10-Q 1 tv477361_10q.htm FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, DC 20549

Form 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2017

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, 31^st Floor

Miami, Florida

33131

(Address of Principal Executive Offices)

(Zip Code)

(305) 381-6999

(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 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 and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted 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 and post such files). Yes ¨ No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller reporting 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	x

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 6, 2017 the Registrant had 20,531,948 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, 2017 (Unaudited) and December 31, 2016	3
	Consolidated Statements of Operations for the three and nine months ended September 30, 2017 (Unaudited) and 2016 (Unaudited)	4
	Consolidated Statements of Changes in Net Assets for the nine months ended September 30, 2017 (Unaudited) and 2016 (Unaudited)	5
	Consolidated Statements of Cash Flows for the nine months ended September 30, 2017 (Unaudited) and 2016 (Unaudited)	6
	Consolidated Schedules of Investments as of September 30, 2017 (Unaudited) and December 31, 2016	7
	Notes to the Consolidated Financial Statements (Unaudited)	14
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	31
Item 3.	Quantitative and Qualitative Disclosures about Market Risk	44
Item 4.	Controls and Procedures	44
Part II.	Other Information	45
Item 1.	Legal Proceedings	45
Item 1A.	Risk Factors	45
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	45
Item 3.	Defaults Upon Senior Securities	45
Item 4.	Mine Safety Disclosures	45
Item 5.	Other Information	45
Item 6.	Exhibits	46

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, 2017			December 31, 2016
	(Unaudited)
Assets
Investments, at fair value
Non-controlled/non-affiliate company investments	$	404,752		$	385,216
Non-controlled affiliate company investments		30,571			26,498
Total investments, at fair value (amortized cost $444,896 and $427,689, respectively)		435,323			411,714
Cash and cash equivalents		37,103			17,036
Restricted cash and cash equivalents		4,808			11,858
Receivables from investments sold		1,562			881
Interest receivable		4,538			3,891
Prepaid expenses and other receivables		36			854
Total assets	$	483,370		$	446,234

Liabilities
Debt	$	181,928		$	182,338
Distributions payable		7,284			6,498
Management fees payable		6,518			5,476
Payables for investments purchased		—			995
Accounts payable and accrued expenses		1,604			1,058
Interest payable		488			480
Total liabilities		197,822			196,845

Commitments and contingencies (See Note 7)

Net assets
Common stock, 20,518,104 and 18,303,890 shares issued and outstanding, par value $0.001 per share, respectively, and 100,000,000 authorized		20			18
Paid-in capital in excess of par		302,724			272,242
Accumulated overdistributed net investment income		(6,300	)		(5,423	)
Accumulated realized losses on investments		(686	)		(842	)
Accumulated unrealized depreciation on investments		(10,210	)		(16,606	)
Total net assets		285,548			249,389
Total liabilities and total net assets	$	483,370		$	446,234

Number of shares outstanding		20,518,104			18,303,890
Net asset value per share	$	13.92		$	13.63

See notes to the consolidated financial statements

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,
	2017		2016			2017		2016
Investment income
From non-controlled/non-affiliate company investments
Interest income	$	12,235	$	12,507		$	36,830	$	36,633
Fee income		161		683			1,986		1,615
From non-controlled affiliate company investments
Dividend income		628		840			2,068		2,243
Total investment income		13,024		14,030			40,884		40,491

Expenses
Interest expense		2,379		2,050			7,382		5,917
Base management fees		2,481		2,250			7,133		6,749
Performance-based incentive fees		1,487		1,817			4,852		5,116
Administrative service fees		246		134			538		550
General and administrative expenses		481		511			1,571		1,700
Total expenses		7,074		6,762			21,476		20,032
Net investment income		5,950		7,268			19,408		20,459

Realized and unrealized gains (losses) on investments
Net realized gains (losses)
Non-controlled/non-affiliate company investments		133		660			156		(478	)
Net realized gains (losses)		133		660			156		(478	)
Net change in unrealized appreciation (depreciation)
Non-controlled/non-affiliate company investments		1,390		1,856			2,323		3,466
Non-controlled affiliate company investments		1,583		(1,190	)		4,073		(1,190	)
Net change in unrealized appreciation		2,973		666			6,396		2,276
Net realized and unrealized gains on investments		3,106		1,326			6,552		1,798
Net increase in net assets resulting from operations	$	9,056	$	8,594		$	25,960	$	22,257

Per Common Share Data
Basic and diluted earnings per common share	$	0.45	$	0.47		$	1.36	$	1.22
Dividends and distributions declared per common share	$	0.36	$	0.36		$	1.07	$	1.07
Basic and diluted weighted average common shares outstanding		20,518,104		18,303,890			19,062,764		18,303,890

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Changes in Net Assets (Unaudited)

(in thousands, except share and per share data)

										Accumulated			Accumulated
							Accumulated			Realized			Unrealized
	Common Stock				Paid-in		Overdistributed Net			Gains			Appreciation
			Par		Capital in		Investment			(Losses) on			(Depreciation)			Total Net
	Shares		amount		Excess of Par		Income			Investments			on Investments			Assets
Balance at December 31, 2015		18,303,890	$	18	$	271,679	$	(7,419	)	$	1,176		$	(21,402	)	$	244,052

Net increase in net assets resulting from operations		-		-		-		20,459			(478	)		2,276			22,257

Distributions declared		-		-		-		(19,494	)		-			-			(19,494	)

Balance at September 30, 2016		18,303,890	$	18	$	271,679	$	(6,454	)	$	698		$	(19,126	)	$	246,815

Balance at December 31, 2016		18,303,890	$	18	$	272,242	$	(5,423	)	$	(842	)	$	(16,606	)	$	249,389

Stock issued in connection with public offering		2,200,000		2		30,285		-			-			-			30,287

Stock issued in connection with distribution reinvestment plan		14,214		-		197		-			-			-			197

Net increase in net assets resulting from operations		-		-		-		19,408			156			6,396			25,960

Distributions declared		-		-		-		(20,285	)		-			-			(20,285	)

Balance at September 30, 2017		20,518,104	$	20	$	302,724	$	(6,300	)	$	(686	)	$	(10,210	)	$	285,548

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Statements of Cash Flows (Unaudited)

(in thousands)

	Nine months
	ended September 30,
	2017			2016
Cash flows from operating activities
Net increase in net assets resulting from operations	$	25,960		$	22,257
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:
Paid-in-kind income		(540	)		(834	)
Net realized (gains) losses on investments		(156	)		478
Net unrealized appreciation on investments		(6,396	)		(2,276	)
Accretion of discount		(2,323	)		(2,284	)
Amortization of deferred financing costs		623			642
Acquisition of investments		(94,783	)		(69,610	)
Proceeds from principal payments and sales of portfolio investments		80,589			86,983
Net changes in operating assets and liabilities:
Restricted cash and cash equivalents		7,050			(5,913	)
Interest receivable		(647	)		(559	)
Prepaid expenses and other receivables		818			(193	)
Receivables from investments sold		(681	)		—
Payables for investments purchased		(995	)		(2,865	)
Management fees payable		1,042			2,063
Accounts payable and accrued expenses		546			(8	)
Interest payable		8			385
Net cash provided by operating activities		10,115			28,266

Cash flows from financing activities
Proceeds from sales of common stock, net of offering costs		30,287			—
Borrowings		102,567			101,505
Repayment of debt		(102,567	)		(115,250	)
Deferred financing costs		(1,033	)		—
Distributions paid to common stockholders, net of distributions reinvested		(19,302	)		(19,494	)
Net cash provided by (used in) financing activities		9,952			(33,239	)

Net change in cash and cash equivalents		20,067			(4,973	)
Cash and cash equivalents at beginning of period		17,036			22,769
Cash and cash equivalents at end of period	$	37,103		$	17,796

Supplemental disclosure of cash flow information:
Interest paid	$	6,751		$	4,890

Supplemental non-cash disclosures:
Distributions declared	$	20,285			19,494
Distributions reinvested		197			-

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited)

September 30, 2017

(in thousands)

Investment Type⁽¹⁾	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value⁽⁷⁾		Fair Value As A Percentage of Net Assets
North America
Debt Investments
Advertising
Fluent, LLC (f/k/a Fluent Acquisition II, LLC)
First Lien Secured Term Loan	L+ 11.50% (0.50% Floor)	12.74% (1.00% PIK)	12/08/20	$	25,971	$	25,644	$	25,971	$	9.10	%
Intersection Acquisition, LLC
First Lien Secured Term Loan	L+ 12.25% (1.00% Floor)	13.58% (2.25% PIK)	09/15/20		15,202		15,113		15,050		5.27
Outcome Health
First Lien Secured Term Loan	L+ 6.50% (1.00% Floor)	7.75%	12/22/21		16,241		14,887		16,079		5.63
					57,414		55,644		57,100		20.00
Application Software
Intermedia Holdings, Inc.
Second Lien Secured Term Loan	L+ 9.50% (1.00% Floor)	10.81%	02/03/25		18,000		17,668		17,759		6.22

Auto Parts & Equipment
Crowne Group, LLC
First Lien Secured Term Loan	L+ 9.25% (1.00% Floor)	10.57%	05/26/21		12,125		11,818		12,121		4.24
Broadcasting
Multicultural Radio Broadcasting, Inc.
First Lien Secured Term Loan	L+ 10.50% (1.00% Floor)	11.74%	06/27/19		13,820		13,820		13,752		4.82
Data Processing & Outsourced Services
FPT Operating Company, LLC/
TLabs Operating Company, LLC
First Lien Secured Term Loan	L+ 8.25% (1.00% Floor)	9.49%	12/23/21		23,453		23,100		23,336		8.17
Department Stores
Mills Fleet Farm Group, LLC
Second Lien Secured Term Loan	L+ 9.75% (1.00% Floor)	10.99%	02/26/23		7,146		7,033		7,145		2.50
Diversified Support Services
Account Control Technology Holdings, Inc.
First Lien Secured Term Loan	L+ 8.50% (1.00% Floor)	9.81%	04/28/22		17,575		17,111		17,089		5.98
Climate Pros, Inc.
First Lien Secured Term Loan	L+ 10.00% (1.00% Floor)	11.32% (1.00% PIK)	02/28/22		3,985		3,915		3,985		1.40
Sitel Worldwide Corporation
Second Lien Secured Term Loan	L+ 9.50% (1.00% Floor)	10.81%	09/18/22		8,670		8,547		8,651		3.03
					30,230		29,573		29,725		10.41
Environmental & Facilities Services
Montrose Environmental Group, Inc.
Second Lien Secured Term Loan	L+ 9.50%	10.74%	09/30/20		8,500		8,330		8,330		2.92

Food Retail
AG Kings Holdings, Inc.
First Lien Secured Term Loan	L+ 9.95% (1.00% Floor)	11.28%	08/10/21		13,720		13,262		13,583		4.76
Crews of California, Inc.
First Lien Secured Term Loan	L+ 11.00% (1.00% Floor)	12.23% (1.00% PIK)	11/20/19		17,025		16,886		16,944		5.93
First Lien Secured Revolving Loan	L+ 11.00% (1.00% Floor)	12.23% (1.00% PIK)	11/20/19		5,107		5,051		5,082		1.78
First Lien Secured Delayed Draw Loan	L+ 11.00% (1.00% Floor)	12.23% (1.00% PIK)	11/20/19		4,934		4,883		4,910		1.72
					40,786		40,082		40,519		14.19

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

September 30, 2017

(in thousands)

Investment Type⁽¹⁾	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value⁽⁷⁾		Fair Value As A Percentage of Net Assets
Health Care Facilities
Grupo HIMA San Pablo, Inc.
First Lien Secured Term Loan	L+ 9.00% (1.50% Floor)	10.50%	01/31/18	$	14,300	$	14,280	$	12,474		4.37	%
Second Lien Secured Term Loan	N/A	15.75% (2.00% PIK)	07/31/18		1,027		1,020		240		0.08
					15,327		15,300		12,714		4.45
Internet Retail
Clarus Commerce, LLC
First Lien Secured Term Loan	L+ 10.17% (1.00% Floor)	11.41%	03/17/21		6,000		5,917		6,000		2.10
Internet Software & Services
StackPath, LLC & Highwinds Capital, Inc.
Second Lien Secured Term Loan	L+ 9.50% (1.00% Floor)	10.81%	02/02/24		18,000		17,592		17,667		6.19
Investment Banking and Brokerage
JVMC Holdings Corp. (f/k/a RJO Holdings Corp)
First Lien First Out Secured Term Loan	L+ 8.02% (1.00% Floor)	9.26%	05/05/22		13,331		13,055		13,198		4.62
First Lien Last Out Secured Term Loan	L+ 12.00% (1.00% Floor)	13.24%	05/05/22		4,938		4,835		4,888		1.71
					18,269		17,890		18,086		6.33
IT Consulting & Other Services
AST-Applications Software Technology LLC
First Lien Secured Term Loan	L+ 9.00% (1.00% Floor)	10.24% (2.00% PIK)	01/10/23		4,919		4,817		4,526		1.59
Office Services & Supplies
Katun Corporation
Second Lien Secured Term Loan	L+ 11.25% (1.00% Floor)	12.49%	01/25/21		4,422		4,400		4,390		1.54
Oil & Gas Exploration & Production
Caelus Energy Alaska O3, LLC
Second Lien Secured Term Loan	L+ 7.50% (1.25% Floor)	8.82%	04/15/20		13,000		12,921		10,737		3.76
Other Diversified Financial Services
Sigue Corporation⁽⁴⁾
Second Lien Secured Term Loan	L+ 11.50% (1.00% Floor)	12.83%	12/27/18		25,000		24,876		24,395		8.54
The Pay-O-Matic Corp.
First Lien Secured Term Loan	L+ 11.00% (1.00% Floor)	12.23%	04/02/18		12,259		12,175		12,222		4.28
					37,259		37,051		36,617		12.82
Research & Consulting Services
Project Time & Cost, LLC
First Lien Secured Term Loan	L+ 12.00% (0.50% Floor)	13.24%	10/09/20		9,404		9,291		8,968		3.14
Specialized Consumer Services
Pre-Paid Legal Services, Inc.
Second Lien Secured Term Loan	L+ 9.00% (1.25% Floor)	10.25%	07/01/20		19,000		18,903		19,144		6.70
Specialized Finance
Golden Pear Funding III, LLC⁽⁵⁾
Second Lien Secured Term Loan	L+ 10.25% (1.00% Floor)	11.56%	06/25/20		25,000		24,841		24,797		8.68
Second Lien Secured Revolving Loan	L+ 10.25% (1.00% Floor)	11.56%	06/25/20		5,000		4,968		4,959		1.74
Oasis Legal Finance, LLC⁽⁵⁾
Second Lien Secured Term Loan	L+ 10.75% (1.00% Floor)	11.99%	03/09/22		20,000		19,677		20,000		7.00
					50,000		49,486		49,756		17.42
Trucking
Sunteck / TTS Holdings, LLC
Second Lien Secured Term Loan	L+ 9.00% (1.00% Floor)	10.32%	06/15/22		3,500		3,447		3,456		1.21
Total Debt Investments					410,574		404,083		401,848		140.72

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments (Unaudited) - (continued)

September 30, 2017

(in thousands)

Investment Type⁽¹⁾	Spread Above Index⁽²⁾	Interest Rate⁽³⁾	Maturity Date	Principal/ Share Amount		Amortized Cost		Fair Value⁽⁷⁾		Fair Value As A Percentage of Net Assets

Equity Investments
Advertising
Cogint, Inc. (f/k/a IDI, Inc.) Warrants⁽⁴⁾	N/A	N/A	12/08/25	$	187	$	-	$	243		0.09	%

Food Retail
Crews of California, Inc. Warrants ⁽⁴⁾	N/A	N/A	12/31/24		-		-		1,544		0.54
Nicholas & Associates, LLC Warrants⁽⁴⁾	N/A	N/A	12/31/24		3		-		248		0.09
Pinnacle Management Group, LLC Warrants⁽⁴⁾	N/A	N/A	12/31/24		3		-		551		0.19
RC3 Enterprises, LLC Warrants⁽⁴⁾	N/A	N/A	12/31/24		3		-		138		0.05
					9		-		2,481		0.87
Other Diversified Financial Services
Aretec Group, Inc. ^(4)(5)(6)	N/A	N/A	N/A		536		20,693		12,329		4.32

Specialized Finance
NMFC Senior Loan Program I LLC Units ^(4)(5)(6)	N/A	N/A	06/13/20		20,000		20,120		18,242		6.39

Trucking
Fox Rent A Car, Inc. Warrants⁽⁴⁾	N/A	N/A	N/A		-		-		180		0.06

Total Equity Investments					20,732		40,813		33,475		11.73

Total Investments				$	431,306	$	444,896	$	435,323		152.45

⁽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. The 1, 3 and 6-month LIBOR were 1.2%, 1.3% and 1.5%, respectively, as of September 30, 2017.

⁽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 83% 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⁾

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

See notes to the consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments

December 31, 2016

(in thousands)

Investment Type ⁽¹⁾	Spread Above Index ⁽²⁾	Interest Rate ⁽³⁾	Maturity Date	Principal Amount		Amortized Cost		Fair Value		Fair Value as a Percentage Of Net Assets
North America
Debt Investments
Advertising
Outcome Health
First Lien Secured Term Loan	L+6.50% (1.00% Floor)	7.50%	12/22/21	$	18,500	$	16,652	$	16,872		6.77	%
Fluent Acquisition II, LLC
First Lien Secured Term Loan	L+11.50% (0.50% Floor)	12.19% (1.00% PIK)	12/8/20		26,885		26,466		26,745		10.72
Intersection Acquisition, LLC
First Lien Secured Term Loan	L+10.00% (1.00% Floor)	11.00%	9/15/20		16,149		16,029		15,597		6.25
					61,534		59,147		59,214		23.74
Auto Parts & Equipment
Crowne Group, LLC
First Lien Secured Term Loan	L+9.25% (1.00% Floor)	10.25%	5/26/21		12,406		12,027		12,282		4.92
Broadcasting
Multicultural Radio Broadcasting, Inc.
First Lien Secured Term Loan	L+10.50% (1.00% Floor)	11.50%	6/27/19		14,850		14,850		14,776		5.92
Data Processing & Outsourced Services
FPT Operating Company, LLC/ TLabs Operating Company, LLC
First Lien Secured Term Loan	L+8.25% (1.00% Floor)	9.25%	12/23/21		23,750		23,329		23,370		9.37
Department Stores
Mills Fleet Farm Group, LLC
Second Lien Secured Term Loan	L+9.75% (1.00% Floor)	10.75%	2/26/23		7,146		7,017		7,146		2.87

See notes to consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2016

(in thousands)

Investment Type ⁽¹⁾	Spread Above Index ⁽²⁾	Interest Rate ⁽³⁾	Maturity Date	Principal Amount		Amortized Cost		Fair Value		Fair Value as a Percentage Of Net Assets
Distributors
360 Holdings III Corp.
First Lien Secured Term Loan	L+9.00% (1.00% Floor)	10.00%	10/1/21	$	9,875	$	9,549	$	9,875		3.96	%
Diversified Support Services
Sitel Worldwide Corporation
Second Lien Secured Term Loan	L+9.50% (1.00% Floor)	10.50%	9/18/22		8,670		8,528		8,462		3.39
Electronic Equipment & Instruments
AP Gaming I, LLC ⁽⁴⁾
First Lien Secured Term Loan	L+8.25% (1.00% Floor)	9.25%	12/20/20		9,700		9,533		9,523		3.82
Food Retail
AG Kings Holdings, Inc.
First Lien Secured Term Loan	L+9.95% (1.00% Floor)	10.95%	8/10/21		13,930		13,375		13,610		5.46
Crews of California, Inc.
First Lien Secured Term Loan	L+11.00% (1.00% Floor)	12.00% (1.00% PIK)	11/20/19		17,538		17,343		17,461		7.00
First Lien Secured Revolving Loan	L+11.00% (1.00% Floor)	12.00% (1.00% PIK)	11/20/19		5,068		4,992		5,046		2.02
First Lien Secured Delayed Draw Term Loan	L+11.00% (1.00% Floor)	12.00% (1.00% PIK)	11/20/19		5,083		5,012		5,061		2.03
					41,619		40,722		41,178		16.51
Health Care Facilities
Coastal Sober Living, LLC
First Lien Secured Term Loan	L+10.25% (1.00% Floor)	11.25%	6/30/19		23,183		22,964		23,183		9.30
Grupo HIMA San Pablo, Inc.
First Lien Secured Term Loan	L+9.00% (1.50% Floor)	10.50%	1/31/18		14,438		14,375		12,569		5.04
Second Lien Secured Term Loan	N/A	15.75%	7/31/18		1,000		986		594		0.24
					38,621		38,325		36,346		14.58
Integrated Telecommunication Services
Securus Technologies Holdings, Inc.
Second Lien Secured Term Loan	L+7.75% (1.25% Floor)	9.00%	4/30/21		9,090		9,067		8,841		3.55
Internet Retail
Clarus Commerce, LLC
First Lien Secured Term Loan	L+11.14% (1.00% Floor)	12.14%	3/17/21		6,000		5,899		5,895		2.36

See notes to consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2016

(in thousands)

Investment Type ⁽¹⁾	Spread Above Index ⁽²⁾	Interest Rate ⁽³⁾	Maturity Date	Principal Amount		Amortized Cost		Fair Value		Fair Value as a Percentage Of Net Assets
Office Service & Supplies
Katun Corporation
Second Lien Secured Term Loan	L+11.25% (1.00% Floor)	12.25%	1/25/21	$	5,000	$	4,970	$	4,930		1.98	%
Oil & Gas Drilling
ProPetro Services, Inc. ⁽⁴⁾
First Lien Secured Term Loan	L+6.25% (1.00% Floor)	7.25%	9/30/19		8,284		8,246		7,189		2.88
Oil & Gas Exploration & Production
Caelus Energy Alaska O3, LLC
Second Lien Secured Term Loan	L+7.50% (1.25% Floor)	8.75%	4/15/20		13,000		12,898		9,939		3.99
Other Diversified Financial Services
The Pay-O-Matic Corp.
First Lien Secured Term Loan	L+11.00% (1.00% Floor)	12.00%	4/2/18		8,934		8,860		8,904		3.57
Sigue Corporation ⁽⁴⁾
Second Lien Secured Term Loan	L+11.00% (1.00% Floor)	12.00%	12/27/18		25,000		24,801		24,200		9.70
					33,934		33,661		33,104		13.27
Research & Consulting Services
Project Time & Cost, LLC ⁽⁴⁾
First Lien Secured Term Loan	L+12.00% (0.50% Floor)	12.74%	10/9/20		10,105		9,953		9,845		3.95
Specialized Consumer Services
Pre-Paid Legal Services, Inc. ⁽⁴⁾
Second Lien Secured Term Loan	L+9.00% (1.25% Floor)	10.25%	7/1/20		19,000		18,882		19,000		7.62
Specialized Finance
Golden Pear Funding III, LLC ⁽⁵⁾
Second Lien Secured Term Loan	L+10.25% (1.00% Floor)	11.25%	6/25/20		25,000		24,797		24,732		9.92
Second Lien Secured Revolving Loan	L+10.25% (1.00% Floor)	11.25%	6/25/20		5,000		4,959		4,947		1.98
Oasis Legal Finance, LLC ⁽⁵⁾
Second Lien Secured Term Loan	L+10.75% (1.00% Floor)	11.75%	3/1/22		20,000		19,623		19,650		7.88
					50,000		49,379		49,329		19.78
Trucking
Fox Rent A Car, Inc.
First Lien Secured Term Loan	L+12.00% (0.62% Floor)	12.62%	9/30/17		7,500		7,455		7,410		2.97
Sunteck/TSS Holdings, LLC
Second Lien Secured Term Loan	L+9.00% (1.00% Floor)	10.00%	6/15/22		3,500		3,439		3,454		1.39
					11,000		10,894		10,864		4.35
Total Debt Investments					393,584		386,876		381,108		152.88
Equity Investments
Advertising
IDI, Inc. Warrants ⁽⁴⁾	N/A	N/A	12/8/25		-		-		-		-

See notes to consolidated financial statements

WhiteHorse Finance, Inc.

Consolidated Schedule of Investments - (continued)

December 31, 2016

(in thousands)

Investment Type ⁽¹⁾	Spread Above Index ⁽²⁾	Interest Rate ⁽³⁾	Maturity Date	Principal Amount		Amortized Cost		Fair Value		Fair Value as a Percentage Of Net Assets
Food Retail
Crews of California, Inc. Warrants ⁽⁴⁾	N/A	N/A	12/31/24	$	-	$	-	$	2,426		0.97	%
Nicholas & Associates, LLC Warrants ⁽⁴⁾	N/A	N/A	12/31/24		-		-		417		0.17
Pinnacle Management Group, LLC Warrants ⁽⁴⁾	N/A	N/A	12/31/24		-		-		871		0.35
RC3 Enterprises, LLC Warrants ⁽⁴⁾	N/A	N/A	12/31/24		-		-		232		0.09
					-		-		3,946		1.58
Other Diversified Financial Services
Aretec Group, Inc. ^{(4) (5) (6)}	N/A	N/A	N/A		-		20,693		7,505		3.01
Specialized Finance
NMFC Senior Loan Program I LLC Units ⁽⁵⁾⁽⁶⁾	N/A	N/A	6/10/19		-		20,120		18,993		7.62
Trucking
Fox Rent A Car, Inc. Warrants ⁽⁴⁾	N/A	N/A	N/A		-		-		162		0.06
Total Equity Investments					-		40,813		30,606		12.21
Total Investments				$	393,584	$	427,689	$	411,714		165.09	%

(1)

Except as otherwise noted, all investments are non-controlled/non-affiliate investments as defined by 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 LIBOR, which resets monthly, quarterly or semiannually.

(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)

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

(5)

(6)

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

See notes to consolidated financial statements

WhiteHorse Finance, Inc.

Notes to Consolidated Financial Statements (Unaudited)

September 30, 2017

(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, Inc. and its wholly owned subsidiaries, WhiteHorse Finance Credit I, LLC (“WhiteHorse Credit”) and WhiteHorse Finance Warehouse, LLC (“WhiteHorse Warehouse”), and its subsidiary, Bayside Financing S.A.R.L. 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 and 10 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, 2016. 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, 2017.

Reclassifications: Certain reclassifications have been made to prior fiscal year amounts or balances to conform to the presentation 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.

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 Accounting Standards Codification (“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.

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.

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 fee 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.

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

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.

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 shareholders 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, 2017 and December 31, 2016.

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, 2017 or December 31, 2016. 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 2013 remain subject to examination by the Internal Revenue Service.

As of September 30, 2017, the cost of investments for federal income tax purposes was $444,953, resulting in net unrealized depreciation of $9,630. This is comprised of gross unrealized appreciation of $6,694 and gross unrealized depreciation of $16,324 on a tax basis as of September 30, 2017.

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 its investments are fairly stated, taking into consideration these risks along with estimated collateral values, payment histories and other market information.

Newly Adopted Accounting Standards: As permitted by Section 7(a)(2)(B) of the Securities Act of 1933, as amended, the Company has elected to defer the adoption of new and revised accounting standards applicable to public companies until they are also applicable to private companies. There are currently no such standards being deferred that will, in management’s opinion, have a material impact on the consolidated financial statements. It is anticipated that the Company will maintain its status as an emerging growth company through December 31, 2017 (the last day of the fiscal year following the fifth anniversary date of the Company’s initial public offering). As a result, the Company will no longer defer the adoption of new and revised accounting standards applicable to public companies subsequent to December 31, 2017.

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 is currently evaluating the impact of this guidance on its consolidated financial statements and related disclosures and does not expect this guidance to have a material impact as the Company does not hold any material purchased callable debt securities at a premium.

During January 2017, the FASB issued ASU 2017-01, Business Combinations (Topic 805): Clarifying the Definition of a Business, which clarifies the definition of a business with the objective of adding guidance to assist companies with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or businesses. The new guidance is expected to reduce the number of transactions that need to be further evaluated as businesses. This guidance is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted for certain types of transactions. The Company is currently evaluating the impact that ASU 2017-01 will have on its consolidated financial statements and related disclosures and does not expect the adoption of this standard to have any material impact on its financial condition, results of operations or cash flows.

During November 2016, the FASB issued ASU 2016-18, Statement of Cash Flows (Topic 230), which requires that a statement of cash flows explain the change during the period in the total of cash, cash equivalents, and amounts generally described as restricted cash or restricted cash equivalents. Therefore, amounts generally described as restricted cash and restricted cash equivalents should be included with cash and cash equivalents when reconciling the beginning-of-period and end-of-period total amounts shown on the statement of cash flows. The new guidance is effective for interim and annual periods beginning after December 15, 2017 and early adoption is permitted. The amendment should be adopted retrospectively. The Company currently presents its restricted cash and changes in its restricted cash separately on its consolidated statements of assets and liabilities and consolidated statements of cash flows, respectively. The Company is currently evaluating the impact that ASU 2016-18 would have on its consolidated financial statements and related disclosures. Since the guidance only affects the presentation of its consolidated statements of cash flows, the Company does not expect this guidance to have any impact on its financial condition or its results of operations.

During August 2016, the FASB issued ASU 2016-15, Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments , which addresses eight specific cash flow issues including, among other things, the classification of debt prepayment or debt extinguishment costs. ASU 2016-15 is effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2017. Early adoption is permitted. The Company is currently evaluating the impact that ASU 2016-15 would have on its consolidated financial statements and related disclosures. Since the guidance only affects the presentation of its consolidated statements of cash flows, the Company does not expect this guidance to have any impact on its financial condition or its results of operations.

During March 2016, the FASB issued ASU 2016-06, Derivatives and Hedging (Topic 815): Contingent Put and Call Options in Debt Instruments (a consensus of the Emerging Issues Task Force ), which clarifies the requirements for assessing whether contingent call (put) options that can accelerate the payment of principal on debt instruments are clearly and closely related to their debt hosts and requires that an entity assess the embedded call (put) options solely in accordance with the four-step decision sequence in ASC Topic 815. ASU 2016-06 is effective for fiscal years beginning after December 15, 2017. Early adoption is permitted, including adoption in an interim period. For public filers that are not emerging growth companies, the guidance was effective for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2016. The Company does not expect the adoption of this standard to have any material impact on its results of operations or cash flows.

During January 2016, the FASB issued ASU 2016-01, Financial Instruments - Overall (Subtopic 825-10): Recognition and Measurement of Financial Assets and Financial Liabilities , which, among other things, requires that (i) all equity investments, other than equity-method investments, in unconsolidated entities generally be measured at fair value through earnings and (ii) an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments. Additionally, this ASU changes the disclosure requirements for financial instruments. This guidance is effective for annual reporting periods, and the interim periods within those periods, beginning after December 15, 2017. Early adoption is permitted for certain provisions. The Company is currently evaluating the impact that ASU 2016-01 would have on its consolidated financial statements and related disclosures and does not expect the guidance to have a material impact as the Company does not hold any investments at amortized cost.

In May 2014, the FASB issued ASU 2014-09, Revenue from Contracts with Customers (Topic 606). The guidance in this ASU supersedes the revenue recognition requirements in Revenue Recognition (Topic 605). Under the new guidance, an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in exchange for those goods or services. The amendments in ASU 2014-09 are effective for annual reporting periods, including interim periods within those reporting periods, beginning after December 15, 2017. In March 2016, the FASB issued ASU 2016-08, Revenue from Contracts with Customers (Topic 606): Principal versus Agent Considerations, which clarifies the guidance in ASU 2014-09. In April 2016, the FASB issued ASU 2016-10, Revenue from Contracts with Customers (Topic 606): Identifying Performance Obligations and Licensing, an update on identifying performance obligations and accounting for licenses of intellectual property. In May 2016, the FASB issued ASU 2016-12, Revenue from Contracts with Customers (Topic 606): Narrow-Scope Improvements and Practical Expedients, which includes amendments for enhanced clarification of the guidance. In December 2016, the FASB issued ASU 2016-20, Technical Corrections and Improvements to Revenue from Contracts with Customers (Topic 606). The amendments in this update are of a similar nature to the items typically addressed in the technical corrections and improvements project. Additionally, in February 2017, the FASB issued ASU 2017-05, Other Income - Gains and Losses from the Derecognition of Nonfinancial Assets (Subtopic 610-20): Clarifying the Scope of Asset Derecognition Guidance and Accounting for Partial Sales of Nonfinancial Assets, an update clarifying that a financial asset is within the scope of Subtopic 610-20 if it is deemed an “in-substance non-financial asset.” All of the guidance issued in conjunction with ASU 2014-09 have the same effective date as the original standard and should be adopted concurrent with the adoption of ASU 2014-09. The application of this guidance, which the Company will adopt for periods beginning after December 15, 2017, is not expected to have a material impact on the Company’s consolidated financial statements.

NOTE 3 - INVESTMENTS

Investments consisted of the following:

	September 30, 2017				December 31, 2016
	Amortized Cost		Fair Value		Amortized Cost		Fair Value
First lien secured loans	$	229,859	$	230,178	$	246,909	$	245,213
Second lien secured loans		174,224		171,670		139,967		135,895
Equity		40,813		33,475		40,813		30,606
Total	$	444,896	$	435,323	$	427,689	$	411,714

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

	September 30, 2017				December 31, 2016
Advertising	$	57,343	13.17	%	$	59,214	14.38	%
Application Software		17,759	4.08			-	-
Auto Parts & Equipment		12,121	2.78			12,282	2.98
Broadcasting		13,752	3.16			14,776	3.59
Data Processing & Outsourced Services		23,336	5.36			23,370	5.68
Department Stores		7,145	1.64			7,146	1.74
Distributors		-	-			9,875	2.40
Diversified Support Services		29,725	6.83			8,462	2.06
Electronic Equipment & Instruments		-	-			9,523	2.31
Environmental & Facilities Services		8,330	1.91			-	-
Food Retail		43,000	9.88			45,124	10.96
Health Care Facilities		12,714	2.92			36,346	8.83
Integrated Telecommunication Services		-	-			8,841	2.15
Internet Retail		6,000	1.38			5,895	1.43
Internet Software & Services		17,667	4.06			-	-
Investment Banking & Brokerage		18,086	4.15			-	-
IT Consulting & Other Services		4,526	1.04			-	-
Office Services & Supplies		4,390	1.01			4,930	1.20
Oil & Gas Drilling		-	-			7,189	1.75
Oil & Gas Exploration & Production		10,737	2.47			9,939	2.41
Other Diversified Financial Services		48,946	11.24			40,609	9.86
Research & Consulting Services		8,968	2.06			9,845	2.39
Specialized Consumer Services		19,144	4.40			19,000	4.61
Specialized Finance		67,998	15.62			68,322	16.59
Trucking		3,636	0.84			11,026	2.68
Total	$	435,323	100.00	%	$	411,714	100.00	%

The portfolio companies underlying the investments are located in the United States. As of each of September 30, 2017 and December 31, 2016, the weighted average remaining term of the Company’s debt investments was approximately 3.4 years and 3.7 years, respectively.

As of September 30, 2017 and December 31, 2016, the Company did not hold any non-accrual loans.

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 nine months ended September 30, 2017:

Affiliated Person⁽¹⁾	Type of Asset	Amount of dividends and interest included in income		Beginning Fair Value at December 31, 2016		Purchases		Sales		Realized Gain (Loss)		Change in Unrealized Appreciation (Depreciation)			Ending Fair Value at September 30, 2017
Aretec Group, Inc.	Equity	$	-	$	7,505	$	-	$	-	$	-	$	4,824		$	12,329
NMFC Senior Loan Program I LLC Units	Equity		2,068		18,993		-		-		-		(751	)		18,242
Total		$	2,068	$	26,498	$	-	$	-	$	-	$	4,073		$	30,571

⁽¹⁾

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

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, 2017 and 2016, 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 arms’-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.

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of September 30, 2017:

	Level 1		Level 2		Level 3		Total
First lien secured loans	$	-	$	-	$	230,178	$	230,178
Second lien secured loans		-		-		171,670		171,670
Equity		-		-		33,475		33,475
Total investments	$	-	$	-	$	435,323	$	435,323

The following table presents investments (as shown on the consolidated schedule of investments) that were measured at fair value as of December 31, 2016:

	Level 1		Level 2		Level 3		Total
First lien secured loans	$	-	$	-	$	245,213	$	245,213
Second lien secured loans		-		-		135,895		135,895
Equity		-		-		30,606		30,606
Total investments	$	-	$	-	$	411,714	$	411,714

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three months ended September 30, 2017:

	First Lien Secured Loans			Second Lien Secured Loans			Equity		Total Investments
Fair value, beginning of period	$	242,659		$	163,288		$	31,946	$	437,893
Acquisition of investments		-			8,330			-		8,330
Paid-in-kind income		186			28			-		214
Accretion of discount		510			124			-		634
Proceeds from principal payments and sales of portfolio investments		(14,854	)		-			-		(14,854	)
Net realized gains		133			-			-		133
Net unrealized appreciation (depreciation)		1,544			(100	)		1,529		2,973
Fair value, end of period	$	230,178			171,670			33,475		435,323
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2017	$	1,585		$	(100	)	$	1,529	$	3,014

The following table presents the changes in investments measured at fair value using Level 3 inputs for the nine months ended September 30, 2017:

	First Lien Secured Loans			Second Lien Secured Loans			Equity		Total Investments
Fair value, beginning of period	$	245,213		$	135,895		$	30,606	$	411,714
Acquisition of investments		51,263			43,520			-		94,783
Paid-in-kind income		512			28			-		540
Accretion of discount		1,964			359			-		2,323
Proceeds from principal payments and sales of portfolio investments		(70,921	)		(9,668	)		-		(80,589	)
Net realized gains		133			23			-		156
Net unrealized appreciation		2,014			1,513			2,869		6,396
Fair value, end of period	$	230,178			171,670			33,475		435,323
Change in unrealized appreciation on investments still held as of September 30, 2017	$	1,448		$	1,292		$	2,869	$	5,609

The following table presents the changes in investments measured at fair value using Level 3 inputs for the three months ended September 30, 2016:

	First Lien Secured Loans			Second Lien Secured Loans			Equity			Total Investments
Fair value, beginning of period	$	208,600		$	163,105		$	29,155		$	400,860
Funding of investments		8,895			19,600			-			28,495
Non-cash interest income		218			93			-			311
Accretion of discount		751			499			(41	)		1,209
Proceeds from principal payments and sales of portfolio investments		(19,658	)		(9,000	)		(657	)		(29,315	)
Net realized gains		3						657			660
Net unrealized appreciation (depreciation)		1,773			(1,721	)		613			666
Fair value, end of period	$	200,582			172,577			29,727			402,886
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2016	$	1,797		$	(1,696	)	$	565		$	666

The following table presents the changes in investments measured at fair value using Level 3 inputs for the nine months ended September 30, 2016:

	First Lien Secured Loans			Second Lien Secured Loans			Equity			Total Investments
Fair value, beginning of period	$	215,641		$	178,196		$	21,506		$	415,343
Funding of investments		32,540			37,070			-			69,610
Non-cash interest income		556			278			-			834
Accretion of discount		1,323			1,002			(41	)		2,284
Proceeds from principal payments and sales of portfolio investments		(50,808	)		(35,518	)		(657	)		(86,983	)
Conversion from debt to equity		-			(7,263	)		7,263			-
Net realized (losses) gains		(1,135	)		-			657			(478	)
Net unrealized appreciation (depreciation)		2,465			(1,188	)		999			2,276
Fair value, end of period	$	200,582			172,577			29,727			402,886
Change in unrealized appreciation (depreciation) on investments still held as of September 30, 2016	$	2,115		$	(1,143	)	$	952		$	1,924

The significant unobservable inputs used in the fair value measurement of the Company’s investments are the discount rate, market quotes and exit multiples. An increase or decrease in the discount rate in isolation may result in significantly lower or higher fair value measurement, respectively. An increase or decrease in the market quote for an investment may in isolation result in significantly higher or lower fair value measurement, respectively. An increase or decrease in the exit multiple may in isolation result in significantly higher or lower fair value measurement, respectively. As the fair value of a debt investment diverges from par, which would generally be the case for non-accrual loans, the fair value measurement of that investment is more susceptible to volatility from changes in exit multiples as a significant unobservable input.

Quantitative information about Level 3 fair value measurements is as follows:

Investment Type	Fair Value at September 30, 2017		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
First lien secured loans	$	166,702	Discounted cash flows	Discount rate	10.4% – 79.8% (19.1%)
				Exit multiple	2.6x – 8.0x (6.5x)
		63,476	Weighting of discounted cash	Discount rate	9.2% – 15.1% (11.3%)
			flows and consensus pricing	Market quotes	97.1 – 99.8 (98.0)
				Exit multiple	5.0x – 8.0x (5.8x)
	$	230,178

Second lien secured loans	$	89,382	Discounted cash flows	Discount rate	11.7% – 112.2% (15.0%)
				Exit multiple	2.6x – 8.0x (5.4x)
		82,288	Weighting of discounted cash	Discount rate	11.2% – 15.4% (12.7%)
			flows and consensus pricing	Market quotes	87.5 – 101.1 (97.0)
				Exit multiple	5.0x – 9.0x (7.5x)
	$	171,670

Common Equity	$	18,242	Discounted cash flows	Discount rate	11.6%
		12,329	Weighting of discounted cash	Discount rate	24.5%
			flows, market multiple and	Exit multiple	7.0x
			consensus pricing	Market quotes	$30.0/s
	$	30,571

Warrant	$	2,904	Discounted cash flows,	Discount rate	18.5%
			Option-pricing method	Exit multiple	7.0x – 7.5x (7.0x)
				Volatility	18.0% - 25.0% (24.4%)
	$	2,904

Total Level 3 Investments	$	435,323

Investment Type	Fair Value at December 31, 2016		Valuation Techniques	Unobservable Inputs	Range (Weighted Average)
First lien secured loans	$	162,078	Discounted cash flows	Discount rate	11.8% - 15.7% (13.3%)
				Exit multiple	5.0x - 16.6x (6.9x)
		83,135	Weighting of discounted cash	Discount rate	8.5% - 23.2% (13.0%)
			flows and consensus pricing	Market quotes	77.3 - 98.9 (92.5)
				Exit multiple	3.5x - 8.0x (5.9x)
	$	245,213

Second lien secured loans	$	66,549	Discounted cash flows	Discount rate	12.1% - 66.8% (14.6%)
				Exit multiple	2.8x - 4.5x (4.2x)
		69,346	Weighting of discounted cash	Discount rate	11.0% - 19.2% (13.5%)
			flows and consensus pricing	Market quotes	83.8 - 100.0 (95.7)
				Exit multiple	5.0x - 8.5x (6.4x)
	$	135,895

Equity	$	18,993	Discounted cash flows	Discount rate	11.8%
		7,505	Weighting of discounted cash	Discount rate	20.2%
			flows, market multiple and	Exit multiple	7.0x
			consensus pricing	Market quotes	$14.5/s
	$	26,498

Warrants		4,108	Discounted cash flows	Discount rate	18.0% - 25.0% (18.0%)
			Option-pricing method	Exit multiple	6.0x - 16.6x (6.4x)
				Volatility	25.0%
Total Level 3 investments	$	411,714

Valuation of investments may be determined by weighting various valuation techniques. Significant judgment is required in selecting the assumptions used to determine the fair values of these investments. The valuation methods selected for a particular investment are based on the circumstances and on the sufficiency of data available to measure fair value. If more than one valuation method is used to measure fair value, the results are evaluated and weighted, as appropriate, considering the reasonableness of the range indicated by those results. A fair value measurement is the point within that range that is most representative of fair value in the circumstances.

The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the nature of the instrument, whether the instrument is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires a greater degree of judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.

The determination of fair value using the selected methodologies takes into consideration a range of factors including the price at which the investment was acquired, the nature of the investment, local market conditions, trading values on public and private exchanges for comparable securities, current and projected operating performance and financing transactions subsequent to the acquisition of the investment, compliance with agreed upon terms and covenants, and assessment of credit ratings of an underlying borrower. These valuation methodologies involve a significant degree of judgment to be exercised.

As it relates to investments which do not have an active public market, there is no single standard for determining the estimated fair value. Valuations of privately held investments are inherently uncertain, and they may fluctuate over short periods of time and may be based on estimates. The determination of fair value may differ materially from the values that would have been used if a ready market for these investments existed.

In some cases, fair value for such investments is best expressed as a range of values derived utilizing different methodologies from which a single estimate may then be determined. Consequently, fair value for each investment may be derived using a combination of valuation methodologies that, in the judgment of the investment professionals, are most relevant to such investment. The selected valuation methodologies for a particular investment are consistently applied on each measurement date. However, a change in a valuation methodology or its application from one measurement date to another is possible if the change results in a measurement that is equally or more representative of fair value in the circumstances.

The following table presents the amortized cost and fair values of the Company’s borrowings as of September 30, 2017 and December 31, 2016. The amortized cost disclosed below excludes debt issuance costs. The fair value of the Credit Facility (as defined in Note 5) was estimated by discounting remaining payments using applicable market rates or market quotes for similar instruments at the measurement date, if available. The fair value of the Company’s 6.50% senior notes due 2020 (the “Senior Notes”) was estimated using the trailing 10-day volume-weighted average quoted price as of the valuation date.

			September 30, 2017				December 31, 2016
	Fair Value Level		Amortized Cost		Fair Value		Amortized Cost		Fair Value
Credit Facility		3	$	155,000	$	156,401	$	155,000	$	156,786
Senior Notes		2		30,000		30,768		30,000		30,727
			$	185,000	$	187,169	$	185,000	$	187,513

NOTE 5 - BORROWINGS

In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that its asset coverage, as defined in the 1940 Act, is at least 200% after giving effect to such borrowing. As of September 30, 2017, the Company’s asset coverage for borrowed amounts was 254.4%.

Total borrowings outstanding and undrawn as of September 30, 2017, was as follows:

	Maturity		Rate			Face Amount			Undrawn
Credit Facility		2021		L+2.75	%	$	155,000		$	45,000
Senior Notes		2020		6.50	%		30,000			-
Total debt							185,000		$	45,000
Debt issuance cost							(3,072	)
Total debt net issuance cost						$	181,928

Total borrowings outstanding and undrawn as of December 31, 2016, was as follows:

	Maturity		Rate			Face Amount			Undrawn
Credit Facility		2019		L+2.90	%	$	155,000		$	45,000
Senior Notes		2020		6.50	%		30,000			-
Total debt							185,000		$	45,000
Debt issuance cost							(2,662	)
Total debt net issuance cost						$	182,338

Credit Facility: On December 23, 2015, WhiteHorse Credit entered into a $200,000 revolving credit and security agreement with JPMorgan Chase Bank, National Association (“JPMorgan”), as administrative agent and lender (the “Credit Facility”). On June 27, 2016, the Credit Facility was amended and restated to clarify certain terms. On June 29, 2017, WhiteHorse Credit and JPMorgan further amended the terms of the Credit Facility to, among other things, (i) extend the maturity date to December 29, 2021, (ii) increase the amount contained within the accordion feature which allows for the expansion of the borrowing limit from $220,000 to $235,000 and (iii) reduce the interest rate spread applicable on outstanding borrowings to 2.75%.

The Credit Facility bears interest at LIBOR plus 2.75% on outstanding borrowings. The Company is required to pay a non-usage fee which accrued at 0.50% per annum through September 22, 2016, and at 1.00% per annum thereafter (or 0.60% per annum with respect to any date in which the aggregated amount of outstanding borrowings is greater than 77.5% of the total commitments), on the average daily unused amount of the financing commitments to the extent the aggregate principal amount available under the Credit Facility has not been borrowed. The commitment fee was waived through September 22, 2016 while borrowings under the Credit Facility exceeded $100,000. Prior to December 29, 2020, the Company, at its discretion and option, may increase the total borrowing limit under the Credit Facility from $200,000 to $235,000 (with the required minimum outstanding borrowings also increasing from $155,000 to $175,000) by submitting written notification of such intent and subject to consent from the lender and other terms provided for under the Credit Facility. In connection with the Credit Facility, WhiteHorse Credit pledged securities with a fair value of approximately $375,606 as of September 30, 2017 as collateral. The Credit Facility has a final maturity date of December 29, 2021. Under the Credit Facility, the Company has made certain customary representations and warranties and is required to comply with various covenants, including leverage restrictions, reporting requirements and other customary requirements for similar credit facilities. As of September 30, 2017, the Company had $155,000 in outstanding borrowings and $45,000 undrawn under the Credit Facility. Weighted average outstanding borrowings were $155,473 and $167,565 at a weighted average interest rate of 4.01% and 3.98%, respectively, for the three and nine months ended September 30, 2017. At September 30, 2017, the interest rate in effect was 4.07%. The Company’s ability to draw down undrawn funds under the Credit Facility is determined by collateral and portfolio quality requirements stipulated in the credit and security agreement. At September 30, 2017, approximately $45,000 was available to be drawn by the Company based on these requirements.

Senior Notes: On July 23, 2013, the Company completed a public offering of $30,000 of aggregate principal amount of the Senior Notes, the net proceeds of which were used to reduce outstanding obligations under the Company’s unsecured term loan, which was repaid in full on June 30, 2016. Interest on the Senior Notes is paid quarterly on March 31, June 30, September 30 and December 31, at an annual rate of 6.50%. The Senior Notes mature on July 31, 2020. The Senior Notes are the Company’s direct senior unsecured obligations and are structurally subordinate to borrowings under the Credit Facility. The Senior Notes are listed on the NASDAQ Global Select Market under the symbol “WHFBL.”

NOTE 6 - RELATED PARTY TRANSACTIONS

Investment Advisory Agreement: WhiteHorse Advisers serves as the Company’s investment adviser in accordance with the terms of an investment advisory agreement (the “Investment Advisory Agreement”). The Company’s board of directors most recently reapproved the Investment Advisory Agreement on August 3, 2017. Subject to the overall supervision of the Company’s board of directors, WhiteHorse Advisers manages the day-to-day operations of, and provides investment management services to, the Company. Under the terms of the Investment Advisory Agreement, WhiteHorse Advisers:

determines the composition of the investment portfolio, the nature and timing of the changes to the portfolio and the manner of implementing such changes;

identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and

closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.

In addition, WhiteHorse Advisers provides the Company with access to personnel and an investment committee. Under the Investment Advisory Agreement, the Company pays WhiteHorse Advisers a fee for investment management services consisting of a base management fee and an incentive fee. The Investment Advisory Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party.

Base Management Fee

The base management fee is calculated at an annual rate of 2.0% of consolidated gross assets, including cash and cash equivalents and assets purchased with borrowed funds, at the end of the two most recently completed calendar quarters, and is payable quarterly in arrears. Base management fees for any partial month or quarter is appropriately pro-rated.

During the three and nine months ended September 30, 2017, the Company incurred base management fees of $2,481 and $7,133, respectively. During the three and nine months ended September 30, 2016, the Company incurred base management fees of $2,250 and $6,749, respectively.

Performance-based Incentive Fee

The performance-based incentive fee consists of two components that are independent of each other, except as provided by the Incentive Fee Cap and Deferral Mechanism discussed below.

The calculations of these two components have been structured to include a fee limitation such that no incentive fee will be paid to the investment adviser for any quarter if, after such payment, the cumulative incentive fees paid to the investment adviser for the period that includes the current fiscal quarter and the 11 full preceding fiscal quarters, referred to as the “Incentive Fee Look-back Period,” would exceed 20.0% of the Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period. Each quarterly incentive fee is subject to the Incentive Fee Cap (as defined below) and a deferral mechanism through which the investment adviser may recap a portion of such deferred incentive fees, which is referred to together as the “Incentive Fee Cap and Deferral Mechanism.”

This limitation is accomplished by subjecting each incentive fee payable to a cap, which is referred to as the “Incentive Fee Cap.” The Incentive Fee Cap in any quarter is equal to (a) 20.0% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the investment adviser during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any quarter, the Company will pay no incentive fee to its investment adviser in that quarter. The Company will only pay incentive fees to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. To the extent that the payment of incentive fees is limited by the Incentive Fee Cap and Deferral Mechanism, the payment of such fees may be deferred and paid in subsequent quarters up to three years after their date of deferment, subject to applicable limitations included in the Investment Advisory Agreement. The deferral component of the Incentive Fee Cap and Deferral Mechanism may cause incentive fees that accrued during one fiscal quarter to be paid to the investment adviser at any time during the 11 full fiscal quarters following such initial full fiscal quarter.

The Incentive Fee Look-back Period commenced on January 1, 2013. Prior to January 1, 2016, the Incentive Fee Look-back Period consisted of fewer than 12 full fiscal quarters.

The “Cumulative Pre-Incentive Fee Net Return” refers to the sum of (a) Pre-Incentive Fee Net Investment Income for each period during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains, cumulative realized capital losses, cumulative unrealized capital depreciation and cumulative unrealized capital appreciation during the applicable Incentive Fee Look-back Period.

The first component, which is income-based, is calculated and payable quarterly in arrears, and is determined based on Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter, subject to the Incentive Fee Cap and Deferral Mechanism. For this purpose, “Pre-Incentive Fee Net Investment Income” means, in each case on a consolidated basis, interest income, distribution income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus the Company’s operating expenses for the quarter (including the base management fee, expenses payable under the administration agreement (the “Administration Agreement”), any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation.

The operation of the first component of the incentive fee for each quarter is as follows:

no incentive fee is payable to the Company’s investment adviser in any calendar quarter in which Pre-Incentive Fee Net Investment Income does not exceed the “Hurdle Rate” of 1.75% (7.00% annualized);

100% of Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the Hurdle Rate but is less than 2.1875% in any calendar quarter (8.75% annualized) is payable to the investment adviser. This portion of the Company’s Pre-Incentive Fee Net Investment Income (which exceeds the Hurdle Rate but is less than 2.1875%) is referred to as the “catch-up.” The effect of the catch-up is that, if such Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the investment adviser will receive 20% of such Pre-Incentive Fee Net Investment Income as if the Hurdle Rate did not apply; and

20% of the amount of such Pre-Incentive Fee Net Investment Income, if any, that exceeds 2.1875% in any calendar quarter (8.75% annualized) is payable to our investment adviser (once the Hurdle Rate is reached and the catch-up is achieved, 20% of all Pre-Incentive Fee Net Investment Income).

The portion of such incentive fee that is attributable to deferred interest (such as PIK interest or original issue discount) will be paid to the investment adviser, together with interest from the date of deferral to the date of payment, only if and to the extent that the Company actually receives such interest in cash, and any accrual will be reversed if and to the extent such interest is reversed in connection with any write-off or similar treatment of the investment giving rise to any deferred interest accrual. Any reversal of such amounts would reduce net income for the quarter by the net amount of the reversal (after taking into account the reversal of incentive fees payable) and would result in a reduction and possibly elimination of the incentive fees for such quarter.

There is no accumulation of amounts on the Hurdle Rate from quarter to quarter and, accordingly, there is no clawback of amounts previously paid if subsequent quarters are below the quarterly Hurdle Rate and there is no delay of payment if prior quarters are below the quarterly Hurdle Rate. Since the Hurdle Rate is fixed, as interest rates rise, it will be easier for the investment adviser to surpass the Hurdle Rate and receive an incentive fee based on Pre-Incentive Fee Net Investment Income.

Net investment income used to calculate this component of the incentive fee is also included in the amount of consolidated gross assets used to calculate the 2.0% base management fee. These calculations will be appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.

The second component, the capital gains component of the incentive fee, which is determined and payable in arrears as of the end of each calendar year (or upon termination of the Investment Advisory Agreement, as of the termination date), commenced on January 1, 2013, and equals 20% of cumulative aggregate realized capital gains from January 1 through the end of each calendar year, computed net of aggregate cumulative realized capital losses and aggregate cumulative unrealized capital depreciation through the end of each year, less the aggregate amount of any previously paid capital gains incentive fees and subject to the Incentive Fee Cap and Deferral Mechanism. If such amount is negative, then no capital gains incentive fee will be payable for the year. Additionally, if the Investment Advisory Agreement is terminated as of a date that is not a calendar year end, the termination date will be treated as though it were a calendar year end for purposes of calculating and paying the capital gains incentive fee. The capital gains component of the incentive fee is not subject to any minimum return to stockholders.

Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter where it incurs a loss subject to the Incentive Fee Cap and Deferral Mechanism. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the Hurdle Rate, it will pay the applicable incentive fee even after incurring a loss in that quarter due to realized and unrealized capital losses.

During the three and nine months ended September 30, 2017, the Company incurred performance-based incentive fees of $1,487 and $4,852, respectively. During the three and nine months ended September 30, 2016, the Company incurred performance-based incentive fees of $1,817 and $5,116, respectively.

Administration Agreement: Pursuant to the Administration Agreement, WhiteHorse Administration furnishes the Company with office facilities, equipment and clerical, bookkeeping and record keeping services to enable the Company to operate. Under the Administration Agreement, WhiteHorse Administration performs, or oversees the performance of, the Company’s required administrative services, which include being responsible for the financial records which the Company is required to maintain and preparing reports to its stockholders and reports filed with the Securities and Exchange Commission (the “SEC”). In addition, WhiteHorse Administration assists the Company in determining and publishing its net asset value, oversees the preparation and filing of its tax returns and the printing and dissemination of reports to its stockholders and generally oversees the payment of the Company’s expenses and the performance of administrative and professional services rendered to the Company by others. Payments under the Administration Agreement equal an amount based upon the Company’s allocable portion of WhiteHorse Administration’s overhead in performing its obligations under the Administration Agreement, including rent and the Company’s allocable portion of the cost of its chief financial officer and chief compliance officer along with their respective staffs. Under the Administration Agreement, WhiteHorse Administration also provides on the Company’s behalf managerial assistance to those portfolio companies to which the Company is required to provide such assistance. The Administration Agreement may be terminated by either party without penalty upon 60 days’ written notice to the other party. To the extent that WhiteHorse Administration outsources any of its functions, the Company will pay the fees associated with such functions on a direct basis without any profit to WhiteHorse Administration.

Substantially all the Company’s payments of operating expenses to third parties were made by a related party, for which such third party received reimbursement from the Company.

During the three and nine months ended September 30, 2017, the Company incurred allocated administrative service fees of $246 and $538, respectively. During the three and nine months ended September 30, 2016, the Company incurred allocated administrative service fees of $134 and $550, respectively.

Co-investments with Related Parties: At September 30, 2017 and December 31, 2016, certain officers or employees affiliated with or employed by WhiteHorse Advisers and its related entities maintained co-investments in the Company’s investments of $44 and $27, respectively.

At September 30, 2017 and December 31, 2016, certain funds affiliated with WhiteHorse Advisers and its related entities maintained co-investments in the Company’s investments of $455,206 and $243,627, respectively.

NOTE 7 - COMMITMENTS AND CONTINGENCIES

Commitments: In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.

There was no balance of unfunded commitments to extend credit as of both September 30, 2017 and December 31, 2016. Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving credit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.

Indemnification: In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties that provide general indemnifications. The Company’s maximum exposure under these arrangements is unknown, as this would involve future claims that may be made against the Company that have not occurred. The Company expects the risk of any future obligation under these indemnifications to be remote.

Legal Proceedings: In the normal course of business, the Company, the investment adviser and the administrator may be subject to legal and regulatory proceedings that are generally incidental to its ongoing operations. While there can be no assurance of the ultimate disposition of any such proceedings, the Company does not believe any such disposition will have a material adverse effect on the Company’s consolidated financial statements.

NOTE 8 - STOCKHOLDERS’ EQUITY

The following table summarizes the total shares issued and proceeds received relating to the Company’s distribution reinvestment plan and public offering to purchase shares of the Company’s common stock (net of underwriting discounts and offering costs) for the nine months ended September 30, 2017.

	Shares Issued		Price Per Share		Net Proceeds
Quarterly distribution reinvestment plan		14,214	$	13.86	$	197
June 30, 2017 public offering		2,200,000		13.97		30,287

NOTE 9 - FINANCIAL HIGHLIGHTS

The following is a schedule of financial highlights:

	Nine months ended September 30,
	2017			2016
Per share data:⁽¹⁾
Net asset value, beginning of period	$	13.63		$	13.33

Net investment income		1.02			1.12
Net realized and unrealized gains on investments		0.34			0.10
Net increase in net assets resulting from operations		1.36			1.22

Distributions declared from net investment income		(1.07	)		(1.07	)
Net asset value, end of period	$	13.92		$	13.48

Total annualized