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 September 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 November 7, 2007, there were 32,541,080 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 September 30, 2007 (unaudited) and December 31, 2006	3

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

	Consolidated Schedule of Investments as of December 31, 2006	13

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

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

	Consolidated Statements of Cash Flows for the nine-month periods ended September 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	42

Item 4.	Controls and Procedures	42

PART II.	OTHER INFORMATION	42

Item 1.	Legal Proceedings	42

Item 1a.	Risk Factors	43

Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	43

Item 3.	Defaults Upon Senior Securities	44

Item 4.	Submission of Matters to a Vote of Security Holders	44

Item 5.	Other Information	44

Item 6.	Exhibits	45

Signatures		46

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


	September 30, 2007 (unaudited)			December 31, 2006
Assets
Investments, at value (cost of $412,824,423 and $279,946,465, respectively)	$	415,592,166		$	283,233,751
Deferred loan origination revenue		(5,072,929	)		(3,450,971	)
Cash and cash equivalents		26,185,643			16,404,214
Interest receivable		5,612,071			2,906,831
Other assets		3,767,521			2,048,384

Total assets		446,084,472			301,142,209
Liabilities
Accounts payable		291,563			540,376
Accrued liabilities		4,215,228			4,189,011
Short-term loans payable		32,200,000			41,000,000
Long-term loans payable		19,750,000			—

Total liabilities		56,456,791			45,729,387

Net assets	$	389,627,681		$	255,412,822

Net assets consist of:
Par value	$	32,539		$	21,927
Capital in excess of par value		393,296,070			257,234,729
Deferred stock compensation		(85,206	)
Unrealized appreciation on investments		2,127,358			2,860,654
Accumulated realized losses on investments		(1,968,895	)		(1,972,014	)
Distributions in excess of investment income		(3,774,185	)		(2,732,474	)

Total net assets	$	389,627,681		$	255,412,822

Shares of common stock issued and outstanding ($0.001 par value, 60,000,000 authorized)		32,539,413			21,927,034

Net asset value per share	$	11.97		$	11.65

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(unaudited)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Acceleron Pharmaceuticals, Inc. (0.98%)*⁽⁴⁾	Drug Discovery	Senior Debt
		Matures June 2009
		Interest rate 10.25%	$	3,453,566	$	3,392,953	$	3,392,953
		Preferred Stock Warrants				69,106		401,792
		Preferred Stock Warrants				34,996		27,295
Acceleron Pharmaceuticals, Inc. (0.29%)		Preferred Stock				1,000,000		1,111,112

Total Acceleron Pharmaceuticals, Inc.						4,497,055		4,933,152
Aveo Pharmaceuticals, Inc. (3.39%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures September 2009
		Interest rate 10.75%	$	13,200,600		13,092,139		13,092,139
		Preferred Stock Warrants				144,056		71,448
		Preferred Stock Warrants				46,288		28,399

Total Aveo Pharmaceuticals, Inc.						13,282,483		13,191,986
Elixir Pharmaceuticals, Inc. (3.85%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures June 2010
		Interest rate Prime + 2.45%	$	15,000,000		14,823,726		14,823,726
		Preferred Stock Warrants				217,167		187,521

Total Elixir Pharmaceuticals, Inc.						15,040,893		15,011,247
EpiCept Corporation (2.23%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures August 2009
		Interest rate 11.70%	$	8,233,370		7,739,409		7,739,409
		Short Term Receivable				166,747		513,824
		Common Stock Warrants				423,380		435,852

Total EpiCept Corporation						8,329,536		8,689,085

Inotek Pharmaceuticals Corp. (0.38%)	Drug Discovery	Preferred Stock				1,500,000		1,500,000

Total Inotek Pharmaceuticals Corp.						1,500,000		1,500,000
Memory Pharmaceticals Corp. (2.60%) ⁽⁴⁾	Drug Discovery	Senior Debt
		Matures February 2011
		Interest rate 11.45%	$	11,000,000		9,485,266		9,485,266
		Common Stock Warrants				1,750,585		660,796

Total Memory Pharmaceticals Corp.						11,235,851		10,146,062
Merrimack Pharmaceuticals, Inc. (1.13%)⁽⁴⁾	Drug Discovery	Convertible Senior Debt
		Matures October 2008
		Interest rate 11.15%	$	3,878,618		3,836,910		4,026,910
		Preferred Stock Warrants				155,456		371,265

Total Merrimack Pharmaceuticals, Inc.						3,992,366		4,398,175
Neosil, Inc. (0.51%)	Drug Discovery	Senior Debt
		Matures May 2010
		Interest rate 10.75%	$	2,000,000		1,928,716		1,928,716
		Preferred Stock Warrants				82,782		73,560

Total Neosil, Inc.						2,011,498		2,002,276
Paratek Pharmaceuticals, Inc. (0.93%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures June 2008
		Interest rate 11.10%	$	3,646,251		3,615,719		3,615,719
		Preferred Stock Warrants				137,396		—

Total Paratek Pharmaceuticals, Inc.						3,753,115		3,615,719
Portola Pharmaceuticals, Inc. (3.86%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures September 2010
		Interest rate Prime + 1.75%	$	15,000,000		14,884,753		14,884,753
		Preferred Stock Warrants				151,557		187,760

Total Portola Pharmaceuticals, Inc.						15,036,310		15,072,513

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Sirtris Pharmaceuticals, Inc. (2.73%)⁽⁴⁾	Drug Discovery	Senior Debt
		Matures April 2011
		Interest rate 10.60%	$	9,638,950	$	9,576,770	$	9,576,770
		Common Stock Warrants				88,829		1,044,479
Sirtris Pharmaceuticals, Inc. (0.25%)		Common Stock				500,000		968,254

Total Sirtris Pharmaceuticals, Inc.						10,165,599		11,589,503

Total Drug Discovery (23.13%)						88,844,706		90,149,718

IKANO Communications, Inc. (5.59%)	Communications & Networking	Senior Debt Matures March 2011
	Communications & Networking	Senior Debt Matures March 2011
		Interest rate 11.00%	$	21,700,000		21,700,000		21,700,000
		Preferred Stock Warrants				45,460		21,734
		Preferred Stock Warrants				72,344		37,651

Total IKANO Communications, Inc.						21,817,804		21,759,385
Interwise, Inc. (0.13%)⁽⁴⁾	Communications & Networking	Preferred Stock Warrants
	Communications & Networking	Preferred Stock Warrants				268,401		500,000

Total Interwise, Inc.						268,401		500,000
Ping Identity Corporation (0.51%)⁽⁴⁾	Communications & Networking	Senior Debt Matures June 2009
	Communications & Networking	Senior Debt Matures June 2009
		Interest rate 11.50%				1,849,286		1,849,286
		Preferred Stock Warrants	$	1,875,186		51,801		149,818

Total Ping Identity Corporation						1,901,087		1,999,104
Purcell Systems, Inc. (2.15%)	Communications & Networking	Senior Debt Matures June 2009
	Communications & Networking	Senior Debt Matures June 2009
		Interest rate Prime + 3.50%	$	2,353,325		2,244,179		2,244,179
		Revolving Line of Credit
		Matures June 2008
		Interest rate Prime + 2.00%	$	6,000,000		6,000,000		6,000,000
		Preferred Stock Warrants				122,789		105,758

Total Purcell Systems, Inc.						8,366,968		8,349,937
Rivulet Communications, Inc. (0.91%)⁽⁴⁾	Communications & Networking	Senior Debt Matures September 2009
	Communications & Networking	Senior Debt Matures September 2009
		Interest rate 10.60%	$	3,500,000		3,471,976		3,471,976
		Preferred Stock Warrants				50,710		30,369
Rivulet Communications, Inc. (0.06%)		Preferred Stock				250,000		250,000

Total Rivulet Communications, Inc.						3,772,686		3,752,345
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		9,856,733		9,856,733
		Revolving Line of Credit
		Matures April 2008
		Interest rate Prime + 3.00%	$	2,000,000		2,000,000		2,000,000
		Preferred Stock Warrants				173,967		147,419

Total Seven Networks, Inc.						12,030,700		12,004,152
Simpler Networks Corp. (1.04%)⁽⁴⁾	Communications & Networking	Senior Debt Matures July 2009
	Communications & Networking	Senior Debt Matures July 2009
		Interest rate 11.75%	$	4,112,474		4,034,308		4,034,308
		Preferred Stock Warrants				160,241		—
Simpler Networks Corp. (0.06%)		Preferred Stock				500,000		250,000

Total Simpler Networks Corp.						4,694,549		4,284,308
Stoke, Inc. (0.19%)	Communications & Networking	Senior Debt Matures August 2010
	Communications & Networking	Senior Debt Matures August 2010
		Interest rate 10.55%	$	750,000		699,591		699,591
		Preferred Stock Warrants				53,374		51,133

Total Stoke, Inc.						752,965		750,724

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Tectura Corporation (5.49%)	Communications & Networking	Senior Debt Matures March 2012
		Interest rate LIBOR + 6.15%	$	9,405,625	$	9,359,465	$	9,359,465
		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		43,456

Total Tectura Corporation						21,410,532		21,402,921
Teleflip, Inc. (0.19%)	Communications & Networking	Senior Debt Matures May 2010
		Interest rate Prime + 2.75%	$	750,000		740,660		740,660
		Preferred Stock Warrants				10,508		8,702

Total Teleflip, Inc.						751,168		749,362
Wireless Channels, Inc. (3.16%)	Communications & Networking	Senior Debt -Second Lien Matures April 2010
		Interest rate 9.25%	$	2,193,756		2,068,783		2,068,783
		Senior Debt -Second Lien
		Matures April 2010
		Interest rate Prime + 4.25%	$	10,117,932		10,117,932		10,117,932
		Preferred Stock Warrants				155,139		134,247

Total Wireless Channels, Inc.						12,341,854		12,320,962

Total Communications & Networking (22.56%)						88,108,714		87,873,200

Atrenta, Inc. (1.13%)⁽⁴⁾	Software	Senior Debt
		Matures June 2009
		Interest rate 11.50%	$	4,201,468		4,152,708		4,152,708
		Preferred Stock Warrants				102,396		177,303
		Preferred Stock Warrants				33,760		58,178
Atrenta, Inc. (0.06%)		Preferred Stock				250,000		250,000

Total Atrenta, Inc.						4,538,864		4,638,189
Blurb, Inc. (0.64%)	Software	Senior Debt
		Matures December 2009
		Interest rate 9.55%	$	2,500,000		2,479,870		2,479,870
		Preferred Stock Warrants				24,515		21,948

Total Blurb, Inc.						2,504,385		2,501,818
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. (0.73%)⁽⁴⁾	Software	Senior Debt
		Matures March 2009 Interest rate Prime + 3.50%	$	2,667,831		2,637,636		2,637,636
		Preferred Stock Warrants				62,067		189,135

Total Compete, Inc.						2,699,703		2,826,771
Forescout Technologies, Inc. (0.71%)⁽⁴⁾	Software	Senior Debt
		Matures August 2009
		Interest rate 11.15%	$	2,252,971		2,215,130		2,215,130
		Revolving Line of Credit
		Matures August 2007
		Interest rate Prime + 1.49%	$	500,000		500,000		500,000
		Preferred Stock Warrants				57,915		41,717

Total Forescout Technologies, Inc.						2,773,045		2,756,847
GameLogic, Inc. (0.76%)⁽⁴⁾	Software	Senior Debt
		Matures December 2009
		Interest rate Prime + 4.125%	$	3,000,000		2,933,007		2,933,007
		Preferred Stock Warrants				92,483		65,126

Total GameLogic, Inc.						3,025,490		2,998,133

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Gomez, Inc. (0.10%)⁽⁴⁾	Software	Senior Debt
		Matures December 2007
		Interest rate 12.25%	$	389,698	$	387,754	$	387,754
		Preferred Stock Warrants				35,000		4,187

Total Gomez, Inc.						422,754		391,941
HighRoads, Inc. (0.01%)⁽⁴⁾	Software	Preferred Stock Warrants				44,466		26,081

Total HighRoads, Inc.						44,466		26,081
Intelliden, Inc. (0.68%)	Software	Senior Debt
		Matures February 2010
		Interest rate 13.20%	$	2,580,916		2,568,936		2,568,936
		Preferred Stock Warrants				17,542		70,272

Total Intelliden, Inc.						2,586,478		2,639,208
Oatsystems, Inc. (1.26%)⁽⁴⁾	Software	Senior Debt
		Matures September 2009
		Interest rate 11.00%	$	4,931,926		4,888,272		4,888,272
		Preferred Stock Warrants				67,484		40,386

Total Oatsystems, Inc.						4,955,756		4,928,658
Proficiency, Inc. (0.51%)⁽⁵⁾	Software	Senior Debt
		Matures July 2008
		Interest rate 12.00%	$	4,000,000		3,977,325		1,977,325
		Preferred Stock Warrants				96,370		—

Total Proficiency, Inc.						4,073,695		1,977,325
PSS Systems, Inc. (0.90%)⁽⁴⁾	Software	Senior Debt
		Matures March 2010
		Interest rate 10.74%	$	3,500,000		3,458,752		3,458,752
		Preferred Stock Warrants				51,205		44,983

Total PSS Systems, Inc.						3,509,957		3,503,735
Savvion, Inc. (1.66%)⁽⁴⁾	Software	Senior Debt
		Matures March 2009
		Interest rate Prime + 3.45%	$	1,485,669		1,485,668		1,485,668
		Revolving Line of Credit
		Matures March 2008
		Interest rate Prime + 2.00%	$	3,000,000		3,000,000		3,000,000
		Revolving Line of Credit
		Matures March 2008
		Interest rate Prime + 3.45%	$	1,985,000		1,985,000		1,985,000
		Preferred Stock Warrants				52,135		31,055

Total Savvion, Inc.						6,522,803		6,501,723

Sportvision, Inc. (0.01%)	Software	Preferred Stock Warrants				39,339		19,602

Total Sportvision, Inc.						39,339		19,602
Talisma Corp. (0.00%)⁽⁴⁾	Software	Preferred Stock Warrants				49,000		5,710

Total Talisma Corp.						49,000		5,710

Total Software (9.42%)						38,745,735		36,715,741

Agami Systems, Inc. (1.49%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt
		Matures August 2009
		Interest rate 11.00%	$	5,753,916		5,700,185		5,700,185
		Preferred Stock Warrants				85,601		132,830

Total Agami Systems, Inc.						5,785,786		5,833,015

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value^{(3 )}
Luminus Devices, Inc. (3.03%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt Matures August 2009
	Electronics & Computer Hardware	Senior Debt Matures August 2009
		Interest rate 12.50%	$	11,791,700	$	11,625,291	$	11,625,291
		Preferred Stock Warrants				183,290		114,747
		Preferred Stock Warrants				83,529		66,131

Total Luminus Devices, Inc.						11,892,110		11,806,169
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		2,462,264		2,462,264
		Preferred Stock Warrants				43,632		37,401

Total NetEffect, Inc.						2,505,896		2,499,665
NeoScale Systems, Inc. (0.72%)	Electronics &	Senior Debt Matures October 2009
	Computer Hardware	Senior Debt Matures October 2009
		Interest rate 10.75%	$	2,803,049		2,787,320		2,787,320
		Preferred Stock Warrants				23,593		26,858

Total NeoScale Systems, Inc.						2,810,913		2,814,178
SiCortex, Inc. (0.51%)	Electronics & Computer Hardware	Senior Debt Matures December 2010
	Electronics & Computer Hardware	Senior Debt Matures December 2010
		Interest rate 10.95%	$	2,000,000		1,848,253		1,848,253
		Preferred Stock Warrants				164,051		141,296

Total SiCortex, Inc.						2,012,304		1,989,549
Sling Media, Inc. (0.50%)	Electronics & Computer Hardware	Preferred Stock Warrants				38,968		1,944,000
Sling Media, Inc. (0.24%)		Preferred Stock				500,000		926,152

Total Sling Media, Inc.						538,968		2,870,152
VeriWave, Inc. (1.09%)	Electronics & Computer Hardware	Senior Debt Matures May 2010
	Electronics & Computer Hardware	Senior Debt Matures May 2010
		Interest rate 10.75%	$	4,250,000		4,203,517		4,203,517
		Preferred Stock Warrants				54,230		47,032

Total VeriWave, Inc.						4,257,747		4,250,549
ViDeOnline Communications, Inc. (0.08%)⁽⁴⁾	Electronics & Computer Hardware	Preferred Stock Warrants
	Electronics & Computer Hardware	Preferred Stock Warrants				—		294,255

Total ViDeOnline Communications, Inc.						—		294,255

Total Electronics & Computer Hardware (8.30%)						29,803,724		32,357,532

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		9,942,609		9,942,609
		Preferred Stock Warrants				69,207		60,691

Total Aegerion Pharmaceuticals, Inc.						10,011,816		10,003,300
Quatrx Pharmaceuticals Company (3.94%)⁽⁴⁾	Specialty Pharmaceuticals	Senior Debt Matures January 2010
	Specialty Pharmaceuticals	Senior Debt Matures January 2010
		Interest rate Prime + 3.00%	$	15,467,406		15,343,457		15,343,457
		Preferred Stock Warrants				220,354		—
Quatrx Pharmaceuticals Company (0.19%)		Preferred Stock				750,001		750,001

Total Quatrx Pharmaceuticals Company						16,313,812		16,093,458
Panacos Pharmaceuticals, Inc. (2.49%)	Specialty Pharmaceuticals	Senior Debt Matures January 2011
	Specialty Pharmaceuticals	Senior Debt Matures January 2011
		Interest rate 11.20%	$	10,000,000		9,207,160		9,207,160
		Common Stock Warrants				876,297		487,817

Total Panacos Pharmaceuticals, Inc.						10,083,457		9,694,977

Total Specialty Pharmaceuticals (9.19%)						36,409,085		35,791,735

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
BabyUniverse, Inc. (1.25%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures July 2009
	Consumer & Business Products	Senior Debt Matures July 2009
		Interest rate Prime + 2.35%	$	4,671,182	$	4,481,468	$	4,481,468
		Common Stock Warrants				325,224		385,054

Total BabyUniverse, Inc.						4,806,692		4,866,522
Market Force Information, Inc. (0.40%)⁽⁴⁾	Consumer & Business Products	Senior Debt Matures May 2009
	Consumer & Business Products	Senior Debt Matures May 2009
		Interest rate 10.45%	$	1,419,434		1,407,523		1,407,523
		Preferred Stock Warrants				23,823		139,324
Market Force Information, Inc. (0.13%)		Preferred Stock				500,000		500,000

Total Market Force Information, Inc.						1,931,346		2,046,847
Wageworks, Inc. (0.28%)⁽⁴⁾	Consumer & Business Products	Preferred Stock Warrants				251,964		1,076,250
Wageworks, Inc. (0.05%)		Preferred Stock				249,995		249,995

Total Wageworks, Inc.						501,959		1,326,245

Total Consumer & Business Products (2.11%)						7,239,997		8,239,614

Ageia Technologies, Inc. (1.42%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures August 2008
		Interest rate 10.25%	$	5,594,105		5,442,792		5,442,792
		Convertible Debt		123,760		123,760		123,760
		Preferred Stock Warrants				99,190		—
Ageia Technologies, Inc. (0.00%)		Preferred Stock				500,000		—

Total Ageia Technologies						6,165,742		5,566,552
Custom One Design, Inc. (0.26%)	Semiconductors	Senior Debt
		Matures September 2010 Interest rate 11.50%	$	1,000,000		982,174		982,174
		Common Stock Warrants				18,335		18,779

Total Custom One Design, Inc.						1,000,509		1,000,953
iWatt Inc. (1.26%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures September 2009 Interest rate Prime + 2.75%	$	1,643,976		1,615,260		1,615,260
		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		49,303

Total iWatt Inc.						4,895,944		4,899,563
NEXX Systems, Inc. (3.34%)⁽⁴⁾	Semiconductors	Senior Debt
		Matures February 2010 Interest rate Prime + 2.75%	$	5,000,000		4,866,577		4,866,577
		Revolving Line of Credit
		Matures December 2009 Interest rate Prime + 1.75%	$	5,000,000		5,000,000		5,000,000
		Revolving Line of Credit
		Matures December 2009 Interest rate Prime + 3.75%	$	3,000,000		3,000,000		3,000,000
		Preferred Stock Warrants				164,613		135,291

Total NEXX Systems, Inc.						13,031,190		13,001,868
Quartics, Inc. (0.08%)	Semiconductors	Senior Debt
		Matures August 2010 Interest rate 11.05%	$	300,000		250,050		250,050
		Preferred Stock Warrants				52,888		49,527

Total Quartics, Inc.						302,938		299,577
Solarflare Communications, Inc. (0.16%)	Semiconductors	Senior Debt
		Matures August 2010 Interest rate 11.75%	$	625,000		546,307		546,307
		Preferred Stock Warrants				83,322		84,669
Solarflare Communications, Inc. (0.13%)		Preferred Stock				500,000		500,000

Total Solarflare Communications, Inc.						1,129,629		1,130,976

Total Semiconductors (6.65%)						26,525,952		25,899,489

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Labopharm USA, Inc. (0.93%)⁽⁴⁾⁽⁵⁾	Drug Delivery	Senior Debt
		Matures July 2008 Interest rate 11.95%	$	3,670,363	$	3,634,341	$	3,634,341

Total Labopharm USA, Inc.						3,634,341		3,634,341
Transcept Pharmaceuticals, Inc. (2.08%)⁽⁴⁾	Drug Delivery	Senior Debt
		Matures October 2009 Interest rate 10.69%	$	7,842,879		7,786,800		7,786,800
		Preferred Stock Warrants				35,630		116,775
		Preferred Stock Warrants				51,067		183,584
Transcept Pharmaceuticals, Inc. (0.13%)		Preferred Stock				500,000		500,000

Total Transcept Pharmaceuticals, Inc.						8,373,497		8,587,159

Total Drug Delivery (3.14%)						12,007,838		12,221,500


BARRX Medical, Inc. (0.38%)	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		4,846,249		4,846,249
		Preferred Stock Warrants				174,528		149,709

Total EKOS Corporation						5,020,777		4,995,958
Gynesonics, Inc. (0.45%)⁽⁴⁾	Therapeutic	Senior Debt
		Matures October 2009
		Interest rate 9.50%	$	1,699,491		1,689,461		1,689,461
		Preferred Stock Warrants				17,552		51,160
Gynesonics, Inc. (0.06%)		Preferred Stock				250,000		250,000

Total Gynesonics, Inc.						1,957,013		1,990,621
Novasys Medical, Inc. (1.94%)⁽⁴⁾	Therapeutic	Senior Debt
		Matures January 2010
		Interest rate 9.70%	$	7,545,185		7,545,185		7,545,185

Total Novasys Medical, Inc.						7,545,185		7,545,185

Power Medical Interventions, Inc. (0.01%)	Therapeutic	Common Stock Warrants				20,687		24,889

Total Power Medical Interventions, Inc.						20,687		24,889

Total Therapeutic (4.12%)						16,043,662		16,056,653

Hedgestreet, Inc. (0.73%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt Matures March 2009
	Internet Consumer & Business Services	Senior Debt Matures March 2009
		Interest rate 11.30%	$	2,843,477		2,819,712		2,819,712
		Preferred Stock Warrants				54,956		—

Total Hedgestreet, Inc.						2,874,668		2,819,712
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		2,160,369		2,160,369
		Preferred Stock Warrants				55,864		36,778

Total Invoke Solutions, Inc.						2,216,233		2,197,147
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		1,961,315		1,961,315
		Preferred Stock Warrants				42,757		36,860

Total Prism Education Group Inc.						2,004,072		1,998,175
RazorGator Interactive Group, Inc. (0.57%)⁽⁴⁾	Internet Consumer & Business Services	Senior Debt Matures January 2008
	Internet Consumer & Business Services	Senior Debt Matures January 2008
		Interest rate 9.95%	$	1,651,876		1,650,789		1,650,789
		Preferred Stock Warrants				13,050		541,917
		Preferred Stock Warrants				28,478		21,930
RazorGator Interactive Group, Inc. (0.44%)		Preferred Stock				1,000,000		1,708,178

Total RazorGator Interactive Group, Inc.						2,692,317		3,922,814

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Serious USA, Inc. (0.68%)	Internet Consumer & Business Services	Senior Debt Matures February 2011
		Interest rate Prime + 3.00%	$	2,000,000	$	1,913,213	$	1,913,213
		Revolving Line of Credit
		Matures July 2008
		Interest rate Prime + 2.00%	$	654,253		654,253		654,253
		Preferred Stock Warrants				93,463		87,687

Total Serious USA, Inc.						2,660,929		2,655,153

Total Internet Consumer & Business Services (3.49%)						12,448,219		13,593,001

Lilliputian Systems, Inc. (2.02%)⁽⁴⁾	Energy	Senior Debt
		Matures March 2010
		Interest rate 9.75%	$	7,850,795		7,822,688		7,822,688
		Preferred Stock Warrants				48,460		28,903

Total Lilliputian Systems, Inc.						7,871,148		7,851,591

Total Energy (2.02%)						7,871,148		7,851,591

Active Response Group, Inc. (2.57%)	Information Services	Senior Debt
		Matures March 2012
		Interest rate LIBOR + 6.55%	$	10,000,000		9,877,954		9,877,954
		Preferred Stock Warrants				92,080		90,622
		Common Stock Warrants				46,084		58,408

Total Active Response Group, Inc.						10,016,118		10,026,984
Buzznet, Inc. (0.29%)	Information Services	Senior Debt
		Matures March 2010
		Interest rate 10.25%	$	1,000,000		993,062		993,062
		Preferred Stock Warrants				8,613		144,602

Total Buzznet, Inc.						1,001,675		1,137,664
Solutionary, Inc. (1.67%)	Information Services	Senior Debt
		Matures June 2010
		Interest rate LIBOR + 5.50%	$	5,500,000		5,420,988		5,420,988
		Revolving Line of Credit
		Matures June 2010
		Interest rate LIBOR + 5.00%	$	1,000,000		1,000,000		1,000,000
		Preferred Stock Warrants				93,827		81,233
Solutionary, Inc. (0.07%)		Preferred Stock				250,000		250,000

Total Solutionary, Inc.						6,764,815		6,752,221
Wallop Technologies, Inc. (0.06%)	Information Services	Senior Debt
		Matures March 2010
		Interest rate 10.00%	$	237,207		231,187		231,187
		Preferred Stock Warrants				7,473		6,449

Total Wallop Technologies, Inc.						238,660		237,636

Total Information Services (4.66%)						18,021,268		18,154,505


Novadaq Technologies, Inc. (0.35%)	Diagnostic	Common Stock				1,735,157		1,378,533

Total Novadaq Technologies, Inc.						1,735,157		1,378,533
Optiscan Biomedical, Corp. (0.11%)⁽⁴⁾	Diagnostic	Senior Debt
		Matures March 2008
		Interest rate 15.00%	$	412,161		396,583		396,583
		Preferred Stock Warrants				80,486		44,850
Optiscan Biomedical, Corp. (0.26%)		Preferred Stock				1,000,000		1,000,000

Total Optiscan Biomedical, Corp.						1,477,069		1,441,433

Total Diagnostic (0.72%)						3,212,226		2,819,966

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED SCHEDULE OF INVESTMENTS

September 30, 2007

(continued)


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁶⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Guava Technologies, Inc. (1.57%)⁽⁴⁾	Biotechnology Tools	Senior Debt
		Matures July 2009
		Interest rate Prime + 3.25%	$	4,075,930	$	4,010,549	$	4,010,549
		Convertible Debt				250,000		250,000
		Revolving Line of Credit
		Matures December 2007
		Interest rate Prime + 2.00%	$	1,778,000		1,778,000		1,778,000
		Preferred Stock Warrants				122,109		77,970

Total Guava Technologies, Inc.						6,160,658		6,116,519
NuGEN Technologies, Inc. (0.51%)	Biotechnology Tools	Senior Debt
		Matures March 2010
		Interest rate 11.70%	$	2,000,000		1,962,637		1,962,637
		Preferred Stock Warrants				44,837		38,819

Total NuGEN Technologies, Inc.						2,007,474		2,001,456

Total Biotechnology Tools (2.08%)						8,168,132		8,117,975

Rubicon Technology Inc. (1.57%) ⁽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		5,029,435		5,029,435
		Revolving Line of Credit
		Matures April 2008
		Interest rate Prime + 0.25%	$	1,000,000		1,000,000		1,000,000
		Preferred Stock Warrants				81,708		69,530

Total Rubicon Technology Inc.						6,111,143		6,098,965

Total Advanced Specialty Materials & Chemicals (1.57%)						6,111,143		6,098,965


Crux Biomedical, Inc. (0.06%)	Surgical Devices	Preferred Stock				250,000		250,000

Total Crux Biomedical, Inc.						250,000		250,000

Diomed Holdings, Inc. (1.54%)	Surgical Devices	Senior Debt
		Matures July 2010
		Interest rate Prime + 3.00%	$	6,000,000		5,957,955		5,957,955
		Preferred Stock Warrants				43,319		43,932

Total Diomed Holdings, Inc.						6,001,274		6,001,887

Total Surgical Devices (1.60%)						6,251,274		6,251,887

Waterfront Media Inc. (1.64%) ⁽⁴⁾	Media/Content/Info	Senior Debt
		Matures December 2010
		Interest rate Prime + 3.00%	$	4,000,000		3,951,938		3,951,938
		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		447,157
Waterfront Media Inc. (0.26%)		Preferred Stock				999,999		999,999

Total Waterfront Media Inc.						7,011,600		7,399,094

Total Media/Content/Info (1.90%)						7,011,600		7,399,094

Total Investments (106.66%)					$	412,824,423	$	415,592,166

*	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 for federal income tax purposes totaled $6,791,040, $5,906,194 and $884,846, respectively.

(3)

Except for warrants in six publicly traded companies and common stock in two publicly traded companies, all investments are restricted at September 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 $590,000 at September 30, 2007 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at September 30, 2007. See Note 3—“Borrowings.”

(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.

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


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
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


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
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 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 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 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
		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 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 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 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 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
Simpler Networks Corp. (2.20%)⁽⁴⁾	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


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
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

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

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
	Internet Consumer & Business Services	Senior Debt
		Matures March 2009
		Interest rate 11.30%	$	4,263,806		4,226,674		4,226,674
		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
	Internet Consumer & Business Services	Senior Debt
		Matures December 2008
		Interest rate 11.25%	$	2,466,574		2,438,574		2,438,574
		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


Portfolio Company	Industry	Type of Investment⁽¹⁾⁽⁷⁾	Principal Amount		Cost⁽²⁾		Value⁽³⁾
Cornice, Inc. (1.44%)⁽⁴⁾	Electronics & Computer Hardware	Senior Debt
	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
	Electronics & Computer Hardware	Senior Debt
		Matures August 2009
		Interest rate 12.50%	$	15,000,000		14,765,514		14,765,514
		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
		Matures October 2009
		Interest rate 10.75%	$	3,000,000	$	2,978,373	$	2,978,373
		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
		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
		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 for federal income tax purposes totaled $3,036,621, $1,632,232 and $1,404,389, 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 September 30,						Nine Months Ended September 30,
	2007			2006			2007			2006
Investment income:
Interest	$	13,568,843		$	6,697,291		$	34,396,381		$	18,507,661
Fees		1,571,826			846,741			3,697,996			2,311,415

Total investment income		15,140,669			7,544,032			38,094,377			20,819,076
Operating expenses:
Interest		553,466			1,420,140			3,002,716			4,455,015
Loan fees		418,660			149,677			935,080			687,158
General and administrative		1,420,055			1,436,467			4,442,223			4,040,445
Employee Compensation:
Compensation and benefits		2,404,072			1,244,993			6,358,397			3,577,313
Stock-based compensation		295,349			175,600			841,804			428,600
Amortization of restricted stock awards		5,012			—			5,012			—

Total employee compensation		2,704,433			1,420,593			7,205,213			4,005,913

Total operating expenses		5,096,614			4,426,877			15,585,232			13,188,531
Net investment income before provision for income taxes and investment gains and losses		10,044,055			3,117,155			22,509,145			7,630,545
Provision (benefit) for income taxes		—			(345,089	)		—			643,088

Net investment income		10,044,055			3,462,244			22,509,145			6,987,457
Net realized gain (loss) on investments		49,046			(2,482,465	)		3,119			(2,570,705	)
Net increase (decrease) in unrealized appreciation on investments		(2,914,983	)		592,860			(733,296	)		3,027,251

Net realized and unrealized gain (loss)		(2,865,937	)		(1,889,605	)		(730,177	)		456,546

Net increase in net assets resulting from operations	$	7,178,118		$	1,572,639		$	21,778,968		$	7,444,003

Net investment income before provision for income taxes and investment gains and losses per common share:
Basic	$	0.31		$	0.23		$	0.84		$	0.63

Diluted	$	0.31		$	0.23		$	0.83		$	0.62

Change in net assets per common share:
Basic	$	0.22		$	0.12		$	0.81		$	0.61

Diluted	$	0.22		$	0.11		$	0.81		$	0.61

Weighted average shares outstanding
Basic		32,427,000			13,661,000			26,864,000			12,158,000

Diluted		32,526,000			13,779,000			26,992,000			12,277,000

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		Deferred Stock Compensation			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		Deferred Stock Compensation			Unrealized Appreciation 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 stockholders’ equity resulting from operations		—		—		—		—			3,027,251			(2,570,705	)		6,987,457			7,444,003
Issuance of common shares		444,150		444		5,133,431		—			—			—			—			5,133,875
Issuance of common shares in Rights Offering, net of offering costs		3,411,992		3,412		33,825,908		—			—			—			—			33,829,320
Issuance of common stock under dividend reinvestment plan		18,211		18		211,777		—			—			—			—			211,795
Dividends declared		—		—		—		—			—			—			(10,105,104	)		(10,105,104	)
Stock-based compensation		—		—		428,600		—			—			—			—			428,600

Balance at September 30, 2006		13,676,318	$	13,676	$	154,124,549	$	—		$	3,380,344		$	(2,089,011	)	$	(4,134,739	)	$	151,294,819

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		—		—		—		—			(733,296	)		3,119			22,509,145			21,778,968
Issuance of common stock		25,001		25		348,576		—			—			—			—			348,601
Issuance of common stock in public offerings, net of offering costs		10,040,000		10,040		128,405,130		—			—			—			—			128,415,170
Issuance of common stock from warrant exercises		290,594		290		3,071,289		—			—			—			—			3,071,579
Issuance of common stock under dividend reinvestment plan		250,116		250		3,304,331		—			—			—			—			3,304,581
Issuance of common stock under restricted stock plan		6,668		7		90,211		(90,218	)		—			—			—			—
Dividends declared		—		—		—		—			—			—			(23,550,856	)		(23,550,856	)
Stock-based compensation		—		—		841,804		5,012			—			—			—			846,816

Balance at September 30, 2007	$	32,539,413	$	32,539	$	393,296,070	$	(85,206	)	$	2,127,358		$	(1,968,895	)	$	(3,774,185	)	$	389,627,681

See notes to consolidated financial statements (unaudited).

HERCULES TECHNOLOGY GROWTH CAPITAL, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(unaudited)


	Nine Months Ended September 30,
	2007			2006
Cash flows from operating activities:
Net increase in net assets resulting from operations	$	21,778,968		$	7,444,003
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Purchase of investments		(219,307,006	)		(133,021,298	)
Principal payments received on investments		86,617,040			70,758,413
Proceeds from sale of investments		1,645,588			3,683,388
Net unrealized appreciation on investments		519,531			(3,216,279	)
Net unrealized appreciation on investments due to lender		213,765			247,838
Net realized loss on investments		(3,119	)		2,579,481
Accretion of loan discounts		(1,743,561	)		(1,189,178	)
Accretion of loan exit fees		(1,127,443	)		(468,405	)
Depreciation		152,074			32,959
Stock-based compensation		841,804			562,475
Common stock issued in lieu of Director compensation		348,601			—
Amortization of deferred loan origination revenue		(2,138,979	)		(1,970,143	)
Change in operating assets and liabilities:
Interest receivable		(1,577,797	)		(269,196	)
Prepaid expenses and other assets		1,769,357			(42,654	)
Income tax receivable		29,294			(878,512	)
Deferred tax asset		—			1,454,000
Accounts payable		(248,813	)		227,881
Income tax payable		—			(1,709,000	)
Accrued liabilities		(274,437	)		1,492,746
Deferred loan origination revenue		3,760,937			2,807,465

Net cash used in operating activities		(108,744,196	)		(51,474,016	)
Cash flows from investing activities:
Purchases of capital equipment		(146,304	)		(315,336	)
Other long-term assets		(1,397,619	)		(381,124	)

Net cash used in investing activities		(1,543,923	)		(696,460	)
Cash flows from financing activities:
Proceeds from issuance of common stock, net		131,491,761			38,829,320
Dividends paid		(20,246,275	)		(9,893,309	)
Borrowings of credit facilities		148,250,000			40,000,000
Repayments of credit facilities		(137,300,000	)		(25,000,000	)
Fees paid for credit facilities and debentures		(2,125,938	)		—

Net cash provided by financing activities		120,069,548			43,936,011

Net increase (decrease) in cash		9,781,429			(8,234,465	)
Cash and cash equivalents at beginning of period		16,404,214			15,362,447

Cash and cash equivalents at end of period	$	26,185,643		$	7,127,982

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 from seed and emerging growth to expansion and established stages of development, including expanding into select publicly listed companies and lower middle market companies. 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 4).

In January 2005, the Company formed Hercules Technology II, L.P. (“HT II”) and Hercules Technology SBIC Management, LLC (HTM). On September 27, 2006, HT II was licensed to operate as a Small Business Investment Company (“SBIC”) under the authority of the Small Business Administration (“SBA”). As an SBIC, the Fund is subject to a variety of regulations concerning, among other things, the size and nature of the companies in which it may invest and the structure of those investments. HTM is a wholly-owned subsidiary of the Company. The Company is the sole limited partner of HT II and HTM is the general partner. (see Note 3).

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 3).

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 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. 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 September 30, 2007, approximately 93% 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 initial 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 September 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 September 30, 2007 and December 31, 2006 at fair value is shown as follows:


	September 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	$	387.8	93.3	%	$	273.2	96.5	%
Preferred stock		12.7	3.1	%		8.1	2.8	%
Senior debt-second lien with warrants		12.3	2.9	%		—	0.0	%
Common Stock		2.8	0.7	%		—	0.0	%
Subordinated debt with warrants		—	0.0	%		1.9	0.7	%

	$	415.6	100.0	%	$	283.2	100.0	%

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


	September 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	$	410.0	98.7	%	$	269.0	95.0	%
Canada		3.6	0.9	%		10.5	3.7	%
Israel		2.0	0.4	%		3.7	1.3	%

	$	415.6	100.0	%	$	283.2	100.0	%

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


	September 30, 2007				December 31, 2006
($ in millions)	Investments at Fair Value		Percentage of Total Portfolio		Investments at Fair Value		Percentage of Total Portfolio
Drug discovery	$	90.1	21.7	%	$	75.0	26.5	%
Communications & networking		87.9	21.2	%		19.5	6.9	%
Software		36.7	8.8	%		40.4	14.3	%
Specialty pharmaceuticals		35.8	8.6	%		18.0	6.4	%
Electronics & computer hardware		32.4	7.8	%		30.6	10.8	%
Semiconductors		25.9	6.2	%		15.9	5.6	%
Information services		18.2	4.4	%		—	0.0	%
Therapeutic		16.1	3.9	%		13.4	4.7	%
Internet consumer & business services		13.6	3.3	%		11.7	4.1	%
Drug delivery		12.2	2.9	%		16.6	5.9	%
Consumer & business products		8.2	2.0	%		21.9	7.7	%
Biotechnology tools		8.1	1.9	%		5.8	2.0	%
Energy		7.8	1.9	%		8.5	3.0	%
Media/Content/Info		7.4	1.8	%		—	0.0	%
Surgical Devices		6.2	1.5	%		—	0.0	%
Advanced Specialty Materials & Chemicals		6.1	1.4	%		—	0.0	%
Diagnostic		2.9	0.7	%		5.9	2.1	%

	$	415.6	100.0	%	$	283.2	100.0	%

During the three and nine-month periods ended September 30, 2007, the Company made investments in debt securities totaling $35.2 million and $213.0 million, respectively. In addition, during the three and nine-month periods ended September 30, 2007, the Company made investments in equity securities of approximately $3.2 million and $6.0 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 an adjustment to the loan yield. The Company had approximately $5.1 million and $3.5 million of unamortized fees at September 30, 2007 and December 31, 2006, respectively, and approximately $1.9 million and $1.0 million in exit fees receivable at September 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 three and nine-month periods ended September 30, 2007, approximately $134,000 and $209,000 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 September 30, 2007, approximately 29 portfolio company loans were secured by a first priority security in all of the assets of the portfolio company and 41 portfolio company loans were prohibited from pledging or encumbering their intellectual property. See “Part II—Item 1A—Risk Factors.”

3. 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 $250.0 million and included Deutsche Bank Securities Inc. as a participant in the Credit Facility 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 nine months ended September 30, 2007, the Company recorded an additional liability and reduced its unrealized gains by approximately $214,000 to account 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 $590,000 at September 30, 2007 and is included in accrued liabilities and reduces the unrealized gain recognized by the Company at September 30, 2007. Since inception of the agreement, the Company has paid Citigroup approximately $367,000 under the warrant participation agreement, thereby reducing its realized gains by that amount.

At September 30, 2007, the Company, through its special purpose entity (SPE), had transferred pools of loans and warrants with a fair value of approximately $220.7 million to Hercules Funding Trust I and had drawn $32.2 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 investments and the related liability recorded in borrowings. The average debt outstanding under the Credit Facility for the three and nine-month periods ended September 30, 2007 was approximately $20.8 and $52.8 million, respectively, and the average interest rates were approximately 6.69% and 6.49% respectively.

In January 2005, the Company formed HT II and HTM. HT II is licensed as a SBIC. HT II borrows funds from the SBA against eligible investments and additional deposits to regulatory capital. Under the Small Business Investment Act and current SBA policy applicable to SBICs, an SBIC can have outstanding at any time SBA guaranteed debentures up to twice the amount of its Regulatory Capital. As of September 30, 2007, the maximum statutory limit on the dollar amount of outstanding SBA guaranteed debentures issued by a single SBIC is $127.2 million, subject to periodic adjustments by the

SBA. With $63.6 million of Regulatory Capital as of September 30, 2007, HT II has the current capacity to issue up to a total of $127.2 million of SBA guaranteed debentures, subject to the payment of a 1% commitment fee to the SBA on the amount of the commitment. Currently, HT II has paid commitment fees of approximately $1.3 million and has a commitment from the SBA to issue a total of $127.2 million of SBA guaranteed debentures, of which $19.8 million was outstanding as of September 30, 2007. There is no assurance that HT II will draw up to the maximum limit available under the SBIC program.

SBICs are designed to stimulate the flow of private equity capital to eligible small businesses. Under present SBA 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, SBICs must devote 20% of its investment activity to “smaller” concerns as defined by the SBA. 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. SBA 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 SBA regulations, SBICs 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 HT II, the Company plans to provide long-term loans to qualifying small businesses, and in connection therewith, make equity investments.

HT II is periodically examined and audited by the SBA’s staff to determine its compliance with SBIC regulations. As of September 30, 2007, HT II could draw up to $127.2 million of leverage from the SBA. On April 26, 2007, HT II drew down its first borrowing of $12.0 million under the program and drew an additional $7.8 million on September 26, 2007. Borrowings under the program are charged interest based on ten year treasury rates plus a spread and the rates are generally set for a pool of debentures issued by the SBA in six month periods. The rate for the borrowing originated from March 13, 2007 to September 10, 2007 was set by the SBA as announced on September 26, 2007 at 5.528%. The rate for borrowings made after September 10, 2007 through March 13, 2008 are based on LIBOR plus a spread of 0.30% until the next interest rate set by the SBA occurs. In addition, the SBA charges an annual fee that is set annually, depending on the Federal fiscal year the leverage commitment was delegated by the SBA, regardless of the date that the leverage was drawn by the SBIC. The current annual fee is set at 0.906%. Interest payments are payable semi-annually and there are no principal payments required on these issues prior to maturity.

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


	September 30, 2007				December 31, 2006
($ in thousands)	Facility Amount		Amount Outstanding		Facility Amount		Amount Outstanding
Credit Facility	$	250,000	$	32,200	$	150,000	$	41,000
SBA Debenture		127,200		19,750		—		—

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