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, 2019

or

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

For the transition period from  ______________ to ______________

Commission file number: 814-00967

WHITEHORSE FINANCE, INC.

(Exact Name of Registrant as Specified in its Charter)

Delaware	45-4247759
(State or Other Jurisdiction of	(I.R.S. Employer
Incorporation or Organization)	Identification No.)

1450 Brickell Avenue, 31st Floor Miami, Florida	33131
(Address of Principal Executive Offices)	(Zip Code)

(305) 381-6999

(Registrant’s Telephone Number, Including Area Code)

Securities registered pursuant to Section 12(b) of the Act: 

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Common Stock, par value $0.001 per share	WHF	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)
6.50% Notes due 2025	WHFBZ	The Nasdaq Stock Market LLC (Nasdaq Global Select Market)

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 period that 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 has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).      Yes   ¨   No   ¨ 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”, “accelerated filer”, “smaller reporting company”, and “emerging growth company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer	¨	Accelerated filer	x
Non-accelerated filer	¨	Smaller reporting company	¨
		Emerging growth company	¨

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.  ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Securities Exchange Act of 1934).     Yes   ¨  No   x 

As of November 12, 2019 the Registrant had 20,546,032 shares of common stock, $0.001 par value, outstanding.

WHITEHORSE FINANCE, INC.

TABLE OF CONTENTS

		Page
Part I.	Financial Information	3
Item 1.	Financial Statements	3
	Consolidated Statements of Assets and Liabilities as of September 30, 2019 (Unaudited) and December 31, 2018	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2019 (Unaudited) and 2018 (Unaudited)	4
	Consolidated Statements of Changes in Net Assets for the three and nine months ended September 30, 2019 (Unaudited) and 2018 (Unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2019 (Unaudited) and 2018 (Unaudited)	7
	Consolidated Schedules of Investments as of September 30, 2019 (Unaudited) and December 31, 2018	8
	Notes to the Consolidated Financial Statements (Unaudited)	17
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	41
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	55
Item 4.	Controls and Procedures	55
Part II.	Other Information	56
Item 1.	Legal Proceedings	56
Item 1A.	Risk Factors	56
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	58
Item 3.	Defaults Upon Senior Securities	58
Item 4.	Mine Safety Disclosures	58
Item 5.	Other Information	58
Item 6.	Exhibits	58

2

Part I. Financial Information

Item 1. Financial Statements 

WhiteHorse Finance, Inc.

Consolidated Statements of Assets and Liabilities

(in thousands, except share and per share data)

	September  30, 2019		December 31, 2018
	(Unaudited)
Assets
Investments, at fair value
Non-controlled/non-affiliate company investments	$	493,460	$	459,399
Non-controlled affiliate company investments		9,673		10,165
Controlled affiliate company investments		24,410		-
Total investments, at fair value (amortized cost $535,213 and $477,839, respectively)		527,543		469,564
Cash and cash equivalents		9,827		24,148
Restricted cash and cash equivalents		12,335		9,584
Interest receivable		6,952		4,616
Amounts receivable on unsettled investment transactions		9,219		5,608
Prepaid expenses and other receivables		158		575
Total assets	$	566,034	$	514,095
Liabilities
Debt	$	231,966	$	175,953
Management and incentive fees payable		7,717		11,193
Distributions payable		7,294		7,294
Amounts payable on unsettled investment transactions		-		445
Accounts payable and accrued expenses		2,417		2,322
Interest payable		1,067		1,562
Advances received from unfunded credit facilities		79		30
Total liabilities		250,540		198,799
Commitments and contingencies (See Note 7)
Net assets
Common stock 20,546,032 and 20,546,032 shares issued and outstanding, par value $0.001 per share, respectively, and 100,000,000 authorized		21		21
Paid-in capital in excess of par		301,557		301,557
Accumulated undistributed earnings		13,916		13,718
Total net assets		315,494		315,296
Total liabilities and total net assets	$	566,034	$	514,095
Number of shares outstanding		20,546,032		20,546,032
Net asset value per share	$	15.36	$	15.35

See notes to the consolidated financial statements

3

WhiteHorse Finance, Inc.

Consolidated Statements of Operations (Unaudited)

(in thousands, except share and per share data)

	Three months ended September 30,						Nine months ended September 30,
	2019			2018			2019			2018
Investment income
From non-controlled/non-affiliate company investments
Interest income	$	14,865		$	13,843		$	42,104		$	40,871
Fee income		2,246			875			6,328			3,855
From non-controlled affiliate company investments
Dividend income		301			600			888			1,851
From controlled affiliate company investments
Interest income		343			-			343			-
Total investment income		17,755			15,318			49,663			46,577
Expenses
Interest expense		3,495			3,283			9,744			8,649
Base management fees		2,834			2,761			8,240			7,813
Performance-based incentive fees		1,714			4,865			5,520			10,900
Administrative service fees		159			175			475			525
General and administrative expenses		660			572			1,875			1,843
Total expenses, before fees waived		8,862			11,656			25,854			29,730
Base management fees waived		-			(115	)		(397	)		(115	)
Total expenses, net of fees waived		8,862			11,541			25,457			29,615
Net investment income before excise tax		8,893			3,777			24,206			16,962
Excise tax		238			-			712			-
Net investment income after excise tax		8,655			3,777			23,494			16,962
Realized and unrealized gains (losses) on investments
Net realized gains (losses)
Non-controlled/non-affiliate company investments		(2	)		17			(2,020	)		90
Net realized gains (losses)		(2	)		17			(2,020	)		90
Net change in unrealized appreciation (depreciation)
Non-controlled/non-affiliate company investments		(1,882	)		(1,164	)		1,042			(2,125	)
Non-controlled affiliate company investments		28			16,832			(492	)		37,442
Controlled affiliate company investments		56			-			56			-
Net change in unrealized appreciation (depreciation)		(1,798	)		15,668			606			35,317
Net realized and unrealized gains on investments		(1,800	)		15,685			(1,414	)		35,407
Net increase in net assets resulting from operations	$	6,855		$	19,462		$	22,080		$	52,369
Per Common Share Data
Basic and diluted earnings per common share	$	0.34		$	0.95		$	1.08		$	2.55
Dividends and distributions declared per common share	$	0.36		$	0.36		$	1.07		$	1.07
Basic and diluted weighted average common shares outstanding		20,546,032			20,545,726			20,546,032			20,536,591

See notes to the consolidated financial statements

4

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

(in thousands, except share and per share data)

	Common Stock				Paid-in Capital in Excess of		Accumulated Undistributed (Overdistributed)			Total Net
	Shares		Par amount		Par		Earnings			Assets
Balance at June 30, 2018		20,531,948		20		302,292		(2,969	)		305,281
Stock issued in connection with distribution reinvestment plan		14,084		1		206		-			207
Net increase in net assets resulting from operations:
Net investment income after excise tax		-		-		-		3,777			3,777
Net realized gains (losses) on investments		-		-		-		17			17
Net change in unrealized appreciation (depreciation) on investments		-		-		-		15,668			15,668
Distributions declared		-		-		-		(7,296	)		(7,296	)
Tax reclassification of stockholders’ equity		-		-		-		-			-
Balance at September 30, 2018		20,546,032		21		302,498		15,135			317,654
Balance at June 30, 2019		20,546,032		21		301,557		14,354			315,932
Net increase in net assets resulting from operations:
Net investment income after excise tax		-		-		-		8,655			8,655
Net realized gains (losses) on investments		-		-		-		(2	)		(2	)
Net change in unrealized appreciation (depreciation) on investments		-		-		-		(1,798	)		(1,798	)
Distributions declared		-		-		-		(7,293	)		(7,293	)
Tax reclassification of stockholders’ equity		-		-		-		-			-
Balance at September 30, 2019		20,546,032		21		301,557		13,916			315,494

See notes to the consolidated financial statements

5

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited) - continued

(in thousands, except share and per share data)

	Common Stock				Paid-in Capital in Excess of		Accumulated Undistributed (Overdistributed)			Total Net
	Shares		Par amount		Par		Earnings			Assets
Balance at December 31, 2017		20,531,948	$	20	$	302,292	$	(15,360	)	$	286,952
Stock issued in connection with distribution reinvestment plan		14,084		1		206		-			207
Net increase in net assets resulting from operations:
Net investment income after excise tax		-		-		-		16,962			16,962
Net realized gains (losses) on investments		-		-		-		90			90
Net change in unrealized appreciation (depreciation) on investments		-		-		-		35,317			35,317
Distributions declared		-		-		-		(21,874	)		(21,874	)
Tax reclassification of stockholders’ equity		-		-		-		-			-
Balance at September 30, 2018		20,546,032		21		302,498	$	15,135			317,654
Balance at December 31, 2018		20,546,032	$	21	$	301,557	$	13,718		$	315,296
Net increase in net assets resulting from operations:
Net investment income after excise tax		-		-		-		23,494			23,494
Net realized gains (losses) on investments		-		-		-		(2,020	)		(2,020	)
Net change in unrealized appreciation (depreciation) on investments		-		-		-		606			606
Distributions declared		-		-		-		(21,882	)		(21,882	)
Tax reclassification of stockholders’ equity		-		-		-		-			-
Balance at September 30, 2019		20,546,032	$	21	$	301,557	$	13,916			315,494

See notes to the consolidated financial statements

6

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Nine months ended September 30,
	2019			2018
Cash flows from operating activities
Net increase in net assets resulting from operations	$	22,080			52,369
Adjustments to reconcile net increase in net assets resulting from operations to net cash used in operating activities:
Paid-in-kind income		(1,922	)		(460	)
Net realized (gains) losses on investments		2,020			(90	)
Net unrealized appreciation on investments		(606	)		(35,317	)
Accretion of discount		(3,346	)		(3,503	)
Amortization of deferred financing costs		746			933
Acquisition of investments		(207,756	)		(209,790	)
Proceeds from principal payments and sales of portfolio investments		153,630			180,220
Net changes in operating assets and liabilities:
Interest receivable		(1,344	)		441	)
Prepaid expenses and other receivables		417			(336	)
Amounts receivable on unsettled investment transactions		(4,603	)		184	)
Amounts payable on unsettled investment transactions		(445	)		7,780
Management and incentive fees payable		(3,476	)		3,876
Accounts payable and accrued expenses		95			41
Interest payable		(495	)		372
Advances received from unfunded credit facilities		49			(50	)
Net cash used in operating activities		(44,956	)		(3,330	)
Cash flows from financing activities
Borrowings		107,400			130,400
Repayments of debt		(52,100	)		(116,900	)
Deferred financing costs		(32	)		(847	)
Distributions paid to common stockholders, net of distributions reinvested		(21,882	)		(21,662	)
Net cash provided by (used in) financing activities		33,386			(9,009	)
Net change in cash, cash equivalents and restricted cash		(11,570	)		(12,339	)
Cash, cash equivalents and restricted cash at beginning of period		33,732			38,936
Cash, cash equivalents and restricted cash at end of period	$	22,162			26,597
Supplemental disclosure of cash flow information:
Interest paid	$	9,492			7,344
Non-cash exchanges of investments		24,355			-

The following table provides a reconciliation of cash, cash equivalents and restricted cash reported within the consolidated statements of assets and liabilities that sum to the total of the same amounts presented in the consolidated statements of cash flows:

	September 30,
	2019		2018
Cash and cash equivalents	$	9,827		11,481
Restricted cash		12,335		15,116
Total cash, cash equivalents and restricted cash presented in consolidated statements of cash flows	$	22,162		26,597

See notes to the consolidated financial statements

7

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2019

(in thousands)

Investment Type(1)	Spread Above Index(2)	Interest Rate(3)	Acquisition Date(10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value(11)			Fair Value As A Percentage of Net Assets
North America
Debt Investments
Advertising
Fluent, LLC
First Lien Secured Term Loan	L+ 7.00%	9.04%	03/26/18	03/27/23		9,727	$	9,727	$	9,727			3.08	%
	(0.50% Floor)
Air Freight & Logistics
Access USA Shipping, LLC
First Lien Secured Term Loan	L+ 8.00%	10.04%	02/08/19	02/08/24		5,724		5,649		5,673			1.80
	(1.50% Floor)
Application Software
Newscycle Solutions, Inc.
First Lien Secured Term Loan	L+ 7.00%	9.04%	06/14/19	12/29/22		5,330		5,233		5,224			1.66
	(1.00% Floor)
First Lien Secured Revolving Loan(7)	L+ 7.00%	9.06%	06/14/19	12/29/22		241		238		237			0.08
	(1.00% Floor)
						5,571		5,471		5,461			1.74
Automotive Retail
Team Car Care Holdings, LLC
First Lien Secured Term Loan(12)	base rate+ 7.99%	10.32%	02/26/18	02/23/23		16,837		16,580		16,837			5.34
	(1.00% Floor)
Broadcasting
Alpha Media, LLC
First Lien Secured Term Loan	L+ 6.00%	8.15%	08/14/18	02/25/22		5,629		5,506		5,623			1.78
	(1.00% Floor)
Multicultural Radio Broadcasting, Inc.
First Lien Secured Term Loan	L+ 8.00%	10.04%	12/28/17	12/28/22		16,588		16,373		16,588			5.26
	(1.00% Floor)
Rural Media Group, Inc.
First Lien Secured Term Loan	L+ 7.71%	9.97%	12/29/17	12/29/22		7,133		7,043		7,048			2.23
	(1.00% Floor)
						29,350		28,922		29,259			9.27
Cable & Satellite
Bulk Midco, LLC
First Lien Secured Term Loan	L+ 7.31%	9.68%	06/08/18	06/08/23		15,000		14,834		13,950			4.42
	(1.00% Floor)
Communications Equipment
Sorenson Communications, LLC
First Lien Secured Term Loan	L+ 6.50%	8.60%	03/15/19	03/15/24		5,119		4,978		5,100			1.62
	(0.00% Floor)
Construction & Engineering
SFP Holding, Inc.
First Lien Secured Term Loan	L+ 6.25%	8.35%	07/26/19	09/01/22		6,172		6,172		6,172			1.96
	(1.00% Floor)
First Lien Secured Delayed Draw Loan(7)	L+ 6.25%	8.45%	07/26/19	09/01/22		2,637		2,637		2,637			0.84
	(6.25% Floor)
First Lien Secured Revolving Loan(7)	L+ 6.25%	8.41%	07/26/19	09/01/22		193		193		193			0.06
						9,002		9,002		9,002			2.86
Data Processing & Outsourced Services
FPT Operating Company, LLC/
TLabs Operating Company, LLC
First Lien Secured Term Loan	L+ 8.25%	10.35%	06/07/19	06/07/24		25,063		24,825		24,437			7.75
	(1.00% Floor)
Department Stores
Mills Fleet Farm Group, LLC
First Lien Secured Term Loan	L+ 7.00%	9.04%	10/24/18	10/24/24		14,888		14,635		14,186			4.50
	(1.00% Floor)	(0.75% PIK)
Distributors
Crown Brands, LLC
First Lien Secured Term Loan	L+ 8.00%	10.04%	01/28/19	01/25/24		5,801		5,676		5,669			1.80
	(1.50% Floor)
First Lien Secured Delayed Draw Loan(7)	L+ 8.00%	10.04%	01/28/19	01/25/24		-		-		(1	)		-
	(1.50% Floor)
						5,801		5,676		5,668			1.80
Diversified Support Services
ImageOne Industries, LLC
First Lien Secured Term Loan	L+ 10.00%	12.04%	01/11/18	01/11/23		7,183		7,019		6,824			2.16
	(1.00% Floor)	(4.00% PIK)
First Lien Secured Revolving Loan(4)(12)	L+ 5.75%	9.33%	07/22/19	12/12/22		787		787		787			0.25
NNA Services, LLC
First Lien Secured Term Loan	L+ 7.00%	9.10%	10/16/18	10/16/23		9,954		9,793		9,894			3.14
	(1.50% Floor)
						17,924		17,599		17,505			5.55

See notes to consolidated financial statements

8

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

September 30, 2019

(in thousands)

Investment Type(1)	Spread Above Index(2)	Interest Rate(3)	Acquisition Date(10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value(11)			Fair Value As A Percentage of Net Assets
Food Retail
AG Kings Holdings, Inc.
First Lien Secured Term Loan(8)	L+ 11.95%	14.05%	08/10/16	08/10/21		13,046	$	12,837	$	8,480			2.69	%
	(1.00% Floor)	(2.00%PIK)
Crews of California, Inc.
First Lien Secured Term Loan	L+ 11.00%	13.04%	11/20/14	11/20/19		9,313		9,308		9,265			2.94
	(1.00% Floor)	(1.00%PIK)
First Lien Secured Revolving Loan	L+ 11.00%	13.04%	06/05/15	11/20/19		5,211		5,207		5,184			1.64
	(1.00% Floor)	(1.00%PIK)
First Lien Secured Delayed Draw Loan	L+ 11.00%	13.04%	03/27/15	11/20/19		2,675		2,673		2,661			0.84
	(1.00% Floor)	(1.00%PIK)
						30,245		30,025		25,590			8.11
Health Care Facilities
Grupo HIMA San Pablo, Inc.
First Lien Secured Term Loan A	L+ 9.00%	11.27%	05/15/19	04/30/19		3,855		3,855		3,276			1.04
	(1.50% Floor)
First Lien Secured Term Loan B	L+ 9.00%	11.27%	02/01/13	04/30/19		13,511		13,511		11,484			3.64
	(1.50% Floor)
Second Lien Secured Term Loan(8)	N/A	15.75%	02/01/13	07/31/18		1,028		1,024		-			-
		(2.00%PIK)
						18,394		18,390		14,760			4.68
Health Care Services
CHS Therapy, LLC
First Lien Secured Term Loan A	L+ 8.50%	10.63%	06/14/19	06/14/24		7,663		7,526		7,539			2.39
	(1.50% Floor)
PMA Holdco, LLC
First Lien Secured Term Loan	L+ 7.75%	9.85%	06/28/18	06/28/23		12,854		12,650		12,785			4.05
	(1.00% Floor)
						20,517		20,176		20,324			6.44
Home Furnishings
Sure Fit Home Products, LLC
First Lien Secured Term Loan	L+ 9.75%	11.86%	10/26/18	07/13/22		5,320		5,240		5,107			1.62
	(1.00% Floor)
Human Resources & Employment Services
Pluto Acquisition Topco, LLC
First Lien Secured Term Loan	L+ 6.56%	8.81%	01/31/19	01/31/24		12,417		12,202		12,304			3.90
	(1.50% Floor)
Internet & Direct Marketing Retail
Marlin DTC-LS Midco 2, LLC
First Lien Secured Term Loan	L+ 6.00%	8.04%	07/01/19	07/01/25		966		947		948			0.30
	(1.00% Floor)
First Lien Secured Revolving Loan(7)	L+ 6.00%	8.04%	07/01/19	07/01/25		-		-		-			-
	(1.00% Floor)
Potpourri Group, Inc.
First Lien Secured Term Loan	L+ 8.25%	10.35%	07/03/19	07/03/24		18,881		18,480		18,540			5.88
	(0.00% Floor)
						19,847		19,427		19,488			6.18
Internet Services & Infrastructure
London Trust Media Incorporated
First Lien Secured Term Loan	L+ 8.00%	10.26%	02/01/18	02/01/23		10,494		10,389		10,494			3.33
	(1.00% Floor)
StackPath, LLC & Highwinds Capital, Inc.
First Lien Secured Term Loan	L+ 9.50%	12.14%	04/03/19	02/02/24		15,533		15,314		14,368			4.55
	(1.00% Floor)	(12.39%PIK)
						26,027		25,703		24,862			7.88
Investment Banking & Brokerage
Arcole Acquisition Corp(5)
First Lien Secured Term Loan A	L+ 8.25%	10.37%	11/29/18	11/30/23		5,326		5,244		5,193			1.65
	(1.00% Floor)
First Lien Secured Term Loan B	L+ 14.50%	16.62%	11/29/18	11/30/23		1,821		1,794		1,803			0.58
	(1.00% Floor)	(1.50%PIK)
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)
First Lien Secured Term Loan	L+ 6.50%	8.54%	02/28/19	02/28/24		16,407		16,262		16,407			5.20
	(1.00% Floor)
						23,554		23,300		23,403			7.42
IT Consulting & Other Services
AST-Applications Software Technology LLC
First Lien Secured Term Loan	L+ 8.00%	10.04%	01/10/17	01/10/23		4,246		4,193		4,119			1.31
	(1.00% Floor)	(1.00%PIK)
Leisure Facilities
Honors Holdings, LLC
First Lien Secured Term Loan	L+ 6.88%	8.99%	09/06/19	09/06/24		9,405		9,257		9,254			2.93
	(0.00% Floor)
First Lien Secured Delayed Draw Loan(7)	L+ 6.88%	8.99%	09/06/19	09/06/24		-		-		(15	)		-
	(0.00% Floor)
Lift Brands, Inc.
First Lien Secured Term Loan	L+ 7.00%	9.10%	04/16/18	04/16/23		10,776		10,616		10,276			3.26
	(1.00% Floor)
First Lien Secured Revolving Loan(7)	L+ 6.00%	11.00%	04/16/18	04/16/23		203		200		176			0.06
	(1.00% Floor)
						20,384		20,073		19,691			6.25
Office Services & Supplies
Empire Office, Inc.
First Lien Secured Term Loan	L+ 6.75%	8.79%	04/12/19	04/12/24		12,383		12,158		12,186			3.86
	(1.50% Floor)
Other Diversified Financial Services
Sigue Corporation(4)
Second Lien Secured Term Loan(4)	L+ 12.00%	14.10%	12/27/13	04/30/20		24,904		24,903		24,655			7.81
	(1.00% Floor)

See notes to consolidated financial statements

9

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

September 30, 2019

(in thousands)

Investment Type(1)	Spread Above Index(2)	Interest Rate(3)	Acquisition Date(10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value(11)		Fair Value As A Percentage of Net Assets
Packaged Foods & Meats
Lenny & Larry's, LLC
First Lien Secured Term Loan	L+ 7.98%	10.01%	05/15/18	05/15/23		12,303	$	12,126	$	11,934		3.78	%
	(1.00% Floor)	(1.18%PIK)
Poultry Holdings, LLC
First Lien Secured Term Loan	L+ 5.75%	7.79%	06/28/19	06/28/25		7,827		7,677		7,670		2.43
	(1.00% Floor)
						20,130		19,803		19,604		6.21
Personal Products
Sunless, Inc.
First Lien Secured Term Loan	L+ 6.00%	8.05%	08/13/19	08/13/24		4,877		4,782		4,781		1.52
	(0.00% Floor)
First Lien Secured Revolving Loan(7)	L+ 6.00%	8.05%	08/13/19	08/13/24		-		-		-		-
	(0.00% Floor)
						4,877		4,782		4,781		1.52
Research & Consulting Services
Nelson Worldwide, LLC
First Lien Secured Term Loan	L+ 8.75%	11.09%	01/09/18	01/09/23		13,692		13,467		13,349		4.23
	(1.00% Floor)
Restaurants
LS GFG Holdings Inc.
First Lien Secured Term Loan	L+ 6.00%	8.04%	11/30/18	11/19/25		10,262		9,991		9,876		3.13
	(0.00% Floor)
Specialized Finance
Golden Pear Funding Assetco, LLC(5)
Second Lien Secured Term Loan	L+ 10.50%	12.60%	09/20/18	03/20/24		17,500		17,216		17,441		5.53
	(1.00% Floor)
Oasis Legal Finance, LLC(5)
Second Lien Secured Term Loan	L+ 10.75%	12.85%	09/09/16	03/09/22		20,000		19,822		20,000		6.34
	(1.00% Floor)
WHF STRS Ohio Senior Loan Fund LLC
Subordinated Note(4)(5)(7)(13)(14)	L+ 6.50%	8.59%	07/19/19	N/A		19,484		19,484		19,484		6.18
						56,984		56,522		56,925		18.05
Trading Companies & Distributors
Vessco Holdings, LLC
First Lien Secured Term Loan	L+ 6.50%	8.65%	08/22/19	08/22/24		14,175		13,902		13,897		4.40
	(1.50% Floor)
Technology Hardware, Storage & Peripherals
Source Code Midco, LLC
First Lien Secured Term Loan	L+ 8.25%	10.52%	05/04/18	05/04/23		20,531		20,121		20,531		6.51
	(1.00% Floor)
Trucking
Sunteck / TTS Holdings, LLC
Second Lien Secured Term Loan	L+ 9.00%	11.12%	12/15/16	06/15/22		3,500		3,470		3,500		1.11
	(1.00% Floor)
Total Debt Investments						522,395		515,746		505,757		160.35
Equity Investments
Advertising
Fluent, Inc. (f/k/a Cogint, Inc.)(4)(9)	N/A	N/A	11/28/17	N/A		187		560		536		0.17
Diversified Support Services
Quest Events, LLC Preferred Units(4)	N/A	N/A	12/28/18	12/08/25		317		317		317		0.10
ImageOne Industries, LLC Common A Units(4)	N/A	N/A	09/20/19	12/08/25		149		-		-		-
						466		317		317		0.10
Food Retail
Crews of California, Inc. Warrants (4)	N/A	N/A	11/20/14	12/31/24		-		-		15		-
Nicholas & Associates, LLC Warrants(4)	N/A	N/A	11/20/14	12/31/24		3		-		314		0.10
Pinnacle Management Group, LLC Warrants(4)	N/A	N/A	11/20/14	12/31/24		3		-		314		0.10
RC3 Enterprises, LLC Warrants(4)	N/A	N/A	11/20/14	12/31/24		3		-		314		0.10
						9		-		957		0.30
Health Care Services
PMA Holdco, LLC Warrants(4)	N/A	N/A	06/28/18	06/28/28		8		-		454		0.14
Other Diversified Financial Services
RCS Creditor Trust Class B Units(4)(6)	N/A	N/A	10/01/17	N/A		143		-		-		-
SFS Global Holding Company Warrants(4)	N/A	N/A	06/28/18	12/28/25		-		-		-		-
Sigue Corporation Warrants(4)	N/A	N/A	06/28/18	12/28/25		22		2,890		3,818		1.21
						165		2,890		3,818		1.21
Specialized Finance
NMFC Senior Loan Program I LLC Units (4)(5)(6)	N/A	N/A	08/13/14	08/31/21		10,000		10,029		9,673		3.07
WHF STRS Ohio Senior Loan Fund LLC(4)(5)(7)(13)	N/A	N/A	07/19/19	08/31/21		4,871		4,871		4,927		1.56
						14,871		14,900		14,600		4.63
Trading Companies & Distributors
Vessco Holdings, LLC(4)	N/A	N/A	08/22/19	12/31/22		489		800		800		0.25
Trucking
Fox Rent A Car, Inc. Warrants(4)	N/A	N/A	10/26/16	12/31/22		-		-		304		0.10
Total Equity Investments						16,195		19,467		21,786		6.90
Total Investments						538,590	$	535,213	$	527,543		167.25	%

See notes to consolidated financial statements

10

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

September 30, 2019

(in thousands)

(1) Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.

(2) The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month LIBOR were 2.0%, 2.1% and 2.1%, respectively, as of September 30, 2019. The Prime was 5.0% as of September 30, 2019.

(3) The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case may be.

(4) The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

(5) Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 86% of total assets as of the date of the consolidated schedule of investments.

(6) Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

(7) The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of September 30, 2019. See Note 7.

(8) The investment is on non-accrual status.

(9) The fair value of the investment was determined using observable inputs. See Note 4. There are no legal restrictions on sales of the investment.

(10) Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the consolidated schedule of investments represented 167% of the Company’s net assets or 93% of the Company’s total assets, are subject to legal restrictions on sales.

(11) Except as otherwise noted, the fair value of each investment was determined using significant unobservable inputs. See Note 4.

(12) The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Spread Above Index and Interest Rate presented represent the weighted average of both contracts.

(13) Investment is a controlled affiliate investment as defined by the 1940 Act. On January 14, 2019, the Company entered into an agreement (as described in Note 3 hereto) with State Teachers Retirement System of Ohio, a public pension fund established under Ohio law (“STRS Ohio”), to create WHF STRS Ohio Senior Loan Fund, LLC (“STRS JV”), a joint venture, which invests primarily in senior secured first and second lien term loans.

(14) Security is perpetual in nature with no defined maturity date.

See notes to consolidated financial statements

11

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments

December 31, 2018

(in thousands)

Investment Type(1)	Spread Above Index (2)	Interest Rate (3)	Acquisition Date (10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value (11)		Fair Value As A Percentage of Net Assets
North America
Debt Investments
Advertising
Fluent, LLC
First Lien Secured Term Loan	L+ 7.00% (0.50% Floor)	9.52%	03/26/18	03/27/23		10,771	$	10,771	$	10,771		3.42	%
Outcome Health
First Lien Secured Term Loan	L+ 9.50% (1.00% Floor)	12.31% (3.00% PIK)	12/22/16	12/22/21		7,943		7,581		6,408		2.03
						18,714		18,352		17,179		5.45
Automotive Retail
Team Car Care Holdings, LLC
First Lien Secured Term Loan  (12)	base rate+ 7.99% (1.00% Floor)	10.54%	02/26/18	02/23/23		17,183		16,862		16,840		5.34
Broadcasting
Alpha Media, LLC
First Lien Secured Term Loan	L+ 6.50% (1.00% Floor)	9.00%	08/14/18	02/25/22		10,877		10,546		10,493		3.33
Multicultural Radio Broadcasting, Inc.
First Lien Secured Term Loan	L+ 8.00% (1.00% Floor)	10.52%	12/28/17	12/28/22		17,882		17,597		17,739		5.63
Rural Media Group, Inc.
First Lien Secured Term Loan	L+ 7.86% (1.00% Floor)	10.38%	12/29/17	12/29/22		7,000		6,888		6,860		2.18
						35,759		35,031		35,092		11.14
Cable & Satellite
Bulk Midco, LLC
First Lien Secured Term Loan	L+ 7.33% (1.00% Floor)	10.10%	06/08/18	06/08/23		15,000		14,801		14,700		4.66
Data Processing & Outsourced Services
FPT Operating Company, LLC/ TLabs Operating Company, LLC
First Lien Secured Term Loan	L+ 8.25% (1.00% Floor)	10.60%	12/23/16	12/23/21		25,394		25,096		24,707		7.84
Department Stores
Mills Fleet Farm Group, LLC
First Lien Secured Term Loan	L+ 6.25% (1.00% Floor)	8.77%	10/24/18	10/24/24		15,000		14,708		14,707		4.66
Diversified Support Services
Account Control Technology Holdings, Inc.
First Lien Secured Term Loan	L+ 8.75% (1.00% Floor)	11.28%	04/28/17	04/28/22		3,933		3,857		3,920		1.24
ImageOne Industries, LLC
First Lien Secured Term Loan	L+ 10.00% (1.00% Floor)	12.52% (2.00% PIK)	01/11/18	01/11/23		7,264		7,082		6,683		2.12
NNA Services, LLC
First Lien Secured Term Loan	L+ 7.00%	9.80%	10/16/18	10/16/23		10,434		10,234		10,202		3.24

See notes to consolidated financial statements

12

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2018

(in thousands)

Investment Type(1)	Spread Above Index (2)	Interest Rate (3)	Acquisition Date (10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value (11)		Fair Value As A Percentage of Net Assets
Quest Events, LLC
First Lien Secured Term Loan	L+ 6.00%	8.81%	12/28/18	12/28/24		10,942	$	10,724	$	10,724		3.40	%
First Lien Secured Revolving Loan  (7)	L+ 6.00%	8.81%	12/28/18	12/28/24		-		-		-		-
						32,573		31,897		31,529		10.00
Food Retail
AG Kings Holdings, Inc.
First Lien Secured Term Loan	L+ 9.95% (1.00% Floor)	12.75%	08/10/16	08/10/21		13,031		12,737		11,076		3.51
Crews of California, Inc.
First Lien Secured Term Loan	L+ 11.00% (1.00% Floor)	13.44% (1.00% PIK)	11/20/14	11/20/19		10,354		10,320		10,251		3.25
First Lien Secured Revolving Loan	L+ 11.00% (1.00% Floor)	13.44% (1.00% PIK)	06/05/15	11/20/19		5,171		5,148		5,120		1.62
First Lien Secured Delayed Draw Loan	L+ 11.00% (1.00% Floor)	13.44% (1.00% PIK)	03/27/15	11/20/19		2,974		2,961		2,944		0.93
						31,530		31,166		29,391		9.31
Health Care Facilities
Grupo HIMA San Pablo, Inc.
First Lien Secured Term Loan	L+ 9.00% (1.50% Floor)	11.52%	04/01/18	05/31/19		14,065		14,065		11,955		3.79
Second Lien Secured Term Loan  (8)	N/A	15.75% (2.00% PIK)	02/01/13	07/31/18		1,028		1,024		103		0.03
						15,093		15,089		12,058		3.82
Health Care Services
PMA Holdco, LLC
First Lien Secured Term Loan	L+ 7.50% (1.00% Floor)	10.30%	06/28/18	06/28/23		14,875		14,591		14,577		4.62
Home Furnishings
Sure Fit Home Products, LLC
First Lien Secured Term Loan	L+ 9.50% (1.00% Floor)	12.31%	10/26/18	07/13/22		5,530		5,424		5,392		1.71
Internet Retail
Clarus Commerce, LLC
First Lien Secured Term Loan	L+ 8.42% (1.00% Floor)	10.95%	03/09/18	03/09/23		17,100		16,930		17,100		5.42
Internet Services & Infrastructure
London Trust Media Incorporated
First Lien Secured Term Loan	L+ 8.00% (1.00% Floor)	10.53%	02/01/18	02/01/23		10,925		10,791		10,816		3.43
StackPath, LLC & Highwinds Capital, Inc.
Second Lien Secured Term Loan	L+ 9.50% (1.00% Floor)	12.33%	02/03/17	02/02/24		18,000		17,673		14,760		4.68
						28,925		28,464		25,576		8.11

See notes to consolidated financial statements

13

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2018

(in thousands)

Investment Type(1)	Spread Above Index (2)	Interest Rate (3)	Acquisition Date (10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value (11)		Fair Value As A Percentage of Net Assets
Investment Banking & Brokerage
Arcole Acquisition Corp(5)
First Lien Secured Term Loan A	L+ 7.25% (1.00% Floor)	9.96%	11/29/18	11/30/23		7,588	$	7,451	$	7,448		2.36	%
First Lien Secured Term Loan B	L+ 14.50% (1.00% Floor)	17.21% (1.50% PIK)	11/29/18	11/30/23		1,870		1,837		1,836		0.58
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)
First Lien First Out Secured Term Loan	L+ 8.02% (1.00% Floor)	10.54%	05/05/17	05/05/22		12,488		12,300		12,726		4.04
First Lien Last Out Secured Term Loan	L+ 12.00% (1.00% Floor)	14.52%	05/05/17	05/05/22		4,625		4,555		4,713		1.49
						26,571		26,143		26,723		8.47
IT Consulting & Other Services
AST-Applications Software Technology LLC
First Lien Secured Term Loan	L+ 8.00% (1.00% Floor)	10.52% (1.00% PIK)	01/10/17	01/10/23		4,214		4,148		4,088		1.30
Leisure Facilities
Planet Fit Indy 10 LLC
First Lien Incremental Term Loan	L+ 7.25% (1.00% Floor)	10.04%	11/30/17	03/07/22		9,892		9,735		9,841		3.12
First Lien Initial Delayed Draw Loan	L+ 7.25% (1.00% Floor)	9.82%	11/30/17	03/07/22		6,183		6,163		6,153		1.95
First Lien Initial Term Loan	L+ 7.25% (1.00% Floor)	10.02%	11/30/17	03/07/22		130		129		130		0.04
Lift Brands, Inc.
First Lien Secured Term Loan	L+ 7.00% (1.00% Floor)	9.80%	04/16/18	04/16/23		10,858		10,663		10,433		3.31
First Lien Secured Revolving Loan  (7)	L+ 7.00% (1.00% Floor)	9.09%	04/16/18	04/16/23		128		126		110		0.03
Honors Holdings, LLC
First Lien Secured Term Loan	L+ 8.94% (0.00% Floor)	11.37%	07/17/18	07/17/23		7,500		7,398		7,355		2.33
						34,691		34,214		34,022		10.78
Oil & Gas Exploration & Production
Caelus Energy Alaska O3, LLC
Second Lien Secured Term Loan	L+ 7.50%	10.30%	04/04/14	04/15/20		17,342		16,876		17,342		5.50
Other Diversified Financial Services
Sigue Corporation(4)
Second Lien Secured Term Loan	L+ 12.00% (1.00% Floor)	14.80%	12/27/13	09/30/19		24,904		24,904		24,344		7.72
Packaged Foods & Meats
Lenny & Larry’s, LLC
First Lien Secured Term Loan	L+ 6.84% (1.00% Floor)	9.29%	05/15/18	05/15/23		13,449		13,214		12,777		4.05

See notes to consolidated financial statements

14

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2018

(in thousands)

Investment Type(1)	Spread Above Index (2)	Interest Rate (3)	Acquisition Date (10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value (11)		Fair Value As A Percentage of Net Assets
Research & Consulting Services
Nelson Worldwide, LLC
First Lien Secured Term Loan	L+ 8.75% (1.00% Floor)	11.16%	01/09/18	01/09/23		14,303	$	14,016	$	13,903		4.41	%
Restaurants
LS GFG Holdings Inc.
First Lien Secured Term Loan	L+ 6.00%	8.47%	11/30/18	11/19/25		10,340		10,033		10,020		3.18
Specialized Finance
Golden Pear Funding Assetco, LLC  (5)
Second Lien Secured Term Loan	L+ 10.50% (1.00% Floor)	12.85%	09/20/18	03/20/24		17,500		17,168		17,150		5.44
Oasis Legal Finance, LLC(5)
Second Lien Secured Term Loan	L+ 10.75% (1.00% Floor)	13.10%	09/09/16	03/09/22		20,000		19,768		20,000		6.34
						37,500		36,936		37,150		11.78
Technology Hardware, Storage & Peripherals
Source Code Midco, LLC
First Lien Secured Term Loan	L+ 8.75% (1.00% Floor)	11.28%	05/04/18	05/04/23		14,182		13,874		13,898		4.41
Trucking
Sunteck / TTS Holdings, LLC
Second Lien Secured Term Loan	L+ 9.00% (1.00% Floor)	11.79%	12/15/16	06/15/22		3,500		3,462		3,468		1.10
Total Debt Investments						473,672		466,231		456,583		144.78
Equity Investments
Advertising
Fluent, Inc. (f/k/a Cogint, Inc.) (4)(9)	N/A	N/A	11/28/17	12/08/25		187		560		706		0.22	%
Diversified Support Services
Quest Events, LLC
Preferred Units(4)	N/A	N/A	12/28/18	12/08/25		317		317		317		0.10
Food Retail
Crews of California, Inc. Warrants  (4)	N/A	N/A	11/20/14	12/31/24		-		-		6		-
Nicholas & Associates, LLC Warrants  (4)	N/A	N/A	11/20/14	12/31/24		2		-		131		0.04
Pinnacle Management Group, LLC Warrants  (4)	N/A	N/A	11/20/14	12/31/24		2		-		131		0.04
RC3 Enterprises, LLC Warrants  (4)	N/A	N/A	11/20/14	12/31/24		2		-		131		0.04
						6		-		399		0.12
Health Care Services
PMA Holdco, LLC Warrants (4)	N/A	N/A	06/28/18	N/A		8		-		393		0.12

See notes to consolidated financial statements

15

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2018

(in thousands)

Investment Type(1)	Spread Above Index (2)	Interest Rate (3)	Acquisition Date (10)	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value (11)		Fair Value As A Percentage of Net Assets
Other Diversified Financial Services
RCS Creditor Trust Class B Units  (4)(6)	N/A	N/A	10/01/17	N/A		143	$	-	$	535		0.17	%
SFS Global Holding Company Warrants  (4)	N/A	N/A	06/28/18	N/A		-		-		-		-
Sigue Corporation Warrants(4)	N/A	N/A	06/28/18	N/A		7		702		901		0.29
						150		702		1,436		0.46
Specialized Finance
NMFC Senior Loan Program I LLC Units  (4)(5)(6)	N/A	N/A	08/13/14	06/13/20		10,000		10,029		9,630		3.05
Trucking
Fox Rent A Car, Inc. Warrants (4)	N/A	N/A	10/26/16	N/A		-		-		100		0.03
Total Equity Investments						10,668		11,608		12,981		4.10
Total Investments					$	484,340	$	477,839	$	469,564		148.88	%

(1) Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by the Investment Company Act of 1940, as amended (the “1940 Act”), and provide collateral for the Company’s credit facility.

(2) The investments bear interest at a rate that may be determined by reference to the London Interbank Offered Rate (“LIBOR” or “L”), which resets monthly, quarterly or semiannually, or the U.S. Prime Rate as published by the Wall Street Journal (“Prime” or “P”). The one, three and six-month LIBOR were 2.5%, 2.8% and 2.9%, respectively, as of December 31, 2018. The Prime was 5.5% as of December 31, 2018.

(3) The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the payment-in-kind (“PIK”) interest rate, as the case maybe.

(4) The investment or a portion of the investment does not provide collateral for the Company’s credit facility.

(5) Not a qualifying asset under Section 55(a) of the 1940 Act. Under the 1940 Act, the Company may not acquire any non-qualifying asset unless, at the time the acquisition is made, qualifying assets represent at least 70% of total assets. Qualifying assets represented 89%, of total assets as of the date of the consolidated schedule of investments.

(6) Investment is a non-controlled/affiliate investment as defined by the 1940 Act.

(7) The investment has an unfunded commitment in addition to any amounts presented in the consolidated schedule of investments as of December 31, 2018. See Note 7.

(8) The investment is on non-accrual status.

(9) The fair value of the investment was determined using observable inputs. See Note 4. There are no legal restrictions on sales of the investment.

(10) Except as otherwise noted, all of the Company’s portfolio company investments, which as of the date of the consolidated schedule of investments represented 149% of the Company’s net assets or 91% of the Company’s total assets, are subject to legal restrictions on sales.

(11) Except as otherwise noted, the fair value of each investment was determined using significant unobservable inputs. See Note 4.

(12) The investment was comprised of two contracts, which were indexed to different base rates, L and P, respectively. The Spread Above Index and Interest Rate presented represent the weighted average of both contracts.

See notes to consolidated financial statements

16

WhiteHorse Finance, Inc.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2019

(in thousands, except share and per share data)

NOTE 1 - ORGANIZATION

WhiteHorse Finance, Inc. (“WhiteHorse Finance” and, together with its subsidiaries, the “Company”) is an externally managed, non-diversified, closed-end management investment company that has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the “1940 Act”). In addition, for tax purposes, WhiteHorse Finance elected to be treated as a regulated investment company (“RIC”) under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). WhiteHorse Finance’s common stock trades on the NASDAQ Global Select Market under the symbol “WHF.”

The Company’s investment objective is to generate attractive risk-adjusted returns primarily by originating and investing in senior secured loans, including first lien and second lien facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on the London Interbank Offered Rate (“LIBOR”) and have a term of three to six years. While the Company focuses principally on originating senior secured loans to lower middle market companies, it may also opportunistically make investments at other levels of a company’s capital structure, including mezzanine loans or equity interests and may receive warrants to purchase common stock in connection with its debt investments.

WhiteHorse Finance’s investment activities are managed by H.I.G. WhiteHorse Advisers, LLC (“WhiteHorse Advisers”). H.I.G. WhiteHorse Administration, LLC (“WhiteHorse Administration”) provides administrative services necessary for the Company to operate.

NOTE 2 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation: The accompanying consolidated financial statements have been prepared in conformity with accounting principles generally accepted in the United States of America (“GAAP”) and include the accounts of WhiteHorse Finance and its wholly owned subsidiaries, WhiteHorse Finance Credit I, LLC (“WhiteHorse Credit”), and its subsidiary WhiteHorse Finance (CA), LLC (“WhiteHorse California”), and WhiteHorse Finance Warehouse, LLC (“WhiteHorse Warehouse”). The Company meets the definition of an investment company under Accounting Standards Codification (“ASC”) Topic 946, Financial Services - Investment Companies, and therefore applies the accounting and reporting guidance discussed therein to its consolidated financial statements. All significant intercompany balances and transactions have been eliminated.

Additionally, the accompanying consolidated financial statements and related financial information have been prepared pursuant to the requirements for reporting on Form 10-Q and Articles 6, 10 and 12 of Regulation S-X. Accordingly, certain disclosures accompanying the annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, the unaudited consolidated financial results included herein contain all adjustments, consisting solely of normal recurring accruals, considered necessary for the fair presentation of financial statements for the interim periods included herein. This Form 10-Q should be read in conjunction with the Company’s annual report on Form 10-K for the year ended December 31, 2018. The current period’s results of operations will not necessarily be indicative of results that ultimately may be achieved for the year ending December 31, 2019.

Reclassifications: Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the industry classifications presented within the Company’s consolidated schedule of investments in the current fiscal year. These reclassifications had no effect on the consolidated results of operations or financial position for any period presented.

Principles of Consolidation: Under the investment company rules and regulations pursuant to ASC Topic 946, WhiteHorse Finance is precluded from consolidating any entity other than another investment company. As provided under ASC Topic 946, WhiteHorse Finance generally consolidates any investment company when it owns 100% of its partners’ or members’ capital or equity units. The Company does not consolidate its investment in STRS JV. See further description of STRS JV in Note 3.

Use of Estimates: The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the financial statements. Actual results could differ from those estimates.

Fair Value of Financial Instruments: The Company determines the fair value of its financial instruments in accordance with ASC Topic 820, Fair Value Measurements and Disclosures. ASC Topic 820 defines fair value, establishes a framework used to measure fair value and requires disclosures for fair value measurements. In accordance with ASC Topic 820, the Company has categorized its financial instruments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date. 

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Investments are measured at fair value as determined in good faith by the Company’s investment committee, generally on a quarterly basis, and such valuations are reviewed by the audit committee of the board of directors and ultimately approved by the board of directors, based on, among other factors, consistently applied valuation procedures on each measurement date. Any changes to the valuation methodology are reviewed by management and the Company’s board of directors to confirm that the changes are justified. The Company continues to review and refine its valuation procedures in response to market changes.

The Company engages independent external valuation firms to periodically review material investments. These external reviews are used by the board of directors to review the Company’s internal valuation of each investment over the year.

Investment Transactions: The Company records investment transactions on a trade date basis. These transactions may settle subsequent to the trade date depending on the transaction type. Certain expenses related to legal and tax consultation, due diligence, rating fees, valuation expenses and independent collateral appraisals may arise when the Company makes certain investments. These expenses are recognized in the consolidated statements of operations as they are incurred.

Revenue Recognition: The Company’s revenue recognition policies are as follows:

Sales: Realized gains or losses on the sales of investments are calculated by using the specific identification method.

Investment Income: Interest income, adjusted for amortization of premium and accretion of discount, is recorded on an accrual basis. The Company may also receive closing, commitment, prepayment, amendment and other fees from portfolio companies in the ordinary course of business.

Dividend income is recorded on the record date for private portfolio companies or on the ex-dividend date for publicly traded portfolio companies.

Closing fees associated with investments in portfolio companies are deferred and recognized as interest income over the respective terms of the applicable loans. Upon the prepayment of a loan or debt security, any unamortized loan closing fees are recorded as part of interest income. Commitment fees are based upon the undrawn portion committed by the Company and are recorded as interest income on an accrual basis. Prepayment, amendment and other fees are recognized when earned, generally when such fees are receivable, and are included in fee income on the consolidated statements of operations.

The Company may invest in loans that contain a payment-in-kind (“PIK”) interest rate provision. PIK interest is accrued at the contractual rates and added to loan principal on the reset dates to the extent such amounts are expected to be collected.

Non-accrual loans: Loans are placed on non-accrual status when principal or interest payments are past due 30 days or more or when there is reasonable doubt that principal or interest will be collected. The Company may conclude that non-accrual status is not required if the loan has sufficient collateral value and is in the process of collection. Accrued interest is generally reversed when a loan is placed on non-accrual status. Interest payments received on non-accrual loans may be recognized as income or applied to principal depending upon management’s judgment. Non-accrual loans are restored to accrual status when past due principal and interest is paid and, in management’s judgment, are likely to remain current.

Cash and Cash Equivalents: Cash and cash equivalents include cash, deposits with financial institutions, and short-term liquid investments in money market funds with original maturities of three months or less.

Restricted Cash and Cash Equivalents: Restricted cash and cash equivalents include amounts that are collected and held by the trustee appointed as custodian of the assets securing the Company’s revolving credit facility. Restricted cash is held by the trustee for the payment of interest expense and principal on the outstanding borrowings or reinvestment into new assets. Restricted cash that represents interest or fee income is transferred to unrestricted cash accounts by the trustee generally once a quarter after the payment of operating expenses and amounts due under the Company’s revolving credit facility.

Offering Costs: The Company may incur legal, accounting, regulatory, investment banking and other costs in relation to equity offerings. Offering costs are deferred and charged against paid-in capital in excess of par on completion of the related offering.

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Deferred Financing Costs: Deferred financing costs represent fees and other direct incremental costs incurred in connection with the Company’s borrowings. These amounts are amortized and are included in interest expense in the consolidated statements of operations over the estimated life of the borrowings. Deferred financing costs are presented in the consolidated statements of assets and liabilities as a direct reduction from the carrying amount of the related debt liability.

Income Taxes: The Company elected to be treated as a RIC under Subchapter M of the Code. In order to maintain its status as a RIC, among other requirements, the Company is required to distribute dividends for U.S. federal income tax purposes to its stockholders each taxable year generally of an amount at least equal to 90% of the sum of ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, out of the assets legally available for distribution. In addition, the Company will incur a nondeductible excise tax equal to 4% of the amount by which (1) 98% of ordinary income for the calendar year (taking into account certain deferrals and elections), (2) 98.2% of capital gains in excess of capital losses, adjusted for certain ordinary losses, for the one-year period ending on October 31 of the calendar year and (3) any ordinary income and capital gain income for preceding years that were not distributed during such years and on which the Company incurred no U.S. federal income tax exceed distributions for the year. The Company accrues estimated excise tax on the amount, if any, that estimated taxable income is expected to exceed the level of stockholder distributions described above.

The Company recognizes the financial statement benefit of a tax position only after determining that the relevant tax authority would more-likely-than-not sustain the position following an audit. For tax positions meeting the more-likely-than-not threshold, the amount recognized in the financial statement is the largest benefit or expense that has a greater than 50% likelihood of being realized upon ultimate settlement with the relevant tax authority. Any tax positions not deemed to satisfy the more likely than not threshold are reversed and recorded as tax benefit or tax expense, as appropriate, in the current year. Management has analyzed the Company’s tax positions, and the Company has concluded that the Company did not have any unrecognized tax benefits or unrecognized tax liabilities related to uncertain tax positions as of September 30, 2019 and December 31, 2018.

Penalties or interest that may be assessed related to any income taxes would be classified as general and administrative expenses on the consolidated statements of operations. The Company had no amounts accrued for interest or penalties as of September 30, 2019 or December 31, 2018. The Company does not expect the total amount of unrecognized tax benefits to significantly change in the next twelve months. The Company’s tax returns are subject to examination by federal, state and local taxing authorities. Because many types of transactions are susceptible to varying interpretations under U.S. federal and state income tax laws and regulations, the amounts reported in the accompanying consolidated financial statements may be subject to change at a later date by the respective taxing authorities. Tax returns for each of the federal tax years since 2015 remain subject to examination by the Internal Revenue Service.

As of September 30, 2019 and December 31, 2018, the cost of investments for federal income tax purposes was $538,612 and $481,919, resulting in net unrealized depreciation of $11,069 and net unrealized depreciation of $12,355, respectively. This is comprised of gross unrealized appreciation of $4,982 and $3,598, and gross unrealized depreciation of $16,051 and $15,953, on a tax basis, as of September 30, 2019 and December 31, 2018, respectively.

Dividends and Distributions: Dividends and distributions to common stockholders are recorded on the ex-dividend date. Quarterly distribution payments are determined by the board of directors and are paid from taxable earnings estimated by management and may include a return of capital and/or capital gains. Net realized capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment. 

The Company maintains an “opt out” distribution reinvestment plan for common stockholders. As a result, if the Company declares a distribution or other dividend, stockholders’ cash distributions will be automatically reinvested in additional shares of common stock, unless they specifically “opt out” of the distribution reinvestment plan so as to receive cash distributions.

Earnings per Share: The Company calculates earnings per share as earnings available to stockholders divided by the weighted average number of shares outstanding during the period.

Risks and Uncertainties: In the normal course of business, the Company encounters primarily two significant types of economic risks: credit and market. Credit risk is the risk of default on the Company’s investments that result from an issuer’s, borrower’s or derivative counterparty’s inability or unwillingness to make contractually required payments. Market risk reflects changes in the value of investments due to changes in interest rates, spreads or other market factors, including the value of the collateral underlying investments held by the Company. Management believes that the carrying value of the Company’s investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.

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Securities and Exchange Commission Disclosure Update and Simplification: In August 2018, the Securities and Exchange Commission adopted the final rule under SEC Release No. 33-10532, Disclosure Update and Simplification (the “SEC Release”) amending certain disclosure requirements that were redundant, duplicative, overlapping, outdated or superseded. The amendments are intended to facilitate the disclosure of information to investors and simplify compliance. The effective date for the SEC Release is effective for all filings on or after November 5, 2018. The Company first adopted the final rule under the SEC Release as of December 31, 2018. The SEC Release requires presentation changes to the Company's consolidated statements of assets and liabilities and consolidated statements of changes in net assets. The Company has evaluated the impact of the amendments and determined the effect of the adoption of the simplification rules on financial statements will be limited to the modification and removal of certain disclosures.

Recent Accounting Pronouncements: During March 2017, the Financial Accounting Standards Board (“FASB”) issued Accounting Standards Update (“ASU”) 2017-08, Receivables-Nonrefundable Fees and Other Costs (Subtopic 310-20): Premium Amortization on Purchased Callable Debt Securities, to amend the amortization period for certain purchased callable debt securities held at a premium. Under current guidance, entities generally amortize the premium as an adjustment of yield over the contractual life of the instrument. The new guidance shortened the amortization period for the premium to the earliest call date. The amendments do not require an accounting change for securities held at a discount; the discount continues to be amortized to maturity. The amendments in this guidance are effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2018. The Company adopted the provisions of the ASU 2017-08 effective January 1, 2019 and determined adoption of this standard did not have a material impact as the Company does not hold any material purchased callable debt securities at a premium.

In July 2019, the FASB issued ASU 2019-07, Codification Updates to SEC Sections, which clarifies the disclosure and presentation requirements of a variety of codification topics by aligning them with the SEC’s regulations, thereby eliminating redundancies and making the codification easier to apply. This ASU was effective upon issuance. As the Company has already adopted the SEC Release, as discussed above, this ASU did not have any impact on the Company’s consolidated financial statements and related disclosures.

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NOTE 3 - INVESTMENTS

The following table shows the Company’s investments as of September 30, 2019 and December 31, 2018:

	September 30, 2019				December 31, 2018
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First lien secured loans	$	429,827		420,677	$	365,356	$	359,416
Second lien secured loans		66,435		65,596		100,875		97,167
Subordinated Note to STRS JV		19,484		19,484		-		-
Equity (excluding STRS JV)		14,596		16,859		11,608		12,981
Equity in STRS JV		4,871		4,927		-		-
Total	$	535,213		527,543	$	477,839	$	469,564

The following table shows the portfolio composition by industry⁽¹⁾ grouping at fair value:

	September 30, 2019				December 31, 2018
Advertising	$	10,263	2.04	%	$	17,885	3.81	%
Air Freight & Logistics		5,673	1.13			-	-
Application Software		5,461	1.09			-	-
Automotive Retail		16,837	3.34			16,840	3.59
Broadcasting		29,259	5.82			35,092	7.47
Cable & Satellite		13,950	2.77			14,700	3.13
Communications Equipment		5,100	1.01			-	-
Construction & Engineering		9,002	1.79			-	-
Data Processing & Outsourced Services		24,437	4.86			24,707	5.26
Department Stores		14,186	2.82			14,707	3.13
Distributors		5,668	1.13			-	-
Diversified Support Services		17,822	3.54			31,846	6.78
Food Retail		26,547	5.28			29,790	6.34
Health Care Facilities		14,760	2.93			12,058	2.57
Health Care Services		20,778	4.13			14,970	3.19
Home Furnishings		5,107	1.02			5,392	1.15
Human Resources & Employment Services		12,304	2.45			-	-
Internet Retail		19,488	3.87			17,100	3.64
Internet Services & Infrastructure		24,862	4.94			25,576	5.45
Investment Banking & Brokerage		23,403	4.65			26,723	5.69
IT Consulting & Other Services		4,119	0.82			4,088	0.87
Leisure Facilities		19,691	3.91			34,022	7.25
Office Service & Supplies		12,186	2.42			-	-
Oil & Gas Exploration & Production		-	-			17,342	3.69
Other Diversified Financial Services		28,473	5.66			25,780	5.49
Packaged Foods & Meats		19,604	3.90			12,777	2.72
Personal Products		4,781	0.95			-	-
Research & Consulting Services		13,349	2.65			13,903	2.96
Restaurants		9,876	1.96			10,020	2.13
Specialized Finance		47,114	9.36			46,780	9.97
Technology Hardware, Storage & Peripherals		20,531	4.08			13,898	2.96
Trading Companies & Distributors		14,697	2.92			-	-
Trucking		3,804	0.76			3,568	0.76
Total	$	503,132	100.00	%	$	469,564	100.00	%

(1) Excludes investments in STRS JV. 

The portfolio companies underlying the investments are all located in the United States and its territories, except for Arcole Acquisition Corp (which is located in Canada). As of September 30, 2019 and December 31, 2018, the weighted average remaining term of the Company’s debt investments was approximately 3.7 years and 3.6 years, respectively.

As of September 30, 2019 and December 31, 2018, the total fair value of non-accrual loans were $8,480 and $103 as of the end of each respective period. 

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An affiliated company is generally a portfolio company in which the Company owns 5% or more of its voting securities. A controlled affiliated company is generally a portfolio company in which the Company owns more than 25% of its voting securities or has the power to exercise control over its management or policies (including through a management agreement). The following table presents the schedule of investments in and advances to affiliated and controlled affiliated persons (as defined by the 1940 Act) as of and for the nine months ended September 30, 2019:

Affiliated Person(1)	Type of Asset		Amount of dividends and interest included in income		Beginning Fair Value at December 31, 2018		Purchases		Sales		Net Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)			Ending Fair Value at September 30, 2019
Non-controlled affiliates
NMFC Senior Loan Program I LLC Units		Equity	$	888	$	9,630	$	-	$	-	$	-	$	43		$	9,673
RCS Creditor Trust Class B Units		Equity		-		535		-		-		-		(535	)		-
Total Non-controlled affiliates			$	888	$	10,165	$	-	$	-	$	-	$	(492	)	$	9,673

Affiliated Person(1)	Type of Asset		Amount of dividends and interest included in income		Beginning Fair Value at December 31, 2018		Purchases		Sales		Net Realized Gain (Loss)		Net Change in Unrealized Appreciation (Depreciation)		Ending Fair Value at September 30, 2019
Controlled affiliates
WHF STRS Ohio Senior Loan Fund LLC*		Subordinated Note	$	343	$	-	$	19,484	$	-	$	-	$	-	$	19,484
WHF STRS Ohio Senior Loan Fund LLC*		Equity		-		-		4,871		-		-		56		4,927
Total Controlled affiliates			$	343	$	-	$	24,355	$	-	$	-	$	56	$	24,411

*The Company and STRS Ohio are the members of STRS JV, a joint venture formed as a Delaware limited liability company that is not consolidated by either member for financial reporting purposes. The members make investments in STRS JV in the form of LLC equity interests and interest-bearing subordinated notes as STRS JV makes investments, and all portfolio and other material decisions regarding STRS JV must be submitted to STRS JV’s board of managers which is comprised of an equal number of members appointed by each of the Company and STRS Ohio. Because management of STRS JV is shared equally between the Company and STRS Ohio, the Company does not believe it controls STRS JV for purposes of the 1940 Act or otherwise.

The following table presents the schedule of investments in and advances to affiliated persons (as defined by the 1940 Act) as of and for the year ended December 31, 2018:

Affiliated Person(1)	Type of Asset		Amount of dividends and interest included in income		Beginning Fair Value at December 31, 2017		Purchases		Sales			Net Realized Gain (Loss)			Net Change in Unrealized Appreciation (Depreciation)		Ending Fair Value at December 31, 2018
Non-controlled affiliates
Aretec Group, Inc.		Equity	$	-	$	17,314	$	-	$	(53,734	)	$	33,041		$	3,379	$	-
NMFC Senior Loan Program I LLC Units		Equity		2,132		18,504		-		(10,000	)		(91	)		1,217		9,630
RCS Creditor Trust Class B Units		Equity		-		428		-		-			-			107		535
Total Non-controlled affiliates			$	2,132	$	36,246	$	-	$	(63,734	)	$	32,950		$	4,703	$	10,165

⁽¹⁾ Refer to the consolidated schedule of investments for the principal amount, industry classification and other security detail of each portfolio company.

During the fourth quarter of 2015, the Company placed its second lien investment in RCS Capital Corporation on non-accrual status in anticipation of a voluntary petition for a “pre-packaged” Chapter 11 Bankruptcy in the U.S. Bankruptcy Court for the District of Delaware, which was filed on January 31, 2016. On May 23, 2016, the Company’s second lien investment, with a cost basis of $20,693, converted to 536,042 shares of common stock in Aretec Group, Inc. (previously known as RCS Capital Corporation). In October 2018, the Company realized its investment in Aretec Group, Inc. and sold all 536,042 shares of common stock.

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WHF STRS Ohio Senior Loan Fund LLC

On January 14, 2019, the Company entered into a limited liability company operating agreement with STRS Ohio to co-manage a newly formed joint venture investment company, STRS JV, a Delaware limited liability company. STRS Ohio and the Company have committed to provide up to $125.0 million of subordinated notes and equity to STRS JV, with STRS Ohio providing up to $50,000 and the Company providing up to $75,000, respectively. STRS JV will invest primarily in lower middle market, senior secured debt facilities, to performing lower middle market companies across a broad range of industries that typically carry a floating interest rate based on LIBOR and have a term of three to six years.

In July 2019, STRS JV formally launched operations. As of September 30, 2019, STRS JV had total assets of $58,379. STRS JV’s portfolio consisted of debt investments in five portfolio companies as of September 30, 2019. As of September 30, 2019, the largest investment by aggregate principal amount (including any unfunded commitments) in a single portfolio company in STRS JV’s portfolio was $13,728. The five largest investments in portfolio companies by fair value in STRS JV totaled $54,942. STRS JV invests in portfolio companies in the same industries in which the Company may directly invest.

The Company provides capital to STRS JV in the form of LLC equity interests and through interest-bearing subordinated notes. As of September 30, 2019, the Company and STRS Ohio owned 60% and 40%, respectively, of the LLC equity interests of STRS JV. The Company’s investment in STRS JV consisted of equity contributions of $4,871 and advances of the subordinated notes of $19,484 as of September 30, 2019. As of September 30, 2019, the Company had commitments to fund equity interests and subordinated notes in STRS JV of $15,000 and $60,000, of which $10,129 and $40,516 were unfunded, respectively.

The Company and STRS Ohio each appoint two members to STRS JV’s four-person board of managers. All material decisions with respect to STRS JV, including those involving its investment portfolio, require unanimous approval of a quorum of the board of managers. Quorum is defined as (i) the presence of two members of the board of managers; provided that at least one individual is present that was elected, designated or appointed by each member; (ii) the presence of three members of the board of managers; provided that the individual that was elected, designated or appointed by the member with only one individual present shall be entitled to cast two votes on each matter; and (iii) the presence of four members of the board of managers; provided that two individuals are present that were elected, designated or appointed by each member.

On July 19, 2019, STRS JV entered into a $125,000 credit and security agreement (the “STRS JV Credit Facility”) with JPMorgan Chase Bank, National Association (“JPMorgan”). As of September 30, 2019, the STRS JV Credit Facility had $125,000 of commitments subject to leverage and borrowing base restrictions with an interest rate based on LIBOR plus 2.55%. The final maturity date of the STRS JV Credit Facility is July 19, 2024. As of September 30, 2019, STRS JV had $18.6 million of outstanding borrowings under the STRS JV Credit Facility. At September 30, 2019, the effective interest rate on the STRS JV Credit Facility was 4.85% per annum.

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Below is a listing of STRS JV’s individual investments as of September 30, 2019:

STRS JV Portfolio
(in thousands)

Investment Type(1)	Spread Above Index(2)	Interest Rate(3)			Acquisition Date(4)		Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value(5)
North America
Debt Investments
Diversified Support Services
Quest Events, LLC
First Lien Secured Term Loan	L+ 6.00%		8.10	%		07/19/19	12/28/24		10,860		10,651		10,643
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.00%		8.10	%		07/19/19	12/28/24		-		-		(1	)
	(1.00% Floor)								10,860		10,651		10,642
Health Care Services
Akumin Corp.
First Lien Secured Term Loan	L+ 6.00%		8.04	%		07/19/19	05/31/24		13,666		13,412		13,401
	(1.00% Floor)								13,666		13,412		13,401
Industrial Machinery
FR Flow Control CB LLC
First Lien Secured Term Loan B	L+ 6.00%		8.10	%		07/19/19	06/28/26		7,362		7,219		7,220
	(1.00% Floor)
First Lien Secured Term Loan C	L+ 6.00%		8.10	%		07/19/19	06/28/26		2,870		2,814		2,815
	(1.00% Floor)								10,232		10,033		10,035
Internet Retail
Marlin DTC-LS Midco 2, LLC
First Lien Secured Term Loan	L+ 6.00%		8.04	%		07/19/19	07/01/25		12,784		12,536		12,552
	(1.00% Floor)
First Lien Secured Revolving Loan	L+ 6.00%		8.04	%		07/19/19	07/01/25		-		-		1
	(1.00% Floor)								12,784		12,536		12,553
Systems Software
arcserve (USA) LLC
First Lien Secured Term Loan	L+ 6.00%		8.12	%		07/19/19	05/01/24		8,373		8,219		8,311
	(1.00% Floor)								8,373		8,219		8,311
Total Investments									55,915	$	54,851	$	54,942

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1) All investments provide collateral for the STRS JV Credit Facility.

(2) The investments bear interest at a rate that may be determined by reference to LIBOR, which resets monthly, quarterly or semiannually. The one, three and six-month LIBOR were 2.0%, 2.1% and 2.1%, respectively, as of September 30, 2019.

(3) The interest rate is the “all-in-rate” including the current index and spread, the fixed rate, and the PIK interest rate, as the case may be.

(4) Except as otherwise noted, all of the STRS JV’s portfolio company investments, which as of the date of the portfolio represented 669% of STRS JV’s net assets or 94% of STRS JV’s total assets, are subject to legal restrictions on sales.

(5) Except as otherwise noted, the fair value of each investment was determined using significant unobservable inputs.

As of September 30, 2019, STRS JV had no investments on non-accrual status. STRS JV had outstanding commitments to fund investments totaling $1.9 million under undrawn revolvers as of September 30, 2019.

Below is certain summarized financial information for STRS JV as of September 30, 2019 and for the period July 19, 2019 (commencement of operations) through September 30, 2019 (dollars in thousands):

Selected Balance Sheet Information
Assets:
Investments, at fair value (amortized cost of $54,851)	$	54,942
Cash and cash equivalents		2,917
Other assets		520
Total assets	$	58,379
Liabilities:
Credit facility		16,714
Note payable to members		32,473
Interest payable on credit facility		295
Interest payable on notes to members		572
Other liabilities		115
Total liabilities	$	50,169
Members’ equity		8,210
Total liabilities and members’ equity	$	58,379

Selected Statement of Operations Information
Interest income	$	1,022
Total investment income	$	1,022
Interest expense on credit facility		378
Interest expense on notes to members		572
Administrative fee		24
Other expenses		58
Total expenses	$	1,032
Net investment income		(10	)
Net realized gains on investments		12
Net change in unrealized appreciation on investments		91
Net increase in net assets resulting from operations	$	93

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NOTE 4 - FAIR VALUE MEASUREMENTS

Accounting standards establish a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. The standard describes three levels of inputs that may be used to measure fair value:

Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active public markets that the entity has the ability to access as of the measurement date.

Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.

Level 3: Significant unobservable inputs that reflect a reporting entity’s own assumptions about what market participants would use in pricing an asset or liability.

In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, a financial instrument’s categorization within the fair value hierarchy is based on the lowest level of input that is significant to the fair value measurement. The Company’s assessment of the significance of a particular input to the fair value measurement in its entirety requires judgment, and considers factors specific to the financial instrument.

A review of the fair value hierarchy classifications is conducted on a quarterly basis. Changes in the observability of valuation inputs may result in a reclassification for certain financial assets or liabilities. Reclassifications impacting Level 3 of the fair value hierarchy are reported as transfers in or out of the Level 3 category as of the beginning of the quarter in which the reclassifications occur. During the nine months ended September 30, 2019 and 2018, there were no changes in the observability of valuation inputs that would have resulted in a reclassification of assets between any levels.

Fair value for each investment is derived using a combination of valuation methodologies that, in the judgment of the investment committee of WhiteHorse Advisers are most relevant to such investment, including, without limitation, being based on one or more of the following: (i) market prices obtained from market makers for which the investment committee has deemed there to be enough breadth (number of quotes) and depth (firm bids) to be indicative of fair value, (ii) the price paid or realized in a completed transaction or binding offer received in an arm’s-length transaction, (iii) a discounted cash flow analysis, (iv) the guideline public company method, (v) the similar transaction method or (vi) the option pricing method.

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The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of September 30, 2019:

	Level 1		Level 2		Level 3		Total
First lien secured loans	$	-	$	-	$	420,677	$	420,677
Second lien secured loans		-		-		65,596		65,596
Subordinated Note to STRS JV		-		-		19,484		19,484
Equity (excluding STRS JV)		536		-		16,323		16,859
Equity in STRS JV(1)		-		-		-		4,927
Total investments	$	536	$	-	$	522,080	$	527,543

(1) The Company’s equity investment in STRS JV is measured using the net asset value per share as a practical expedient for fair value, and thus has not been classified in the fair value hierarchy. The fair value amounts presented in this table are intended to permit reconciliation of the fair value hierarchy to the amounts presented in the consolidated statements of assets and liabilities.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2018:

	Level 1		Level 2		Level 3		Total
First lien secured loans	$	-	$	-	$	359,416	$	359,416
Second lien secured loans		-		-		97,167		97,167
Equity		706		-		12,275		12,981
Total investments	$	706