁾	Software	Senior Debt
		Matures June 2009
		Interest rate 11.50%	$	4,707,075		4,651,001		4,651,001
		Preferred Stock Warrants				102,396		189,211
		Preferred Stock Warrants				33,760		62,084
Atrenta, Inc. (0.06%)		Preferred Stock				250,000		250,000

Total Atrenta, Inc.						5,037,157		5,152,296
Blurb, Inc. (0.06%)	Software	Senior Debt
		Matures December 2009
		Interest rate 9.55%	$	250,000		239,605		239,605
		Preferred Stock Warrants				12,904		11,513

Total Blurb, Inc.						252,509		251,118
Cittio, Inc. (0.26%)	Software	Senior Debt
		Matures April 2010
		Interest rate 11.00%	$	1,000,000		1,000,000		1,000,000

Total Cittio, Inc.						1,000,000		1,000,000
Compete, Inc. (0.85%)⁽⁴⁾	Software	Senior Debt
		Matures March 2009
		Interest rate Prime + 3.50%	$	3,168,595		3,133,366		3,133,366
		Preferred Stock Warrants				62,067		195,872

Total Compete, Inc.						3,195,433		3,329,238
Forescout Technologies, Inc. (0.77%)⁽⁴⁾	Software	Senior Debt
		Matures August 2009
		Interest rate 11.15%	$	2,500,000		2,459,849		2,459,849
		Revolving Line of Credit
		Matures August 2007
		Interest rate Prime + 1.49%	$	500,000		500,000		500,000
		Preferred Stock Warrants				55,593		45,585

Total Forescout Technologies, Inc.						3,015,442		3,005,434
GameLogic, Inc. (0.77%)⁽⁴⁾	Software	Senior Debt
		Matures December 2009
		Interest rate Prime + 4.125%	$	2,947,396		2,926,101		2,926,101
		Preferred Stock Warrants				92,483		74,978

Total GameLogic, Inc.						3,018,584		3,001,079

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Gomez, Inc. (0.17%)⁽⁴⁾	Software	Senior Debt
		Matures December 2007
		Interest rate 12.25%	$	672,351	$	667,491	$	667,491
		Preferred Stock Warrants				35,000		9,542

Total Gomez, Inc.						702,491		677,033
HighRoads, Inc. (0.01%)⁽⁴⁾	Software	Preferred Stock Warrants				44,466		31,004

Total HighRoads, Inc.						44,466		31,004
Intelliden, Inc. (0.73%)	Software	Senior Debt
		Matures February 2010
		Interest rate 13.20%	$	2,793,991		2,780,727		2,780,727
		Preferred Stock Warrants				17,542		72,309

Total Intelliden, Inc.						2,798,269		2,853,036
Inxight Software, Inc. (0.92%)⁽⁴⁾	Software	Senior Debt
		Matures February 2008
		Interest rate 10.00%	$	3,414,512		3,402,270		3,402,270
		Preferred Stock Warrants				55,963		133,000

Total Inxight Software, Inc.						3,458,233		3,535,270
Oatsystems, Inc. (1.40%)⁽⁴⁾	Software	Senior Debt
		Matures September 2009
		Interest rate 11.00%	$	5,473,469		5,424,121		5,424,121
		Preferred Stock Warrants				67,484		47,488

Total Oatsystems, Inc.						5,491,605		5,471,609
Proficiency, Inc. (1.04%)⁽⁵⁾	Software	Senior Debt
		Matures July 2008
		Interest rate 12.00%	$	4,000,000		3,968,821		3,968,821
		Preferred Stock Warrants				96,370		97,459

Total Proficiency, Inc.						4,065,191		4,066,280
PSS Systems, Inc. (0.09%) ⁽⁴⁾	Software	Senior Debt
		Matures March 2010
		Interest rate 10.74%	$	350,000		304,485		304,485
		Preferred Stock Warrants				51,205		51,186

Total PSS Systems, Inc.						355,690		355,671
Savvion, Inc. (1.21%)⁽⁴⁾	Software	Senior Debt
		Matures March 2009
		Interest rate Prime + 3.45%	$	1,695,633		1,695,633		1,695,633
		Revolving Line of Credit
		Matures March 2007
		Interest rate Prime + 2.00%	$	3,000,000		3,000,000		3,000,000
		Preferred Stock Warrants				52,135		36,694

Total Savvion, Inc.						4,747,768		4,732,327
Sportvision, Inc. (0.01%)	Software	Preferred Stock Warrants				39,339		24,312

Total Sportvision, Inc.						39,339		24,312
Talisma Corp. (0.28%)⁽⁴⁾	Software	Subordinated Debt
		Matures December 2007
		Interest rate 11.25%	$	1,076,689		1,069,883		1,069,883
		Preferred Stock Warrants				49,000		12,880

Total Talisma Corp.						1,118,883		1,082,763

Total Software (9.89%)						38,341,060		38,568,470

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Agami Systems, Inc. (1.66%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt Matures August 2009
	Electronics & Computer Hardware	Senior Debt Matures August 2009
		Interest rate 11.00%	$	6,385,715	$	6,324,658	$	6,324,658
		Preferred Stock Warrants				85,601		142,504

Total Agami Systems, Inc.						6,410,259		6,467,162
Luminus Devices, Inc. (3.38%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt Matures August 2009
	Electronics & Computer Hardware	Senior Debt Matures August 2009
		Interest rate 12.50%	$	13,194,417		13,005,316		13,005,316
		Preferred Stock Warrants				183,290		133,735
		Preferred Stock Warrants				83,529		75,868

Total Luminus Devices, Inc.						13,272,135		13,214,919
NetEffect, Inc. (0.64%)	Electronics & Computer Hardware	Senior Debt Matures May 2010
	Electronics & Computer Hardware	Senior Debt Matures May 2010
		Interest rate 11.95%	$	2,500,000		2,458,726		2,458,726
		Preferred Stock Warrants				43,632		42,335

Total NetEffect, Inc.						2,502,358		2,501,061
NeoScale Systems, Inc. (0.77%)	Electronics & Computer Hardware	Senior Debt Matures October 2009
	Electronics & Computer Hardware	Senior Debt Matures October 2009
		Interest rate 10.75%	$	3,000,000		2,982,305		2,982,305
		Preferred Stock Warrants				23,593		29,598

Total NeoScale Systems, Inc.						3,005,898		3,011,903
SiCortex, Inc. (0.04%)	Electronics & Computer Hardware	Preferred Stock Warrants				164,051		159,469
	Electronics & Computer Hardware	Preferred Stock Warrants				164,051		159,469

Total SiCortex, Inc.						164,051		159,469
Sling Media, Inc. (0.48%)	Electronics & Computer Hardware	Preferred Stock Warrants				38,968		1,373,104
	Electronics & Computer Hardware	Preferred Stock Warrants				38,968		1,373,104
		Preferred Stock				500,000		500,000

Total Sling Media, Inc.						538,968		1,873,104
VeriWave, Inc. (0.56%)	Electronics & Computer Hardware	Senior Debt Matures May 2010
	Electronics & Computer Hardware	Senior Debt Matures May 2010
		Interest rate 10.75%	$	2,163,271		2,112,140		2,112,140
		Preferred Stock Warrants				54,230		53,243

Total VeriWave, Inc.						2,166,370		2,165,383
ViDeOnline Communications, Inc. (0.08%)⁽⁴⁾	Electronics & Computer Hardware	Preferred Stock Warrants				—		295,901
	Electronics & Computer Hardware	Preferred Stock Warrants				—		295,901

Total ViDeOnline Communications, Inc.						—		295,901

Total Electronics & Computer Hardware (7.61%)						28,060,039		29,688,902

Aegerion Pharmaceuticals, Inc. (2.57%) ⁽⁴⁾	Specialty Pharmaceuticals	Senior Debt Matures August 2010
	Specialty Pharmaceuticals	Senior Debt Matures August 2010
		Interest rate Prime + 2.50%	$	10,000,000		9,937,545		9,937,545
		Preferred Stock Warrants				69,207		69,059

Total Aegerion Pharmaceuticals, Inc.						10,006,752		10,006,604
Quatrx Pharmaceuticals Company (4.21%)⁽⁴⁾	Specialty Pharmaceuticals	Senior Debt Matures January 2010
	Specialty Pharmaceuticals	Senior Debt Matures January 2010
		Interest rate Prime + 3.00%	$	16,567,142		16,429,421		16,429,421
		Preferred Stock Warrants				220,354		—
Quatrx Pharmaceuticals Company (0.19%)		Preferred Stock				750,001		750,001

Total Quatrx Pharmaceuticals Company						17,399,776		17,179,422

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Panacos Pharmaceuticals, Inc. (2.55%)	Specialty Pharmaceuticals	Senior Debt Matures January 2011
	Specialty Pharmaceuticals	Senior Debt Matures January 2011
		Interest rate 11.20%	$	10,000,000	$	9,144,567	$	9,144,567
		Common Stock Warrants				876,297		803,781

Total Panacos Pharmaceuticals, Inc.						10,020,864		9,948,348

Total Specialty Pharmaceuticals (9.52%)						37,427,392		37,134,374

BabyUniverse, Inc. (1.31%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures July 2009
	Consumer & Business Products	Senior Debt Matures July 2009
		Interest rate Prime + 2.35%	$	5,000,000		4,783,184		4,783,184
		Common Stock Warrants				325,224		307,587

Total BabyUniverse, Inc.						5,108,408		5,090,771
Market Force Information, Inc. (0.43%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures May 2009
	Consumer & Business Products	Senior Debt Matures May 2009
		Interest rate 10.45%	$	1,541,514		1,527,721		1,527,721
		Preferred Stock Warrants				23,823		141,940
Market Force Information, Inc. (0.13%)		Preferred Stock				500,000		500,000

Total Market Force Information, Inc.						2,051,544		2,169,661
Wageworks, Inc. (3.11%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures November 2008
		Interest rate Prime + 4.00%	$	11,127,398		11,031,412		11,031,412
		Preferred Stock Warrants				251,964		1,106,668
Wageworks, Inc. (0.06%)		Preferred Stock				249,995		249,995

Total Wageworks, Inc.						11,533,371		12,388,075

Total Consumer & Business Products (5.04%)						18,693,323		19,648,507

Ageia Technologies, Inc. (1.55%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures August 2008
		Interest rate 10.25%	$	6,001,890		5,966,071		5,966,071
		Convertible Debt				61,880		61,880
		Preferred Stock Warrants				99,190		—
Ageia Technologies, Inc. (0.13%)		Preferred Stock				500,000		500,000

Total Ageia Technologies						6,627,141		6,527,951
Cradle Technologies (0.00%)	Semiconductors	Preferred Stock Warrants				79,150		—

Total Cradle Technologies						79,150		—
iWatt Inc. (1.30%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures September 2009
		Interest rate Prime + 2.75%	$	1,824,490		1,791,859		1,791,859
		Revolving Line of Credit
		Matures September 2007
		Interest rate Prime + 1.75%	$	3,235,000		3,235,000		3,235,000
		Preferred Stock Warrants				45,684		54,384

Total iWatt Inc.						5,072,543		5,081,243
NEXX Systems, Inc. (2.82%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures February 2010
		Interest rate Prime + 2.75%	$	5,000,000		4,852,775		4,852,775
		Revolving Line of Credit
		Matures December 2009
		Interest rate Prime + 1.75%	$	6,000,000		6,000,000		6,000,000
		Preferred Stock Warrants				164,613		153,966

Total NEXX Systems, Inc.						11,017,388		11,006,741

Total Semiconductors (5.80%)						22,796,222		22,615,935

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Labopharm USA, Inc. (1.19%)⁽⁴⁾⁽⁵⁾	Drug Delivery	Senior Debt
		Matures July 2008
		Interest rate 11.95%	$	4,539,328	$	4,651,897	$	4,651,897

Total Labopharm USA, Inc.						4,651,897		4,651,897
Transcept Pharmaceuticals, Inc. (2.29%)⁽⁴⁾	Drug Delivery	Senior Debt
		Matures October 2009
		Interest rate 10.69%	$	8,667,943		8,604,549		8,604,549
		Preferred Stock Warrants				35,630		120,553
		Preferred Stock Warrants				51,067		189,460
Transcept Pharmaceuticals, Inc. (0.13%)		Preferred Stock				500,000		500,000

Total Transcept Pharmaceuticals, Inc.						9,191,246		9,414,562

Total Drug Delivery (3.61%)						13,843,143		14,066,459

BARRX Medical, Inc. (0.39%)	Therapeutic	Preferred Stock				1,500,000		1,500,000

Total BARRX Medical, Inc.						1,500,000		1,500,000
EKOS Corporation (1.28%)	Therapeutic	Senior Debt
		Matures November 2010
		Interest rate Prime + 2.00%	$	5,000,000		4,833,783		4,833,783
		Preferred Stock Warrants				174,528		169,449

Total EKOS Corporation						5,008,311		5,003,232
Gynesonics, Inc. (0.49%)⁽⁴⁾	Therapeutic	Senior Debt
		Matures October 2009
		Interest rate 9.50%	$	1,881,146		1,869,862		1,869,862
		Preferred Stock Warrants				17,552		53,047
Gynesonics, Inc. (0.06%)		Preferred Stock				250,000		250,000

Total Gynesonics, Inc.						2,137,414		2,172,909
Novasys Medical, Inc. (2.05%)⁽⁴⁾	Therapeutic	Senior Debt
		Matures January 2010
		Interest rate 9.70%	$	8,000,000		8,000,000		8,000,000

Total Novasys Medical, Inc.						8,000,000		8,000,000
Power Medical Interventions, Inc. (0.01%)	Therapeutic	Common Stock Warrants				20,687		27,371

Total Power Medical Interventions, Inc.						20,687		27,371

Total Therapeutic (4.28%)						16,666,412		16,703,512

Hedgestreet, Inc. (0.86%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt Matures March 2009
	Internet Consumer & Business Services	Senior Debt Matures March 2009
		Interest rate 11.30%	$	3,329,307		3,301,086		3,301,086
		Preferred Stock Warrants				54,956		39,075

Total Hedgestreet, Inc.						3,356,042		3,340,161
Invoke Solutions, Inc. (0.56%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt Matures December 2008
	Internet Consumer & Business Services	Senior Debt Matures December 2008
		Interest rate 11.25%	$	2,187,234		2,161,526		2,161,526
		Preferred Stock Warrants				49,722		36,816

Total Invoke Solutions, Inc.						2,211,248		2,198,342
Prism Education Group Inc. (0.51%)	Internet Consumer & Business Services	Senior Debt Matures December 2010
	Internet Consumer & Business Services	Senior Debt Matures December 2010
		Interest rate 11.25%	$	2,000,000		1,958,261		1,958,261
		Preferred Stock Warrants				42,757		41,601

Total Prism Education Group Inc.						2,001,018		1,999,862
RazorGator Interactive Group, Inc. (0.64%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt Matures January 2008
	Internet Consumer & Business Services	Senior Debt Matures January 2008
		Interest rate 9.95%	$	1,903,620		1,901,445		1,901,445
		Preferred Stock Warrants				13,050		552,355
		Preferred Stock Warrants				28,478		25,071
RazorGator Interactive Group, Inc. (0.44%)		Preferred Stock				1,000,000		1,708,178

Total RazorGator Interactive Group, Inc.						2,942,973		4,187,049

Total Internet Consumer & Business Services (3.01%)						10,511,281		11,725,414

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Lilliputian Systems, Inc. (2.18%)⁽⁴⁾	Energy	Senior Debt
		Matures March 2010
		Interest rate 9.75%	$	8,500,000	$	8,468,986	$	8,468,986
		Preferred Stock Warrants				48,460		34,462

Total Lilliputian Systems, Inc.						8,517,446		8,503,448

Total Energy (2.18%)						8,517,446		8,503,448

Active Response Group, Inc. (2.56%)	Information Services	Senior Debt
		Matures March 2012
		Interest rate Libor + 6.55%	$	10,000,000		9,956,988		9,956,988
		Preferred Stock Warrants				38,434		37,835
		Common Stock Warrants				7,650		7,531

Total Active Response Group, Inc.						10,003,072		10,002,354
Buzznet, Inc. (0.06%)	Information Services	Senior Debt
		Matures March 2010
		Interest rate 10.25%	$	250,000		242,344		242,344
		Preferred Stock Warrants				8,613		8,496

Total Buzznet, Inc.						250,957		250,840
Solutionary, Inc. (1.54%)	Information Services	Senior Debt
		Matures June 2010
		Interest rate LIBOR + 5.50%	$	5,500,000		5,413,580		5,413,580
		Revolving Line of Credit
		Matures June 2010
		Interest rate LIBOR + 5.00%	$	500,000		500,000		500,000
		Preferred Stock Warrants				93,827		92,363
Solutionary, Inc. (0.07%)		Preferred Stock				250,000		250,000

Total Solutionary, Inc.						6,257,407		6,255,943
Wallop Technologies, Inc. (0.06%)	Information Services	Senior Debt
		Matures March 2010
		Interest rate 10.00%	$	237,207		230,564		230,564
		Preferred Stock Warrants				7,473		7,332

Total Wallop Technologies, Inc.						238,037		237,896

Total Information Services (4.29%)						16,749,473		16,747,033

Novadaq Technologies, Inc. (0.37%)	Diagnostic	Common Stock				1,735,157		1,461,740

Total Novadaq Technologies, Inc.						1,735,157		1,461,740
Optiscan Biomedical, Corp. (0.17%)⁽⁴⁾	Diagnostic	Senior Debt
		Matures March 2008
		Interest rate 15.00%	$	617,389		594,022		594,022
		Preferred Stock Warrants				80,486		54,638
Optiscan Biomedical, Corp. (0.26%)		Preferred Stock				1,000,000		1,000,000

Total Optiscan Biomedical, Corp.						1,674,508		1,648,660
Xillix Technologies Corp. (0.41%)^(4)(5)(7)	Diagnostic	Senior Debt
		Matures December 2008
		Interest rate 12.40%	$	1,750,374		1,602,518		1,602,518
		Common Stock Warrants				313,108		—

Total Xillix Technologies Corp.						1,915,626		1,602,518

Total Diagnostic (1.21%)						5,325,291		4,712,918

Guava Technologies, Inc. (1.38%)⁽⁴⁾	Biotechnology Tools	Senior Debt
		Matures July 2009
		Interest rate Prime + 3.25%	$	4,389,223		4,331,505		4,331,505
		Revolving Line of Credit
		Matures December 2007
		Interest rate Prime + 2.00%	$	1,000,000		1,000,000		1,000,000
		Preferred Stock Warrants				105,399		72,635

Total Guava Technologies, Inc.						5,436,904		5,404,140

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

June 30, 2007

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
NuGEN Technologies, Inc. (0.26%)	Biotechnology Tools	Senior Debt
		Matures March 2010
		Interest rate 11.70%	$	1,000,000	$	958,899	$	958,899
		Preferred Stock Warrants				44,837		44,138

Total NuGEN Technologies, Inc.						1,003,736		1,003,037

Total Biotechnology Tools (1.64%)						6,440,640		6,407,177

Rubicon Technology Inc. (2.08%) ⁽⁴⁾	Advanced Specialty Materials & Chemicals	Senior Debt Matures December 2010
	Advanced Specialty Materials & Chemicals	Senior Debt Matures December 2010
		Interest rate Prime + 3.375%	$	5,100,000		5,023,863		5,023,863
		Revolving Line of Credit
		Matures April 2008
		Interest rate Prime + 0.25%	$	3,000,000		3,000,000		3,000,000
		Preferred Stock Warrants				81,708		78,991

Total Rubicon Technology Inc.						8,105,571		8,102,854

Total Advanced Specialty Materials & Chemicals (2.08%)						8,105,571		8,102,854

Waterfront Media Inc. (1.28%) ⁽⁴⁾	Media/Content/Info	Senior Debt
		Matures December 2010
		Interest rate Prime + 3.00%	$	3,000,000		2,946,966		2,946,966
		Revolving Line of Credit
		Matures March 2008
		Interest rate Prime + 1.25%	$	2,000,000		2,000,000		2,000,000
		Preferred Stock Warrants				59,663		58,576

Total Waterfront Media Inc.						5,006,629		5,005,542

Total Media/Content/Info (1.28%)						5,006,629		5,005,542

Total Investments (106.84%)					$	411,011,161	$	416,705,087

*	Value as a percent of net assets

(1)	Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)	Gross unrealized appreciation, gross unrealized depreciation, and net appreciation totaled $7,412,168, $1,718,242 and $5,693,926, respectively.

(3)

Except for warrants in seven publicly traded companies and common stock in two publicly traded companies, all investments are restricted at June 30, 2007 and were valued at fair value as determined in good faith by the Board of Directors. No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(4)

Debt and warrant investments of this portfolio company have been pledged as collateral under the Credit Facility. Citigroup has an equity participation right on loans collateralized under the Credit Facility. The value of their participation right on unrealized gains in the related equity investments was approximately $602,000 at June 30, 2007 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at June 30, 2007.

(5)	Non-U.S. company or the company's principal place of business is outside the United States.

(6)	All investments are less than 5% owned.

(7)	Non-income producing at the relevant period end.

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(unaudited)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Acceleron Pharmaceuticals, Inc. (1.74%)*⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures June 2009
		Interest rate 10.25%	$	4,069,607	$	3,987,624	$	3,987,624
		Preferred Stock Warrants				69,106		417,115
		Preferred Stock Warrants				34,996		34,393
Acceleron Pharmaceuticals, Inc. (0.44%)		Preferred Stock				1,000,000		1,111,112

Total Acceleron Pharmaceuticals, Inc						5,091,726		5,550,244
Aveo Pharmaceuticals, Inc. (5.88%)⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures September 2009
		Interest rate 10.75%	$	15,000,000		14,849,099		14,849,099
		Preferred Stock Warrants				144,056		115,212
		Preferred Stock Warrants				46,288		43,771

Total Aveo Pharmaceuticals, Inc						15,039,443		15,008,082
Elixir Pharmaceuticals, Inc. (3.92%)	Biopharmaceuticals	Senior Debt
		Matures June 2010
		Interest rate Prime + 2.45%	$	10,000,000		9,857,610		9,857,610
		Preferred Stock Warrants				74,755		73,334
		Preferred Stock Warrants				74,755		73,334

Total Elixir Pharmaceuticals, Inc.						10,007,120		10,004,278
EpiCept Corporation (3.84%)	Biopharmaceuticals	Senior Debt
		Matures August 2009
		Interest rate 11.70%	$	10,000,000		9,312,750		9,312,750
		Common Stock Warrants				794,633		507,592

Total EpiCept Corporation						10,107,383		9,820,342
Guava Technologies, Inc. (2.26%)⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures July 2009
		Interest rate Prime + 3.25%	$	5,266,485		5,193,710		5,193,710
		Revolving Line of Credit
		Matures December 2007
		Interest rate Prime + 2.00%	$	500,000		500,000		500,000
		Preferred Stock Warrants				105,399		83,940

Total Guava Technologies, Inc						5,799,109		5,777,650
Labopharm USA, Inc. (2.58%)⁽⁴⁾⁽⁵⁾	Biopharmaceuticals	Senior Debt
		Matures July 2008
		Interest rate 11.95%	$	6,675,417		6,598,870		6,598,870

Total Labopharm USA, Inc.						6,598,870		6,598,870
Merrimack Pharmaceuticals, Inc. (2.61%)⁽⁴⁾	Biopharmaceuticals	Convertible Senior Debt
		Matures October 2008
		Interest rate 11.15%	$	6,043,382		5,967,550		6,254,550
		Preferred Stock Warrants				155,456		409,159

Total Merrimack Pharmaceuticals, Inc.						6,123,006		6,663,709
Paratek Pharmaceuticals, Inc. (2.62%)⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures June 2008
		Interest rate 11.10%	$	6,651,586		6,586,705		6,586,705
		Preferred Stock Warrants				137,396		110,553

Total Paratek Pharmaceuticals, Inc.						6,724,101		6,697,258
Portola Pharmaceuticals, Inc. (4.41%) .	Biopharmaceuticals	Senior Debt
		Matures September 2010
		Interest rate Prime + 1.75%	$	11,250,000	$	11,145,804	$	11,145,804
		Preferred Stock Warrants				113,668		107,489

Total Portola Pharmaceuticals, Inc						11,259,472		11,253,293
Quatrx Pharmaceuticals Company (7.05%)⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures January 2010
		Interest rate Prime + 3.00%	$	18,000,000		17,834,735		17,834,735
		Preferred Stock Warrants				220,354		179,708

Total Quatrx Pharmaceuticals Company						18,055,089		18,014,443
Sirtris Pharmaceuticals, Inc. (3.91%)⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures April 2011
		Interest rate 10.60%	$	10,000,000		9,924,495		9,924,495
		Preferred Stock Warrants				88,829		70,986

Total Sirtris Pharmaceuticals, Inc.						10,013,324		9,995,481

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
TransOral Pharmaceuticals, Inc. (3.92%)⁽⁴⁾	Biopharmaceuticals	Senior Debt
		Matures October 2009
		Interest rate 10.69%	$	10,000,000		9,921,976		9,921,976
		Preferred Stock Warrants				35,630		28,265
		Preferred Stock Warrants				51,067		50,548

Total TransOral Pharmaceuticals, Inc.						10,008,673		10,000,789

Total Biopharmaceuticals (45.18%)						114,827,316		115,384,439

Atrenta, Inc. (2.03%)⁽⁴⁾	Software	Senior Debt
		Matures June 2009
		Interest rate 11.50%	$	5,000,000		4,929,298		4,929,298
		Preferred Stock Warrants				102,396		200,285
		Preferred Stock Warrants				33,760		65,719
Atrenta, Inc. (0.10%)		Preferred Stock				250,000		250,000

Total Atrenta, Inc						5,315,454		5,445,302
Blurb, Inc. (0.10%)	Software	Senior Debt
		Matures December 2009
		Interest rate 9.55%	$	250,000		237,454		237,454
		Preferred Stock Warrants				12,904		12,653

Total Blurb, Inc						250,358		250,107
Compete, Inc. (1.52%)⁽⁴⁾	Software	Senior Debt
		Matures March 2009
		Interest rate Prime + 3.50%	$	3,884,338		3,839,045		3,839,045
		Preferred Stock Warrants				62,067		49,247

Total Compete, Inc.						3,901,112		3,888,292
Forescout Technologies, Inc. (0.78%)	Software	Senior Debt
		Matures August 2009
		Interest rate 11.15%	$	2,000,000		1,950,584		1,950,584
		Preferred Stock Warrants				55,593		50,800

Total Forescout Technologies, Inc.						2,006,177		2,001,384
GameLogic, Inc. (1.17%)⁽⁴⁾	Software	Senior Debt
		Matures December 2009
		Interest rate Prime + 4.125%	$	3,000,000	$	2,957,416	$	2,957,416
		Preferred Stock Warrants				52,604		41,860

Total GameLogic, Inc						3,010,020		2,999,276
Gomez, Inc. (0.48%)⁽⁴⁾	Software	Senior Debt
		Matures December 2007
		Interest rate 12.25%	$	1,212,506		1,201,811		1,201,811
		Preferred Stock Warrants				35,000		18,832

Total Gomez, Inc.						1,236,811		1,220,643
HighRoads, Inc. (0.77%)⁽⁴⁾	Software	Senior Debt
		Matures February 2009
		Interest rate 11.65%	$	1,954,723		1,923,844		1,923,844
		Preferred Stock Warrants				44,466		35,484

Total HighRoads, Inc						1,968,310		1,959,328
Intelliden, Inc. (1.17%)	Software	Senior Debt
		Matures February 2010
		Interest rate 13.20%	$	3,000,000		2,984,169		2,984,169
		Preferred Stock Warrants				17,542		16,688

Total Intelliden, Inc.						3,001,711		3,000,857
Inxight Software, Inc. (1.60%)⁽⁴⁾	Software	Senior Debt
		Matures February 2008
		Interest rate 10.00%	$	4,073,794		4,051,059		4,051,059
		Preferred Stock Warrants				55,963		29,800

Total Inxight Software, Inc.						4,107,022		4,080,859
Oatsystems, Inc. (2.36%)⁽⁴⁾	Software	Senior Debt
		Matures September 2009
		Interest rate 11.00%	$	6,000,000		5,973,007		5,973,007
		Preferred Stock Warrants				33,742		26,881

Total Oatsystems, Inc.						6,006,749		5,999,888

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Proficiency, Inc. (1.43%)⁽⁵⁾	Software	Senior Debt
		Matures July 2008
		Interest rate 12.00%	$	4,000,000		3,951,815		3,548,185
		Preferred Stock Warrants				96,370		115,977

Total Proficiency, Inc.						4,048,185		3,664,162
Savvion, Inc. (1.58%)⁽⁴⁾	Software	Senior Debt
		Matures March 2009
		Interest rate Prime + 3.45%	$	1,000,000		1,000,000		1,000,000
		Revolving Line of Credit
		Matures March 2007
		Interest rate Prime + 2.00%	$	3,000,000		2,991,311		2,991,311
		Preferred Stock Warrants				52,135		41,743

Total Savvion, Inc						4,043,446		4,033,054
Sportvision, Inc. (0.01%)	Software	Preferred Stock Warrants				39,339		29,667

Total Sportvision, Inc.						39,339		29,667
Talisma Corp. (0.74%)⁽⁴⁾	Software	Subordinated Debt
		Matures December 2007
		Interest rate 11.25%	$	1,873,774	$	1,858,802	$	1,858,802
		Preferred Stock Warrants				49,000		25,259

Total Talisma Corp						1,907,802		1,884,061

Total Software (15.84%)						40,842,496		40,456,880

BabyUniverse, Inc. (1.90%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures July 2009
	Consumer & Business Products	Senior Debt Matures July 2009
		Interest rate Prime + 2.35%	$	5,000,000		4,728,980		4,728,980
		Common Stock Warrants				325,224		146,299

Total BabyUniverse, Inc						5,054,204		4,875,279
Market Force Information, Inc. (0.70%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures May 2009
	Consumer & Business Products	Senior Debt Matures May 2009
		Interest rate 10.45%	$	1,777,064		1,759,510		1,759,510
		Preferred Stock Warrants				23,823		19,197

Total Market Force Information, Inc						1,783,333		1,778,707
Wageworks, Inc. (5.89%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures November 2008
	Consumer & Business Products	Senior Debt Matures November 2008
		Interest rate Prime + 4.00%	$	14,036,422		13,904,441		13,904,441
		Preferred Stock Warrants				251,964		1,140,998
Wageworks, Inc. (0.10%)		Preferred Stock				249,995		249,995

Total Wageworks, Inc						14,406,400		15,295,434

Total Consumer & Business Products (8.59%)						21,243,937		21,949,420

IKANO Communications, Inc. (0.03%)	Communications & Networking	Preferred Stock Warrants				45,460		33,391
	Communications & Networking	Preferred Stock Warrants				45,460		33,391
		Preferred Stock Warrants				72,344		55,530

Total IKANO Communications, Inc.						117,804		88,921
Interwise, Inc. (0.83%)⁽⁴⁾	Communications & Networking	Senior Debt Matures August 2008
	Communications & Networking	Senior Debt Matures August 2008
		Interest rate 17.50%	$	2,094,999		1,869,542		1,869,542
		Preferred Stock Warrants				268,401		244,653

Total Interwise, Inc						2,137,943		2,114,195
Pathfire, Inc. (1.84%)⁽⁴⁾	Communications & Networking	Senior Debt Matures December 2008
	Communications & Networking	Senior Debt Matures December 2008
		Interest rate Prime + 3.65%	$	4,713,221		4,672,795		4,672,795
		Preferred Stock Warrants				63,276		16,918

Total Pathfire, Inc						4,736,071		4,689,713
Ping Identity Corporation (1.05%)⁽⁴⁾	Communications & Networking	Senior Debt Matures June 2009
	Communications & Networking	Senior Debt Matures June 2009
		Interest rate 11.50%	$	2,569,123		2,530,953		2,530,953
		Preferred Stock Warrants				51,801		160,500

Total Ping Identity Corporation						2,582,754		2,691,453
Rivulet Communications, Inc. (1.37%)⁽⁴⁾	Communications & Networking	Senior Debt Matures September 2009
	Communications & Networking	Senior Debt Matures September 2009
		Interest rate 10.60%	$	3,500,000	$	3,459,966	$	3,459,966
		Preferred Stock Warrants				50,710		40,352
Rivulet Communications, Inc. (0.10%)		Preferred Stock				250,000		250,000

Total Rivulet Communications, Inc.						3,760,676		3,750,318

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Simpler Networks Corp. (2.20%)⁽⁴⁾	Communications & Networking	Senior Debt
	Communications & Networking	Senior Debt
		Matures July 2009
		Interest rate 11.75%	$	5,000,000		4,886,659		4,886,659
		Preferred Stock Warrants				160,241		742,688
Simpler Networks Corp. (0.20%)		Preferred Stock				500,000		500,000

Total Simpler Networks Corp.						5,546,900		6,129,347

Total Communications & Networking (7.62%)						18,882,148		19,463,947
Adiana, Inc. (0.53%)⁽⁴⁾	Medical Devices & Equipment	Senior Debt
	Medical Devices & Equipment	Senior Debt
		Matures June 2008
		Interest rate Prime + 6.00%	$	1,346,551		1,312,938		1,312,938
		Preferred Stock Warrants				67,225		52,427
Adiana, Inc. (0.20%)		Preferred Stock				500,000		500,000

Total Adiana, Inc.						1,880,163		1,865,365
BARRX Medical, Inc. (0.59%)	Medical Devices & Equipment	Preferred Stock				1,500,000		1,500,000
	Medical Devices & Equipment	Preferred Stock				1,500,000		1,500,000

Total BARRX Medical, Inc						1,500,000		1,500,000
Gynesonics, Inc. (0.80%)	Medical Devices & Equipment	Senior Debt
	Medical Devices & Equipment	Senior Debt
		Matures October 2009
		Interest rate 9.50%	$	2,000,000		1,986,209		1,986,209
		Preferred Stock Warrants				17,552		54,735

Total Gynesonics, Inc						2,003,761		2,040,944
Novasys Medical, Inc. (3.13%)⁽⁴⁾	Medical Devices & Equipment	Senior Debt
	Medical Devices & Equipment	Senior Debt
		Matures January 2010
		Interest rate 9.70%	$	8,000,000		8,000,000		8,000,000

Total Novasys Medical, Inc						8,000,000		8,000,000
Optiscan Biomedical, Corp. (0.40%)⁽⁴⁾	Medical Devices & Equipment	Senior Debt
	Medical Devices & Equipment	Senior Debt
		Matures March 2008
		Interest rate 15.00%	$	1,006,259		967,314		967,314
		Preferred Stock Warrants				80,486		64,478
Optiscan Biomedical, Corp. (0.39%)		Preferred Stock				1,000,000		1,000,000

Total Optiscan Biomedical, Corp						2,047,800		2,031,792
Power Medical Interventions, Inc. (0.01%)	Medical Devices & Equipment	Common Stock Warrants				20,687		30,200
	Medical Devices & Equipment	Common Stock Warrants				20,687		30,200

Total Power Medical Interventions, Inc						20,687		30,200
Xillix Technologies Corp. (1.53%)^(4)(5)(6)	Medical Devices & Equipment	Senior Debt
	Medical Devices & Equipment	Senior Debt
		Matures December 2008
		Interest rate 12.40%	$	3,975,834	$	3,775,493	$	3,775,493
		Common Stock Warrants				313,108		122,206

Total Xillix Technologies Corp						4,088,601		3,897,699

Total Medical Devices & Equipment (7.58%)						19,541,012		19,366,000

Hedgestreet, Inc. (1.67%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt	$	4,263,806		4,226,674		4,226,674
	Internet Consumer & Business Services	Senior Debt
		Matures March 2009 Interest rate 11.30%
		Preferred Stock Warrants				54,956		44,836

Total Hedgestreet, Inc						4,281,630		4,271,510
Invoke Solutions, Inc. (0.97%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt	$	2,466,574		2,438,574		2,438,574
	Internet Consumer & Business Services	Senior Debt
		Matures December 2008 Interest rate 11.25%
		Preferred Stock Warrants				43,826		35,741

Total Invoke Solutions, Inc.						2,482,400		2,474,315
RazorGator Interactive Group, Inc. (1.25%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt
	Internet Consumer & Business Services	Senior Debt
		Matures January 2008 Interest rate 9.95%	$	2,637,626		2,633,276		2,633,276
		Preferred Stock Warrants				13,050		570,026
RazorGator Interactive Group, Inc. (0.67%)		Preferred Stock				1,000,000		1,708,178

Total RazorGator Interactive Group, Inc.						3,646,326		4,911,480

Total Internet Consumer & Business Services (4.56%)						10,410,356		11,657,305

Agami Systems, Inc. (2.75%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt
	Electronics & Computer Hardware	Senior Debt
		Matures August 2009
		Interest rate 11.00%	$	7,000,000		6,924,288		6,924,288
		Preferred Stock Warrants				85,601		79,040

Total Agami Systems, Inc.						7,009,889		7,003,328

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

December 31, 2006

(Continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Cornice, Inc. (1.44%)⁽⁴⁾	Electronics & Computer Hardware
	Electronics & Computer Hardware	Senior Debt
		Matures November 2008
		Interest rate Prime + 4.50%	$	3,524,664		3,459,755		3,459,755
		Preferred Stock Warrants				101,597		80,181
		Preferred Stock Warrants				35,353		27,571
		Preferred Stock Warrants				135,403		106,862

Total Cornice, Inc						3,732,108		3,674,369
Luminus Devices, Inc. (5.88%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt	$	15,000,000		14,765,514		14,765,514
	Electronics & Computer Hardware	Senior Debt
		Matures August 2009
		Interest rate 12.50%
		Preferred Stock Warrants				183,290		161,106
		Preferred Stock Warrants				83,529		83,466

Total Luminus Devices, Inc.						15,032,333		15,010,086
NeoScale Systems, Inc. (1.17%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt	$	3,000,000	$	2,978,373	$	2,978,373
	Electronics & Computer Hardware	Senior Debt
		Matures October 2009
		Interest rate 10.75%
		Preferred Stock Warrants				23,593		22,525

Total NeoScale Systems, Inc						3,001,966		3,000,898
Sling Media, Inc. (0.56%)	Electronics & Computer Hardware	Preferred Stock Warrants				38,968		936,565
	Electronics & Computer Hardware	Preferred Stock Warrants				38,968		936,565
		Preferred Stock				500,000		500,000

Total Sling Media, Inc						538,968		1,436,565
ViDeOnline Communications, Inc. (0.18%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt
	Electronics & Computer Hardware	Senior Debt
		Matures May 2009
		Interest rate 15.00%	$	461,158		461,158		461,158
		Preferred Stock Warrants				—		—

Total ViDeOnline Communications, Inc						461,158		461,158

Total Electronics & Computer Hardware (11.98%)						29,776,422		30,586,404

Ageia Technologies, Inc. (2.76%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures August 2008
		Interest rate 10.25%	$	7,027,806		6,975,456		6,975,456
		Preferred Stock Warrants				99,190		73,604
Ageia Technologies, Inc. (0.20%)		Preferred Stock				500,000		500,000

Total Ageia Technologies						7,574,646		7,549,060
Cradle Technologies (0.02%)	Semiconductors	Preferred Stock Warrants				79,150		63,647

Total Cradle Technologies						79,150		63,647
iWatt Inc. (1.27%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures September 2009
		Interest rate Prime + 2.75%	$	2,000,000		1,959,537		1,959,537
		Revolving Line of Credit
		Matures September 2007
		Interest rate Prime + 1.75%	$	1,250,000		1,250,000		1,250,000
		Preferred Stock Warrants				45,684		41,417

Total iWatt Inc						3,255,221		3,250,954
NEXX Systems, Inc. (1.96%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures February 2010
		Interest rate Prime + 2.75%	$	4,000,000		3,919,015		3,919,015
		Revolving Line of Credit
		Matures December 2009
		Interest rate Prime + 1.75%	$	1,000,000		1,000,000		1,000,000
		Preferred Stock Warrants				83,116		83,938

Total NEXX Systems, Inc.						5,002,131		5,002,953

Total Semiconductors (6.21%)						15,911,148		15,866,614

Lilliputian Systems, Inc. (3.33%)⁽⁴⁾	Energy	Senior Debt
		Matures March 2010
		Interest rate 9.75%	$	8,500,000	$	8,463,170	$	8,463,170
		Preferred Stock Warrants				48,460		39,572

Total Lilliputian Systems, Inc.						8,511,630		8,502,742

Total Energy (3.33%)						8,511,630		8,502,742

Total Investments (110.89%)					$	279,946,465	$	283,233,751

*	Value as a percent of net assets.

(1)	Preferred and common stock, warrants, and equity interests are generally non-income producing.

(2)	Gross unrealized appreciation, gross unrealized depreciation, and net appreciation totaled $4,919,518, $1,632,232 and $3,287,286, respectively.

(3)

Except for warrants in three publicly traded companies, all investments are restricted at December 31, 2006 and were valued at fair value as determined in good faith by the Board of Directors. No unrestricted securities of the same issuer are outstanding. The Company uses the Standard Industrial Code for classifying the industry grouping of its portfolio companies.

(4)

Debt and warrant investments of this portfolio company have been pledged as collateral under the Credit Facility. Citigroup has an equity participation right on loans collateralized under the Credit Facility. The value of their participation right on unrealized gains in the related equity investments was approximately $377,000 at December 31, 2006 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at December 31, 2006.

(5)	Non-U.S. company or the company’s principal place of business is outside the United States.

(6)	Debt is on non-accrual status at December 31, 2006, and is therefore considered non-income producing.

(7)	All investments are less than 5% owned.

See notes to consolidated financial statements.

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(unaudited)


	Three Months Ended June 30,						Six Months Ended June 30,
	2007			2006			2007			2006
Investment income:
Interest	$	11,791,547		$	6,175,831		$	20,827,536		$	11,810,370
Fees		1,483,213			612,080			2,126,171			1,464,674

Total investment income		13,274,760			6,787,911			22,953,707			13,275,044

Operating expenses:
Interest		1,763,285			1,357,893			2,449,250			3,034,875
Loan fees		250,313			286,688			516,420			537,481
Employee compensation:
Compensation and benefits		2,014,763			1,127,238			3,954,324			2,332,320
Stock-based compensation		292,705			130,000			546,455			253,000

Total employee compensation		2,307,468			1,257,238			4,500,779			2,585,320
General and administrative		1,713,931			1,418,584			3,022,167			2,603,977

Total operating expenses		6,034,997			4,320,403			10,488,616			8,761,653

Net investment income before provision for income taxes and investment gains and losses		7,239,763			2,467,508			12,465,091			4,513,391
Provision (benefit) for income taxes		—			(771,823	)		—			988,177

Net investment income		7,239,763			3,239,331			12,465,091			3,525,214
Net realized gain (loss) on investments		(335,629	)		1,599,422			(45,926	)		(140,949	)
Net increase (decrease) in unrealized appreciation on investments		1,365,634			(1,472,381	)		2,181,687			2,487,100

Net realized and unrealized gain		1,030,005			127,041			2,135,761			2,346,151

Net increase in net assets resulting from operations	$	8,269,768		$	3,366,372		$	14,600,852		$	5,871,365


Net investment income before provision for income taxes and investment gains and losses per common share:
Basic	$	0.29		$	0.19		$	0.52		$	0.40

Diluted	$	0.29		$	0.19		$	0.51		$	0.39


Change in net assets per common share:
Basic	$	0.33		$	0.26		$	0.61		$	0.52

Diluted	$	0.33		$	0.26		$	0.60		$	0.51

Weighted average shares outstanding
Basic		25,190,000			12,859,000			24,037,000			11,394,000

Diluted		25,401,000			12,945,000			24,248,000			11,479,000

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CHANGES IN NET ASSETS

(unaudited)


	Common Stock			Capital in excess of par value		Unrealized Appreciation on Investments		Accumulated Realized Gains(Losses) on Investments			Distributions in Excess of Investment Income			Net Assets
	Shares	Par Value		Capital in excess of par value		Unrealized Appreciation on Investments		Accumulated Realized Gains(Losses) on Investments			Distributions in Excess of Investment Income			Net Assets
Balance at December 31, 2005	9,801,965	$	9,802	$	114,524,833	$	353,093	$	481,694		$	(1,017,092	)		114,352,330
Net increase in net assets resulting from operations	—		—		—		2,487,100		(140,949	)		3,525,214			5,871,365
Issuance of common stock	432,900		433		4,999,567		—		—			—			5,000,000
															—
Issuance of common stock in Rights Offering, net of offering costs	3,411,992		3,412		33,860,028		—		—			—			33,863,440
Dividends declared	—		—		—		—		—			(6,011,049	)		(6,011,049	)
Stock-based compensation	—		—		253,000		—		—			—			253,000

Balance at June 30, 2006	13,646,857	$	13,647	$	153,637,428	$	2,840,193	$	340,745		$	(3,502,927	)	$	153,329,086

Balance at December 31, 2006	21,927,034	$	21,927	$	257,234,729	$	2,860,654	$	(1,972,014	)	$	(2,732,474	)	$	255,412,822
Net increase in net assets resulting from operations	—		—		—		2,181,687		(45,926	)		12,465,091			14,600,852
Issuance of common stock in lieu of directors’ compensation	23,334		23		326,070		—		—			—			326,093
Issuance of common stock in public offerings, net of offering costs	10,040,000		10,040		128,469,177		—		—			—			128,479,217
Issuance of common stock from warrant exercises	256,128		256		2,707,017		—		—			—			2,707,273
Issuance of common stock under dividend reinvestment plan	124,880		125		1,777,841		—		—			—			1,777,966
Dividends declared	—		—		—		—		—			(13,826,603	)		(13,826,603	)
Stock-based compensation	—		—		546,455		—		—			—			546,455

Balance at June 30, 2007	32,371,376	$	32,371	$	391,061,289	$	5,042,341	$	(2,017,940	)	$	(4,093,986	)	$	390,024,075

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Six Months Ended June 30,
	2007			2006
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	14,600,852		$	5,871,365
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchase of investments		(180,685,616	)		(65,850,000	)
Principal payments received on investments		49,989,346			48,823,968
Proceeds from sale of investments		873,002			2,594,002
Net unrealized appreciation on investments		(2,406,640	)		541,407
Net unrealized appreciation on investments due to lender		224,953			(23,001	)
Net realized loss on investments		45,926			(2,280,541	)
Warrant values for unfunded loans		(164,056	)		—
Accretion of loan discounts		(1,107,224	)		(709,406	)
Accretion of loan exit fees		(676,555	)		(276,981	)
Depreciation		99,538			20,638
Stock-based compensation		546,455			253,000
Common stock issued in lieu of Director compensation		326,093			—
Amortization of deferred loan origination revenue		(1,483,139	)		(1,162,048	)
Change in operating assets and liabilities:
Interest receivable		(1,351,575	)		(475,402	)
Prepaid expenses and other assets		(622,281	)		888,091
Income tax receivable		29,294			(533,423	)
Deferred tax asset		—			1,454,000
Accounts payable		(5,129	)		529,903
Income tax payable		—			(1,709,000	)
Accrued liabilities		(952,552	)		799,019
Deferred loan origination revenue		2,971,537			1,654,160

Net cash used in operating activities		(119,747,771	)		(9,590,249	)

Cash flows from investing activities:
Purchases of capital equipment		(131,636	)		(27,627	)
Other long-term assets		269,168			(385,207	)

Net cash provided by (used in) investing activities		137,532			(412,834	)

Cash flows from financing activities:
Proceeds from issuance of common stock, net		131,186,490			38,863,440
Dividends paid		(12,048,637	)		(6,011,049	)
Borrowings of credit facilities		124,000,000			—
Repayments of credit facilities		(131,300,000	)		(15,000,000	)
Fees paid for credit facilities and debentures		(1,166,000	)		—

Net cash provided by financing activities		110,671,853			17,852,391

Net (decrease) increase in cash		(8,938,386	)		7,849,308
Cash and cash equivalents at beginning of period		16,404,214			15,362,447

Cash and cash equivalents at end of period	$	7,465,828		$	23,211,755


Supplemental Disclosure:
Interest paid	$	2,239,011		$	2,792,179
Income taxes paid	$	—		$	1,775,000
Stock issued under dividend reinvestment plan	$	1,777,966		$	—

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Description of Business and Unaudited Interim Consolidated Financial Statements Basis of Presentation

Hercules Technology Growth Capital, Inc. (the “Company”) is a specialty finance company that provides debt and equity growth capital to technology-related and life-science companies at all stages of development. The Company sources its investments through its principal office located in Silicon Valley, as well as through its additional offices in the Boston, Massachusetts, Boulder, Colorado, Chicago, Illinois, Costa Mesa, California and Columbus, Ohio areas. The Company was incorporated under the General Corporation Law of the State of Maryland in December 2003. The Company commenced operations on February 2, 2004 and commenced investment activities in September 2004.

The Company is an internally managed, non-diversified closed-end investment company that has elected to be regulated as a business development company (“BDC”) under the Investment Company Act of 1940, as amended (the “1940 Act”). From incorporation through December 31, 2005, the Company was taxed as a corporation under Subchapter C of the Internal Revenue Code of 1986, (the “Code”). Effective January 1, 2006, the Company has elected to be treated for tax purposes as a regulated investment company, or RIC, under the Code (see Note 5).

In January 2005, the Company formed Hercules Technology II, L.P. (“HT II”) and Hercules Technology SBIC Management, LLC (HTM). HTM is a wholly-owned subsidiary of the Company. The Company is the sole limited partner of HTII and HTM is the general partner. (see Note 4).

In July 2005, the Company formed Hercules Funding I LLC and Hercules Funding Trust I, an affiliated statutory trust, and executed a securitized credit facility with Citigroup Global Markets Realty Corp. (see Note 4).

In December 2006, the Company established Hydra Management LLC and Hydra Management Co. Inc., a general partner and investment management group, respectively, should it determine in the future to pursue a relationship with an externally managed fund.

The consolidated financial statements include the accounts of the Company and its subsidiaries. All inter-company accounts and transactions have been eliminated in consolidation. The accompanying consolidated interim financial statements are presented in conformity with U.S. generally accepted accounting principles (“U.S. GAAP”) for interim financial information, and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual consolidated financial statements prepared in accordance with U.S. GAAP are omitted. In the opinion of management, all adjustments, apart from the reclassification described in Note 2, consisting solely of normal recurring accruals considered necessary for the fair presentation of consolidated financial statements for the interim period, have been included. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the interim unaudited consolidated financial statements and notes should be read in conjunction with the audited consolidated financial statements and notes thereto for the period ended December 31, 2006. Financial statements prepared on a U.S. GAAP basis require management to make estimates and assumptions that affect the amounts and disclosures reported in the consolidated financial statements and accompanying notes. Such estimates and assumptions could change in the future as more information becomes known, which could impact the amounts reported and disclosed herein. Certain prior period information has been reclassified to conform to current period presentation.

2. Reclassification

When the Company exits an investment and realizes a gain or loss, the Company makes an accounting entry to reverse any unrealized appreciation or depreciation, respectively, that the Company previously recorded to reflect the appreciated or depreciated value of the investment. The Company recorded a reversal of $3.3 million from unrealized depreciation and recorded a realized loss of $3.3 million for the nine months ended September 30, 2006. During the fourth quarter of 2005, the Company recorded an unrealized depreciation of approximately $3.3 million in one portfolio company. As disclosed in Footnote 16 — Subsequent Events to the financial statements filed on Form 10-K for the year ended December 31, 2005, the assets of the portfolio company were sold in January 2006, and a realized loss was incurred. The difference between the unrealized depreciation as recorded in 2005 and the actual realized loss was not material. The Company did not reverse the loss from an unrealized depreciation to a realized loss in the first quarter of 2006, instead only recording the reversal in the third quarter of 2006. The accompanying comparative consolidated financial statements for the six-month period ended June 30, 2006 reflect the reversal with the previously recorded net unrealized depreciation of approximately $798,000 resulting in an unrealized appreciation of $2.5 million and the previously realized gain of $3.1 million resulting in a net realized loss of approximately $141,000. This reversal does not affect the reported Net Investment Income, Net Income, Earnings per Share, Net Asset Value or Net Asset Value per Share for the six-month period ended June 30, 2006.

3. Valuation of Investments

Value is defined in Section 2(a)(41) of the 1940 Act, as (i) the market price for those securities for which a market quotation is readily available and (ii) for all other securities and assets, fair value is as determined in good faith by the Board of Directors. Because the Company invests primarily in structured mezzanine debt investments (“debt”) and equity growth capital (“equity”) of privately-held technology-related and life-science companies backed by leading venture capital and private equity firms, the Company values substantially all of its investments at fair value, as determined in good faith by the Board of Directors in accordance with established valuation policies and consistently applied procedures and the recommendations of the Valuation Committee of the Board of Directors. At June 30, 2007, approximately 97% of the Company’s total assets represented investments in portfolio companies of which greater than 98% are valued at fair value by the Board of Directors.

Estimating fair value requires that judgment be applied to the specific facts and circumstances of each portfolio investment. Fair value is the amount for which an investment could be exchanged in an orderly disposition over a reasonable period of time between willing parties other than in a forced or liquidation sale. Due to the inherent uncertainty in the valuation of debt and equity investments that do not have a readily available market value, the fair value established in good faith by the Board of Directors may differ significantly from the values that would have been used had a ready market for the securities existed, and the differences could be material. In addition, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuations currently assigned.

When originating a debt instrument, the Company expects to receive warrants or other equity-related securities from the borrower. The Company determines the cost basis of the warrants or other equity-related securities received based upon their respective fair values on the date of receipt in proportion to the total fair value of the debt and warrants or other equity-related securities received.

At each reporting date, privately held debt and equity securities are valued based on an analysis of various factors including, but not limited to, the portfolio company’s operating performance and financial condition and general market conditions that could impact the valuation. When an external event occurs, such as a purchase transaction, public offering, or subsequent equity sale, the pricing indicated by that external event is utilized to corroborate the Company’s valuation of the debt and equity securities. An unrealized loss is recorded when an investment has decreased in value, including: where collection of a loan is doubtful, there is an adverse change in the underlying collateral or operational performance, there is a change in the borrower’s ability to pay, or there are other factors that lead to a determination of a lower valuation for the debt or equity security. Conversely, an unrealized appreciation is recorded when the investment has appreciated in value. Securities that are traded in the over the counter markets or on a stock exchange will be valued at the prevailing bid price at period end. The Board of Directors estimated the fair value of warrants and other equity-related securities in good faith using a Black-Scholes pricing model and consideration of the issuer’s earnings, sales to third parties of similar securities, the comparison to publicly traded securities, and other factors. Any resulting discount on the loan from recordation of the warrant or other equity instruments is accreted into interest income over the life of the loan.

As required by the 1940 Act, the Company classifies its investments by level of control. “Control Investments” are defined in the 1940 Act as investments in those companies that the Company is deemed to “Control.” Generally, under 1940 Act, the Company is deemed to “Control” a company in which it has invested if it owns 25% or more of the voting securities of such company or has greater than 50% representation on its board. “Affiliate Investments” are investments in those companies that are “Affiliated Companies” of the Company, as defined in the 1940 Act, which are not Control Investments. The Company is deemed to be an “Affiliate” of a company in which it has invested if it owns 5% or more but less than 25% of the voting securities of such company. “Non-Control/Non-Affiliate Investments” are those investments that are neither Control Investments nor Affiliate Investments. At June 30, 2007 and December 31, 2006, all of the Company’s investments were in Non-Control/Non-Affiliate companies.

Security transactions are recorded on the trade-date basis.

A summary of the composition of the Company’s investment portfolio as of June 30, 2007 and December 31, 2006 at fair value is shown as follows:


	June 30, 2007				December 31, 2006
($ in millions)	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
Senior debt with warrants	$	391.4	93.9	%	$	273.2	96.5	%
Senior debt-second lien with warrants	$	12.4	3.0	%		—	—	%
Subordinated debt with warrants		1.1	0.2	%		1.9	0.7	%
Preferred stock		9.8	2.4	%		8.1	2.8	%
Common Stock		2.0	0.5	%		—	0.0	%

	$	416.7	100.0	%	$	283.2	100.0	%

A Summary of the Company’s investment portfolio, at value, by geographic location is as follows:


	June 30, 2007				December 31, 2006
($ in millions)	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
United States	$	406.4	97.5	%	$	269.0	95.0	%
Canada		6.2	1.5	%		10.5	3.7	%
Israel		4.1	1.0	%		3.7	1.3	%

	$	416.7	100.0	%	$	283.2	100.0	%

The following table shows the fair value of our portfolio by industry sector at June 30, 2007 and December 31, 2006 (excluding unearned income):


	June 30, 2007				December 31, 2006
($ in millions)	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio

Communications & networking	$	88.7	21.3	%	$	19.5	6.9	%
Drug discovery		88.4	21.2	%		75.0	26.5	%
Software		38.6	9.3	%		40.4	14.3	%
Specialty pharmaceuticals		37.1	8.9	%		18.0	6.4	%
Electronics & computer hardware		29.7	7.1	%		30.6	10.8	%
Semiconductors		22.6	5.4	%		15.9	5.6	%
Consumer & business products		19.7	4.7	%		21.9	7.7	%
Information services		16.7	4.0	%		—	0.0	%
Therapeutic		16.7	4.0	%		13.4	4.7	%
Drug delivery		14.1	3.4	%		16.6	5.9	%
Internet consumer & business services		11.7	2.8	%		11.7	4.1	%
Energy		8.5	2.1	%		8.5	3.0	%
Advanced Specialty Materials & Chemicals		8.1	1.9	%		—	0.0	%
Biotechnology tools		6.4	1.6	%		5.8	2.0	%
Media/Content/Info		5.0	1.2	%		—	0.0	%
Diagnostic		4.7	1.1	%		5.9	2.1	%

	$	416.7	100.0	%	$	283.2	100.0	%

During the three and six-month periods ended June 30, 2007, the Company made investments in debt securities totaling $99.4 million and $177.8 million, respectively. In addition, during the three and six-month periods ended June 30, 2007, the Company made investments in equity securities of approximately $1.0 million and $2.8 million, respectively.

Loan origination and commitment fees received in full at the inception of a loan are deferred and amortized into fee income as an enhancement to the related loan’s yield over the contractual life of the loan. Loan exit fees to be paid at the termination of the loan are accreted into fee income over the contractual life of the loan. Original discount fees are reflected as adjustment to the loan yield. The Company had approximately $4.9 million and $3.5 million of unamortized fees at June 30, 2007 and December 31, 2006, respectively, and approximately $1.6 million and $1.0 million in exit fees receivable at June 30, 2007 and December 31, 2006, respectively.

While not significant to the total debt investment portfolio, the Company has loans in its portfolio that contain a payment-in-kind (“PIK”) provision. The PIK interest, computed at the contractual rate specified in each loan agreement, is added to the principal balance of the loan and recorded as interest income. To maintain the Company’s status as a RIC, this non-cash source of income must be paid out to stockholders in the form of dividends even though the Company has not yet collected the cash. Amounts necessary to pay these dividends may come from available cash or the liquidation of certain investments. For the six months ended June 30, 2007, approximately $75,000 in PIK income was recorded. There was no PIK income recorded in prior periods.

In some cases, the Company collateralizes its investments by obtaining a first priority security interest in a portfolio companies’ assets, which may include their intellectual property. In other cases, the Company may obtain a negative pledge covering a company’s intellectual property. At June 30, 2007, approximately 29 portfolio company loans were secured by a first priority security in all of the assets of the portfolio company and 38 portfolio company loans were prohibited from pledging or encumbering their intellectual property. See “Part II—Item 1A—Risk Factors.”

4. Borrowings

The Company, through Hercules Funding Trust I, an affiliated statutory trust, executed a securitized credit facility (the “Credit Facility”) with Citigroup Global Markets Realty Corp. (“Citigroup”). On December 6, 2006, the Company amended the Credit Facility with an agreement that increased the borrowing capacity under the facility to $150.0 million. On March 30, 2007, this increase was extended to July 31, 2007, and the interest on all borrowings was reduced to LIBOR plus a spread of 1.20%. On May 2, 2007, the Company amended the Credit Facility to extend the expiration date to May 1, 2008, increased the borrowing capacity under the facility to $250 million and included Deutsche Bank Securities Inc. as a participant along with Citigroup Markets Realty Corp. The credit facility is a one year facility and is renewable on May 1, 2008 with an interest rate of LIBOR plus a spread of 1.20%. The Company paid a structuring fee of $375,000 which will be expensed ratably through maturity.

The Credit Facility is collateralized by loans from the Company’s portfolio companies, and includes an advance rate of approximately 55% of eligible loans. The Credit Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the loans securing the Credit Facility to certain dollar amounts, to concentrations in certain geographic regions and industries, to certain loan grade classifications, to certain security interests, and to certain interest payment terms. Citigroup has an equity participation right through a warrant participation agreement on the pool of loans and warrants collateralized under the Credit Facility. Pursuant to the warrant participation agreement, the Company granted to Citigroup a 10% participation in all warrants held as collateral. However, no additional warrants are included in collateral subsequent to the facility amendment on May 2, 2007. As a result, Citigroup is entitled to 10% of the realized gains on the warrants until the realized gains paid to Citigroup pursuant to the agreement equals $3,750,000 (the “Maximum Participation Limit”). The Obligations under the warrant participation agreement continue even after the Credit Facility is terminated until the Maximum Participation Limit has been reached. During the six months ended June 30, 2007, the Company recorded an additional liability and reduced its unrealized gains by approximately $225,000 for Citigroup’s participation in unrealized gains in the warrant portfolio. The value of their participation right on unrealized gains in the related equity investments since inception of the agreement was approximately $602,000 at June 30, 2007 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at June 30, 2007. Since inception of the agreement, the Company has paid Citigroup approximately $292,000 under the warrant participation agreement thereby reducing its realized gains.

At June 30, 2007, the Company, through its special purpose entity (SPE), had transferred pools of loans and warrants with a fair value of approximately $251.7 million to Hercules Funding Trust I and had drawn $21.7 million under the Credit Facility. Transfers of loans have not met the requirements of Statement of Financial Accounting Standards (“SFAS”) No. 140, Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities, for sales treatment and are, therefore, treated as secured borrowings, with the transferred loans remaining in investment and the related liability recorded in borrowings. The average debt outstanding under the Credit Facility for the three and six-month periods ended June 30, 2007 was approximately $108.1 and $73.3 million, respectively, and the average interest rates were approximately 6.52% and 6.64% respectively.

In January 2005, the Company formed HTII and HTM. HTII is licensed as a Small Business Investment Company (“SBIC”). HTII borrows funds from the Small Business Administration against eligible investments and additional deposits to regulatory capital. The Small Business Investment Company regulations currently limit the amount that is available to borrow by any SBIC to $127.2 million, subject to periodic adjustments by the SBA. There is no assurance that HTII will draw up to the maximum limit available under the Small Business Investment Company program.

Small business investment companies are designed to stimulate the flow of private equity capital to eligible small businesses. Under present Small Business Administration regulations, eligible small businesses include businesses that have a tangible net worth not exceeding $18 million and have average annual fully taxed net income not exceeding $6 million for the two most recent fiscal years. In addition, a small business investment company must devote 20% of its investment

activity to “smaller” concerns as defined by the Small Business Administration. A smaller concern is one that has a tangible net worth not exceeding $6 million and has average annual fully taxed net income not exceeding $2 million for the two most recent fiscal years. Small Business Administration regulations also provide alternative size standard criteria to determine eligibility, which depend on the industry in which the business is engaged and are based on such factors as the number of employees and gross sales. According to Small Business Administration regulations, small business investment companies may make long-term loans to small businesses, invest in the equity securities of such businesses and provide them with consulting and advisory services. Through our wholly-owned subsidiary HTII, the Company plans to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments.

HTII is periodically examined and audited by the Small Business Administration’s staff to determine its compliance with small business investment company regulations. As of June 30, 2007, HTII could draw up to $50.0 million of leverage from the SBA (see Note 13). On April 26, 2007, HTII drew down its first borrowing of $12.0 million under the program. Borrowings under the program are charged interest based on ten year treasury rates plus a spread and the rates are generally set every six months. Rates for the borrowings outstanding at June 30, 2007 will be set at the September 2007 meeting of the SBA and are currently based on Libor plus a spread of 0.30% until set.

At June 30, 2007 and December 31, 2006, the Company had the following borrowing capacity and outstandings:


	June 30, 2007				December 31, 2006
($ in thousands)	Facility Amount		Amount Outstanding		Facility Amount		Amount Outstanding
Credit Facility	$	250,000	$	21,700	$	150,000	$	41,000
SBA Debenture		50,000		12,000		—		—

Total		300,000		33,700		150,000		41,000

On July 31, 2007, the Company received approval to draw an additional $77.0 million of leverage, subject to certain regulatory requirements.

5. Income taxes

The Company intends to continue to operate so as to qualify to be taxed as a RIC under the Code and, as such, the Company would not be subject to federal income tax on the portion of its taxable income and gains distributed to stockholders. To qualify as a RIC, the Company is required, among other requirements, to distribute at least 90% of its annual investment company taxable income, as defined by the Code. The amount to be paid out as a dividend is determined by the Board of Directors each quarter and is based upon the annual earnings estimated by the management of the Company. To the extent that the Company’s earnings fall below the amount of dividends declared, however, a portion of the total amount of the Company’s dividends for the fiscal year may be deemed a return of capital for tax purposes to the Company’s stockholders. On June 18, 2007, the Company paid a dividend of $0.30 per share.

For the fiscal year ended December 31, 2006 11.5% of the distributions to the Company’s shareholders was deemed a return of capital. For the quarter ended June 30, 2007, the Company declared a distribution of $0.30 per share. The determination of the tax attributes of the Company’s distributions is made annually as of the end of the Company’s fiscal year based upon its taxable income for the full year and distributions paid for the full year, therefore a determination made on a quarterly basis may not be representative of the actual tax attributes of its distributions for a full year. If the Company determined the tax attributes of its distributions year-to-date as of June 30, 2007, approximately $0.56 or 93.6% would be from ordinary income and approximately $0.04 or 6.4% would be a return of capital for stockholders, however there can be no certainty to shareholders that this determination is representative of what the tax attributes of its 2007 distributions to shareholders will actually be.

At March 31, 2006, as a C corporation, the Company had a deferred tax asset of approximately $181,000. During the second quarter of 2006, a full valuation reserve was recorded against this asset in anticipation that the Company would not have a future federal tax expense to offset the deferred tax asset. In addition, during the first quarter of 2006, the Company recorded a tax expense in the amount of approximately $1.8 million that was reversed in the second quarter as the Company would not be subject to federal income or excise taxes in 2006. As a result, the Company recorded a tax benefit of approximately $800,000 in the second quarter of 2006.

In June 2006, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 48 (“FIN 48”), “Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109”, which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with FASB Statement No. 109, Accounting for Income Taxes. FIN 48 prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. FIN 48 also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. As required, we have adopted FIN 48 as of January 1, 2007. We conducted a review of all open tax year’s income recognition and expense deduction filing positions and income tax returns filed (federal and state) for determination of any uncertain tax positions that may require recognition of a tax liability. This review encompassed an analysis of all book/tax difference adjustments as well as the timing of income and expense recognition for all tax years still open under the statute of limitations. As a result, we determined that it is more likely than not that each tax position taken on a previously filed return or to be taken on current tax returns will be sustained on examination based on the technical merits of the positions and therefore, no recognition of a tax liability on an uncertain tax position for FIN 48 purposes is anticipated.

6. Stockholders’ Equity

The Company is authorized to issue 60,000,000 shares of common stock with a par value of $0.001. Each share of common stock entitles the holder to one vote.

In January 2005, the Company notified its shareholders of its intent to elect to be regulated as a BDC. In conjunction with the Company’s decision to elect to be regulated as a BDC, approximately 55% of the 5 Year Warrants were subject to mandatory cancellation under the terms of the Warrant Agreement with the warrant holder receiving one share of common stock for every two warrants cancelled and the exercise price of all warrants was adjusted to the then current net asset value of the common stock, subject to certain adjustments described in the Warrant Agreement. In addition, the 1 Year Warrants became subject to expiration immediately prior to the Company’s election to become a BDC, unless exercised. Concurrent with the announcement of the BDC election, the Company reduced the exercise price of all remaining 1 and 5 Year Warrants from $15.00 to $10.57. On February 22, 2005, the Company cancelled 47% of all outstanding 5 Year Warrants and issued 298,598 shares of common stock to holders of warrants upon exercise. In addition, the majority of shareholders owning 1 Year Warrants exercised them, and purchased 1,175,963 of common shares at $10.57 per share, for total consideration to the Company of $12,429,920. All unexercised 1 Year Warrants were then cancelled. The outstanding 5 Year Warrants will expire in June 2009.

A summary of activity in the 5 Year Warrants initially attached to units issued for the six months ended June 30, 2007 is as follows:


	Five-Year Warrants
Warrants outstanding at December 31, 2006	616,672
Warrants issued	—
Warrants cancelled	—
Warrants exercised	(223,008	)

Warrants outstanding at June 30, 2007	393,664

The Company received net proceeds of approximately $2.7 million from the exercise of the 5-Year Warrants in the period ended June 30, 2007.

On October 20, 2006, the Company raised approximately $30.0 million, net of estimated issuance costs, in a public offering of 2.5 million shares of its common stock.

On December 12, 2006, the Company raised approximately $74.1 million, net of estimated issuance costs, in a public offering of 5.7 million shares of its common stock.

On January 3, 2007, in connection with the December 12, 2006 common stock issuance, the underwriters exercised their over-allotment option and purchased an additional 840,000 shares of common stock for additional net proceeds of approximately $10.9 million.

On June 4, 2007, the Company raised approximately $102.2 million, net of issuance costs, in a public offering of 8.0 million shares of its common stock. On June 19, 2007, in connection with the same common stock issuance, the underwriters exercised their over-allotment option and purchased an additional 1.2 million shares of common stock for additional net proceeds of approximately $15.4 million.

7. Earnings per Share

Shares used in the computation of the Company’s basic and diluted earnings (loss) per share are as follows:


	Three months ended June 30,				Six months ended June 30,
	2007		2006		2007		2006
Net increase in net assets resulting from operations	$	8,269,768	$	3,366,372	$	14,600,852	$	5,871,365
Weighted average common shares outstanding		25,190,000		12,859,000		24,037,000		11,394,000
Change net assets per common share—basic	$	0.33	$	0.26	$	0.61	$	0.52
Net increase (decrease) in net assets resulting from operations	$	8,269,768	$	3,366,372	$	14,600,852	$	5,871,365
Weighted average common shares outstanding		25,190,000		12,859,000		24,037,000		11,394,000
Dilutive effect of warrants and stock options		211,000		85,000		211,000		85,000

Weighted average common shares outstanding, assuming dilution		25,401,000		12,944,000		24,248,000		11,479,000
Change net assets per common share—assuming dilution	$	0.33	$	0.26	$	0.60	$	0.51

The calculation of diluted net income per share excludes all anti-dilutive shares. For the three months ended June 30, 2007 and 2006, the number of anti-dilutive shares, as calculated based on the weighted average closing price of our common stock for the periods, was approximately 1,096,000 and 1,831,000 shares, respectively. For the six months ended June 30, 2007 and 2006, the number of anti-dilutive shares, as calculated based on the weighted average closing price of our common stock for the periods, was approximately 1,096,000 and 1,831,000 shares, respectively.

8. Related-Party Transactions

In conjunction with the Company’s public offering completed on December 7, 2006, the Company agreed to pay JMP Securities LLC a fee of approximately $1.2 million as co-manager of the offering. In conjunction with the over-allotment exercise completed in January 2007, the Company paid JMP Securities a fee of approximately $171,000.

During February 2007, Farallon Capital Management, L.L.C and its related affiliates and Manuel Henriquez, the Company’s CEO, exercised warrants to purchase 132,480 and 75,075 shares of the Company’s common stock, respectively. The exercise price of the warrants was $10.57 per share resulting in net proceeds to the company of approximately $2.2 million.

In conjunction with the Company’s public offering completed on June 4, 2007 and the related over-allotment exercise, the Company agreed to pay JMP Securities LLC a fee of approximately $1.6 million as co-manager of the offering.

9. Equity Incentive Plan

The Company and its stockholders have authorized and adopted an equity incentive plan (the “2004 Plan”) for purposes of attracting and retaining the services of its executive officers and key employees. Under the 2004 Plan, the Company is authorized to issue 7,000,000 shares of common stock. Unless terminated earlier by the Company’s Board of Directors, the 2004 Plan will terminate on June 9, 2014, and no additional awards may be made under the 2004 Plan after that date.

The Company and its stockholders have authorized and adopted the 2006 Non-Employee Director Plan (the “2006 Plan”) for purposes of attracting and retaining the services of its Board of Directors. Under the 2006 Plan, the Company is authorized to issue 1,000,000 shares of common stock. Unless terminated earlier by the Company’s Board of Directors, the 2006 Plan will terminate on May 29, 2016 and no additional awards may be made under the 2006 Plan after that date. The Company filed an exemptive relief request with the Securities and Exchange Commission (“SEC”) to allow options to be issued under the 2006 Plan which was approved on February 15, 2007.

On June 21, 2007, the shareholders approved amendments to the 2004 Plan and the 2006 Plan allowing for the grant of restricted stock. The amended Plans limit the combined maximum amount of restricted stock that may be issued under both Plans to 10% of the outstanding shares of our stock on the effective date of the Plans plus 10% of the number of shares of stock issued or delivered by Hercules during the terms of the Plans. The proposed amendments further specify that no one person shall be granted awards of restricted stock relating to more than 25% of the shares available for issuance under the 2004 Plan. Further, the amount of voting securities that would result from the exercise of all our outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 25% of our outstanding voting securities, except that if the amount of voting securities that would result from such exercise of all of our outstanding warrants, options and rights issued to Hercules directors, officers and employees, together with any restricted stock issued pursuant to the Plans, would exceed 15% of our outstanding voting securities, then the total amount of voting securities that would result from the exercise of all outstanding warrants, options and rights, together with any restricted stock issued pursuant to the Plans, at the time of issuance shall not exceed 20% of our outstanding voting securities.

In conjunction with the amendment and in accordance with the exemptive order, on June 21, 2007 the Company made an automatic grant of shares of restricted common stock to Messrs. Badavas, Chow and Woodward, its independent Board of Directors, in the amounts of 1,667, 1,667 and 3,334 shares, respectively. The shares were issued pursuant to the 2006 Plan on July 31, 2007 and vest 33% on an annual basis from the date of grant. Deferred compensation cost of approximately $90,000 will be recognized ratably over the three year vesting period.

In 2004, each employee stock option to purchase two shares of common stock was accompanied by a warrant to purchase one share of common stock within one year and a warrant to purchase one share of common stock within five years.

Both options and warrants had an exercise price of $15.00 per share on date of grant. On January 14, 2005, the Company notified all shareholders of its intent to elect to be regulated as a BDC and reduced the exercise price of all remaining 1 and 5 Year Warrants from $15.00 to $10.57 but did not reduce the strike price of the options (see Note 7). The unexercised one-year warrants expired and 55% of the five-year warrants were cancelled immediately prior to the Company’s election to become a BDC.

A summary of common stock options and warrant activity under the Company’s 2004 Plan for the six months ended June 30 is as follows:


	Common Stock Options			Five-Year Warrants
Outstanding at December 31, 2006		1,881,013			56,551
Granted		938,000			—
Exercised		—			(33,120	)
Cancelled		(6,500	)		—
Outstanding at June 30, 2007		2,812,513			23,431

Weighted-average exercise price at June 30, 2007	$	13.24		$	10.57

Options generally vest 33% one year after the date of grant and ratably over the succeeding 24 months. All options may be exercised for a period ending seven years after the date of grant. At June 30, 2007 options for approximately 1.1 million shares were exercisable at a weighted average exercise price of approximately $13.24 per share with a weighted average exercise term of 4.5 years. The outstanding five year warrants have an expected life of five years.

The Company determined that the fair value of options granted during the six month periods ended June 30, 2007 and 2006 was approximately $1.4 million and approximately $687,000, respectively. During the six month periods ended June 30, 2007 and 2006, approximately $293,000 and $129,000 of share-based cost was expensed, respectively. As of June 30, 2007, there was $2.0 million of total unrecognized compensation costs related to stock options. These costs are expected to be recognized over a weighted average period of 2.0 years. The fair value of options granted in 2007 and 2006 was based upon a Black-Scholes option pricing model using the assumptions in the following table for each of the six month periods ended June 30, 2007:


	2007			2006
Expected Volatility		24	%		24	%
Expected Dividends		8	%		8	%
Expected term (in years)		4.5			4.5
Risk-free rate	4.47 -	4.92	%	4.8 -	5.05	%

10. Financial Highlights

Following is a schedule of financial highlights for the six months ended June 30, 2007 and 2006:


	Six Months Ended June 30,
	2007			2006
Per share data:
Net asset value at beginning of period	$	11.65		$	11.67
Net investment income		0.52			0.31
Net realized gain on investments		—			0.28
Net unrealized appreciation on investments		0.09			(0.07	)

Total from investment operations		0.61			0.52
Net increase/(decrease) in net assets from capital share transactions		0.37			(0.44	)
Distributions		(0.60	)		(0.53	)
Stock-based compensation expense included in investment income⁽¹⁾		0.02			0.02

Net asset value at end of period	$	12.05		$	11.24


Ratios and supplemental data:
Per share market value at end of period	$	13.51			12.10

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents

Table of Contents