TECHNOLOGY INVESTMENT CAPITAL CORP - 10-Q Quarterly Report

(State or other jurisdiction of

(I.R.S. Employer Identification No.)

incorporation or organization)

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q


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

FOR THE QUARTER ENDED MARCH 31, 2005.


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

COMMISSION FILE NUMBER: 0-50398

TECHNOLOGY INVESTMENT CAPITAL CORP.
(Exact name of registrant as specified in its charter)

8 SOUND SHORE DRIVE, SUITE 255
GREENWICH, CONNECTICUT 06830
(Address of principal executive office)

(203) 983-5275
(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 and (2) has been subject to such filing requirements for the past 90 days. Yes No .

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12 b-2 of the Exchange Act). Yes No .

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date. The number of shares of the issuer's Common Stock, $0.01 par value, outstanding as of May 6, 2005 was 13,323,431.

TECHNOLOGY INVESTMENT CAPITAL CORP.

TABLE OF CONTENTS


PART I.	FINANCIAL INFORMATION	3
Item 1.	Financial Statements (Unaudited)	3
	Balance Sheets as of March 31, 2005 and December 31, 2004	3
	Schedule of Investments as of March 31, 2005	4
	Statements of Operations for the three months ended March 31, 2005 and 2004	6
	Statements of Stockholders' Equity for the three months ended March 31, 2005 and 2004	7
	Statements of Cash Flows for the three months ended March 31, 2005 and 2004	8
	Notes to Financial Statements	9
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	13
	Overview	14
	Critical Accounting Policies	16
	Results of Operations	17
	Liquidity and Capital Resources	18
	Risk Factors	18
Item 3.	Quantitative and Qualitative Disclosure About Market Risk	28
Item 4.	Controls and Procedures	28
PART II.	OTHER INFORMATION	29
Item 1.	Legal Proceedings	29
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	29
Item 3.	Defaults Upon Senior Securities	29
Item 4.	Submission of Matters to a Vote of Security Holders	29
Item 5.	Other Information	29
Item 6.	Exhibits	29
SIGNATURES

PART I—FINANCIAL INFORMATION

TECHNOLOGY INVESTMENT CAPITAL CORP.
BALANCE SHEETS
AS OF MARCH 31, 2005 AND DECEMBER 31, 2004


ASSETS
	March 31, 2005		December 31, 2004
	(Unaudited)		(Audited)
ASSETS
Investments, at fair value (cost:$125,471,170 @ 3/31/05; $82,124,730 @ 12/31/04)	$	125,471,170	$	82,124,730
Cash and cash equivalents		57,510,041		57,317,398
Cash and cash equivalents pledged to creditors		9,990,611		0
Interest receivable – debt investments		708,244		489,431
Interest receivable – cash and cash equivalents		5,174		7,538
Prepaid expenses		137,706		102,696
Other assets		0		460,666
TOTAL ASSETS	$	193,822,946	$	140,502,459
LIABILITIES AND STOCKHOLDERS' EQUITY
LIABILITIES
Accrued expenses	$	1,357,075	$	940,922
Accrued offering expenses		47,158		300,000
Repurchase agreement		9,989,000		0
Total Liabilities		11,393,233		1,240,922
STOCKHOLDERS' EQUITY
Common stock, $0.01 par value, 100,000,000 shares authorized, and 13,323,431 and 10,157,848 issued and outstanding, respectively		133,234		101,578
Capital in excess of par value		181,599,704		139,410,302
Accumulated net investment income (loss)		696,775		(250,343	)
Total Stockholders' Equity		182,429,713		139,261,537
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY	$	193,822,946	$	140,502,459

SEE ACCOMPANYING NOTES.

TECHNOLOGY INVESTMENT CAPITAL CORP.
SCHEDULE OF INVESTMENTS
MARCH 31, 2005
(UNAUDITED)


COMPANY⁽¹⁾	INDUSTRY	INVESTMENT	AMOUNT		COST		FAIR VALUE⁽²⁾
Questia Media, Inc.	digital media	senior secured notes(3)(4) (12%, due Jan. 28, 2009)	$	9,737,320	$	9,737,320	$	9,737,320
MortgageIT, Inc.	financial services	senior secured notes (7.5%, due March 29, 2007)	$	15,000,000		15,000,000		15,000,000
Advanced	medical services	senior secured notes (5)	$	10,000,000		10,000,000		10,000,000
Aesthetics		(12%, due March 31, 2009)
Institute		warrants to purchase
		common stock (9)				—		—
The Endurance International Group, Inc.	webhosting	senior secured notes (4)(5)(6) (10.0%, due July 23, 2009) warrants to purchase convertible preferred	$	7,000,000		6,870,477		6,870,477
		stock (9)				151,475		151,475
DirectRevenue, LLC	internet advertising	senior secured notes (6)(7) (12%, due Aug. 19, 2007) warrants to purchase	$	5,020,000		4,874,674		4,874,674
		common units (9)				240,000		240,000
Avue Technologies Corp.	software	senior secured notes(6)(7)(10) (15%, due April 30, 2005)	$	1,250,000		1,248,691		1,248,691
		warrants to purchase
		common units (9)				13,000		13,000
TrenStar Inc.	logistics technology	senior secured notes (3)(5) (10.5%, due Sept. 1, 2009)	$	15,793,346		15,793,346		15,793,346
		warrants to purchase convertible preferred
		stock (9)				—		—
3001, Inc.	geospatial imaging	senior unsecured notes (5) (10.0%, due Oct. 1, 2010)	$	10,000,000		10,000,000		10,000,000
		preferred stock (8)(9)				2,000,000		2,000,000
		common stock (8)(9)				1,000,000		1,000,000
eXact Advertising, LLC	internet advertising	senior secured notes(4)(5)(6) (10.11%, due Nov. 24, 2009)	$	5,000,000		4,695,735		4,695,735
		warrants to purchase
		common units (9)				339,000		339,000

(Continued on next page)

SEE ACCOMPANYING NOTES

TECHNOLOGY INVESTMENT CAPITAL CORP.
SCHEDULE OF INVESTMENTS, Continued
MARCH 31, 2005
(UNAUDITED)


COMPANY⁽¹⁾	INDUSTRY	INVESTMENT	AMOUNT		COST		FAIR VALUE⁽²⁾
WinZip Computing, Inc.	software	senior secured notes (9.0%, due June 30, 2005)	$	15,000,000	$	15,000,000	$	15,000,000
Segovia, Inc.	satellite communications	senior secured notes (5)(6) (10.0%, due Feb. 8, 2010)	$	15,000,000		14,747,452		14,747,452
		warrants to purchase common stock (9)				260,000		260,000
WHITTMANHART, Inc.	IT consulting	senior secured notes (4)(5) (10.25%, due March 23, 2010)	$	5,000,000		5,000,000		5,000,000
		warrants to purchase common stock (9)				—		—
		preferred stock (9)				476,000		476,000
		warrants to purchase preferred stock (9)				24,000		24,000
CrystalTech Web Hosting, Inc.	webhosting	senior secured notes(5) (10.0%, due March 28, 2010)	$	8,000,000		8,000,000		8,000,000
Total investments					$	125,471,170	$	125,471,170


(1)	We do not "control" and are not an "affiliate" of any of our portfolio companies, each as defined in the Investment Company Act of 1940 (the "1940 Act"). In general, under the 1940 Act, we would "control" a portfolio company if we owned 25% or more of its voting securities and would be an "affiliate" of a portfolio company if we owned 5% or more of its voting securities.


(2)	Fair value is determined in good faith by the Board of Directors of the Company.


(3)	Investment includes payment-in-kind interest.


(4)	Transaction also includes a commitment for additional notes and warrants upon satisfaction of certain specified conditions.


(5)	Notes bear interest at variable rates.


(6)	Cost and fair value reflect accretion of original issue discount.


(7)	Cost and fair value reflect repayment of principal.


(8)	Preferred stock and common stock indirectly held through limited liability company interests.


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


(10)	Effective February 15, 2005, maturity date was changed to April 30, 2005, consistent with the elimination of $5 million in additional capital commitments.


(11)	As a percentage of net assets at March 31, 2005, investments at fair value are categorized as follows: senior secured notes (60.8%), senior unsecured notes (5.5%), preferred stock (1.4%), common stock (.5%), and warrants to purchase equity securities (.6%).


(12)	For tax purposes, the cost basis of the portfolio investments at March 31, 2005 is $125,471,170.

SEE ACCOMPANYING NOTES

TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)


	Three Months Ended March 31, 2005		Three Months Ended March 31, 2004
INVESTMENT INCOME
Interest income – debt investments	$	3,194,512	$	176,997
Interest income – cash and cash equivalents		345,112		286,190
Other income		690,205		450,000
Total Investment Income		4,229,829		913,187
EXPENSES
Salaries and benefits		89,110		46,338
Investment advisory fees		799,644		689,182
Professional fees		408,358		109,508
Insurance		24,768		20,020
Directors' fees		32,250		32,250
Transfer agent and custodian fees		32,650		21,706
General and administrative		37,639		39,780
Total Expenses		1,424,419		958,784
NET INVESTMENT INCOME (LOSS)	$	2,805,410	$	(45,597	)
NET INCREASE (DECREASE) IN STOCKHOLDERS' EQUITY RESULTING FROM OPERATIONS	$	2,805,410	$	(45,597	)
Net increase (decrease) in stockholders' equity resulting from operations per common share:
Basic and Diluted	$	0.23	$	(0.005	)
Weighted average shares of common stock outstanding:
Basic and Diluted		12,443,224		10,000,100

SEE ACCOMPANYING NOTES.

TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENTS OF STOCKHOLDERS' EQUITY
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)


	Common Stock				Capital in Excess of Par Value		Undist. Earnings			Total Stockholders Equity
	Shares		Amount		Capital in Excess of Par Value		Undist. Earnings			Total Stockholders Equity
Balance at December 31, 2003		10,000,100	$	100,001	$	138,189,832	$	(320,206	)	$	137,969,627
Net decrease in stockholders' equity resulting from operations		—		—		—		(45,597	)		(45,597	)
Dividends declared ($0.10 per share)		—		—		—		(1,000,010	)		(1,000,010	)
Balance at March 31, 2004		10,000,100	$	100,001	$	138,189,832	$	(1,365,813	)	$	136,924,020
Balance at December 31, 2004		10,157,848		101,578		139,410,302		(250,343	)		139,261,537
Net increase in stockholders' equity resulting from operations		—		—		—		2,805,410			2,805,410
Shares issued in rights offering (net of offering expenses of $2,234,872)		3,115,666		31,157		41,443,649		—			41,474,806
Shares issued in connection with dividend reinvestment		49,917		499		745,753		—			746,252
Dividends declared ($0.14 per share)		—		—		—		(1,858,292	)		(1,858,292	)
Balance at March 31, 2005		13,323,431	$	133,234	$	181,599,704	$	696,775		$	182,429,713

SEE ACCOMPANYING NOTES

TECHNOLOGY INVESTMENT CAPITAL CORP.
STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31, 2005 AND 2004
(UNAUDITED)


	Three Months Ended March 31, 2005			Three Months Ended March 31, 2004

CASH FLOWS FROM OPERATING ACTIVITIES
Net increase (decrease) in stockholders' equity resulting from operations	$	2,805,410		$	(45,597	)
Adjustments to reconcile net increase (decrease) in stockholders' equity resulting from operations to net cash provided by (used in) operating activities:
Increase in investments due to PIK interest		(1,214,620	)		(167,869	)
(Increase) decrease in interest receivable		(216,449	)		10,729
(Increase) decrease in prepaid expenses		(35,010	)		4,635
Decrease in other assets		460,666			0
Amortization of discounts		(80,345	)		0
Increase in accrued expenses and other liabilities		163,311			96,394
Net Cash Provided By (Used In) Operating Activities		1,882,963			(101,708	)
CASH FLOWS FROM INVESTING ACTIVITIES
Purchases of investments		(43,501,475	)		(33,000,000	)
Repayments of principal		1,450,000			0
Net Cash Used in Investing Activities		(42,051,475	)		(33,000,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from the issuance of common stock		43,709,678			0
Offering expenses from the issuance of common stock		(2,234,872	)		0
Amount borrowed under repurchase agreement		9,989,000			0
Dividends paid		(1,112,040	)		0
Net Cash Provided By Financing Activities		50,351,766			0
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS		10,183,254			(33,101,708	)
CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD		57,317,398			138,228,765
CASH AND CASH EQUIVALENTS, END OF PERIOD	$	67,500,652		$	105,127,057
NON-CASH FINANCING ACTIVITIES
Shares issued in connection with dividend reinvestment plan	$	746,252			none

SEE ACCOMPANYING NOTES

TECHNOLOGY INVESTMENT CAPITAL CORP.
NOTES TO FINANCIAL STATEMENTS
MARCH 31, 2005
(UNAUDITED)

NOTE 1. UNAUDITED INTERIM FINANCIAL STATEMENTS

Interim financial statements of Technology Investment Capital Corp. ("TICC" or the "Company") are prepared in accordance with generally accepted accounting principles ("GAAP") for interim financial information and pursuant to the requirements for reporting on Form 10-Q and Article 10 of Regulation S-X. Accordingly, certain disclosures accompanying annual financial statements prepared in accordance with GAAP are omitted. In the opinion of management, all adjustments, consisting solely of normal recurring accruals, necessary for the fair presentation of financial statements for the interim periods have been included. The current period's results of operations are not necessarily indicative of results that may be achieved for the year. The interim financial statements and notes thereto should be read in conjunction with the financial statements and notes thereto included in the Company's Form 10-K for the year ended December 31, 2004, as filed with the Securities and Exchange Commission.

NOTE 2. ORGANIZATION

TICC was incorporated under the General Corporation Laws of the State of Maryland on July 21, 2003. The Company has elected to be treated as a business development company under the Investment Company Act of 1940, as amended (the "1940 Act"). In addition, the Company has elected to be treated for tax purposes as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended (the "Code"). The Company's investment objective is to maximize its total return, principally by investing in the debt and/or equity securities of technology-related companies.

TICC's investment activities are managed by Technology Investment Management, LLC ("TIM"), a registered investment adviser under the Investment Advisers Act of 1940, as amended. BDC Partners, LLC ("BDC Partners") is the managing member of the Adviser and serves as the administrator of TICC.

NOTE 3. INVESTMENT VALUATION

The Company carries its investments at fair value, as determined in good faith by the Board of Directors. Securities that are publicly traded are valued at the closing price on the valuation date. Debt and equity securities that are not publicly traded are valued at fair value as determined in good faith by the Board of Directors. Beginning in March 2004, the Company engaged an independent valuation firm to perform independent valuations of its investments. The Board of Directors uses the recommended valuations as prepared by the independent valuation firm as a component of the foundation for the final fair value determination. In making such determination, the Board of Directors values non-convertible debt securities at cost plus amortized original issue discount plus payment-in-kind ("PIK") interest, if any, unless adverse factors lead to a determination of a lesser valuation. Due to the uncertainty inherent in the valuation process, such estimates of fair value may differ significantly from the values that would have resulted had a readily available market for the securities existed, and the differences could be material. Additionally, changes in the market environment and other events that may occur over the life of the investments may cause the gains or losses ultimately realized on these investments to be different than the valuation currently assigned.

NOTE 4. EARNINGS PER SHARE

The following table sets forth the computation of basic and diluted net increase (decrease) in stockholders' equity resulting from operations per share for the period ended March 31, 2005 and 2004, respectively:


	Three Months Ended March 31, 2005		Three Months Ended March 31, 2004
Numerator for basic and diluted income (loss) per share	$	2,805,410	$	(45,597	)
Denominator for basic and diluted income (loss) per share — weighted average shares		12,443,224		10,000,100
Basic and diluted net increase (decrease) in stockholders' equity resulting from operations per common share	$	0.23	$	(0.005	)

NOTE 5. RELATED PARTY TRANSACTIONS

The Company's investment activities are managed by its investment adviser, TIM, pursuant to an investment advisory agreement. TIM is owned by BDC Partners, its managing member, and Royce & Associates, LLC. Jonathan Cohen, our chief executive officer, and Saul Rosenthal, our president and chief operating officer, are the members of BDC Partners, and Charles M. Royce, our non-executive chairman, is the president of Royce & Associates, LLC. For the three months ended March 31, 2005 and 2004, respectively, TICC incurred investment advisory fees of $799,644 and $689,182, of which $799,644 and $235,226 remained payable to TIM at the end of each respective quarter. Pursuant to the terms of its administration agreement with BDC Partners, for the quarters ended March 31, 2005 and 2004, respectively, TICC incurred $89,110 and $46,338 in compensation expenses for employees allocated to the administrative activities of TICC, of which $18,253 and $8,865 remained payable at end of the respective quarter, and incurred $11,619 and $1,856 for reimbursement of facility costs allocated to TICC, of which amounts $0 and $1,856, respectively, remained payable to BDC Partners at the end of each period.

NOTE 6. DIVIDENDS

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

On March 31, 2005, the Company paid a dividend of $0.14 per share. On April 27, 2005, the Board of Directors declared a dividend of $0.20 per share for the second quarter, payable on June 30, 2005 to shareholders of record as of June 10, 2005.

The Company has a dividend reinvestment plan under which all distributions are paid to stockholders in the form of additional shares unless a stockholder elects to receive cash.

NOTE 7. NET ASSET VALUE PER SHARE

The Company's net asset value per share at March 31, 2005 was $13.69, and at December 31, 2004 was $13.71. In determining the Company's net asset value per share, the Board of Directors determined in good faith the net asset value of the Company's portfolio investments for which no public trading market exists.

NOTE 8. PAYMENT-IN-KIND INTEREST

The Company has investments in its portfolio which contain a PIK provision. The PIK interest is added to the principal balance of the investment and is recorded as interest income. To maintain its status as a RIC, this income must be paid out to stockholders in the form of dividends, even though the Company has not collected any cash. For the three months ended March 31, 2005 and 2004, respectively, the Company had $1,214,620 and $167,869 in PIK interest.

In addition, the Company recorded original issue discount ("OID") income of approximately $80,345 for the three months ended March 31, 2005, representing the amortization of the discounted cost attributed to certain debt securities purchased by the Company in connection with the issuance of warrants. The Company had no OID income for the three months ended March 31, 2004.

NOTE 9. OTHER INCOME

Other income includes primarily closing fees, or origination fees, associated with investments in portfolio companies. Such fees are normally paid at closing of the Company's investments, are fully earned and non-refundable, and are generally non-recurring. For the three months ended March 31, 2005 and 2004, other income totalled approximately $690,205 and $450,000, respectively.

The 1940 Act requires that a business development company make available managerial assistance to its portfolio companies. The Company may receive fee income for managerial assistance it renders to portfolio companies in connection with its investments. For the three months ended March 31, 2005 and 2004, respectively, the Company received no fee income for managerial assistance.

NOTE 10. FINANCIAL HIGHLIGHTS

Financial highlights for the three month periods ended March 31, 2005 and 2004 are as follows:


	Three Months Ended March 31, 2005			Three Months Ended March 31, 2004
	(unaudited)			(unaudited)
Per Share Data⁽¹⁾
Net asset value at beginning of period	$	13.71		$	13.80
Net investment income (loss)		0.23			(0.01	) ⁽²⁾
Distributions from net investment income		(0.14	)		(0.10	)
Effect of shares issued, net of offering expenses		(0.11	)		0.00
Net asset value at end of period	$	13.69		$	13.69
Per share market value at beginning of period	$	15.01		$	15.55
Per share market value at end of period		14.95			14.59
Total return⁽³⁾⁽⁴⁾		0.53	%		(5.53	)%
Shares outstanding at end of period		13,323,431			10,000,100
Ratios/Supplemental Data
Net assets at end of period	$	182,429,713		$	136,924,020
Average net assets	$	167,291,396		$	137,691,189
Ratio of expenses to average net assets - annualized		3.41	%		2.74	%
Ratio of net investment income to average net assets - annualized		6.71	%		(0.13	)%


(1)	Basic per share data.


(2)	Represents per share net investment loss for the period ($.005), rounded.


(3)	Amount not annualized.


(4)	Total return equals the increase/decrease of the ending market value per share plus dividends divided by the beginning market value per share.

NOTE 11. CASH AND CASH EQUIVALENTS

At March 31, 2005 and December 31, 2004, respectively, cash and cash equivalents consisted of:


	March 31, 2005		December 31, 2004
UBS Select Money Market Fund	$	2,038,431		2,026,577
Eurodollar Time Deposit (due 4/1/05 and 1/3/05)		12,450,000		1,200,000
Eurodollar Time Deposit (due 1/4/05)		—		24,000,000
U.S. Treasury Bill (due 4/1/05 and 1/13/05)		42,981,797		29,984,300
U.S. Treasury Bill (due 4/14/05)		9,990,611		—

Total Cash Equivalents		67,460,839		57,210,877
Cash		39,813		106,521

Cash and Cash Equivalents	$	67,500,652		57,317,398

NOTE 12. COMMITMENTS

As of March 31, 2005, the Company had issued commitments to purchase additional debt investments and/or warrants from certain portfolio companies, contingent upon their meeting agreed-upon financial milestones. Total commitments were issued to Questia ($2 million), Endurance International Group ($3 million), eXact Advertising ($10 million), and WHITTMANHART ($7 million). On April 7, 2005, an additional commitment of $5 million was issued to Endurance International Group.

NOTE 13. REPURCHASE AGREEMENT

On March 30, 2005, the Company entered into a repurchase agreement (the "Repurchase Agreement") with State Street Bank & Trust for $9,989,000, which agreement was settled on April 1, 2005. A repurchase agreement is a form of collateralized borrowing under which a company sells a security to another party for cash and at the same time commits to repurchase that security at a later date for a stated price plus interest. The Repurchase Agreement was recorded at cost and was fully collateralized by a United States Treasury Bill with a carrying value of $9,990,611, maturing on April 14, 2005 and bearing interest at 2.6%. The interest rate on the Repurchase Agreement was 3.0% for a cost of $1,665.

NOTE 14. SUBSEQUENT EVENTS

On April 12, 2005 the Company completed an $8 million investment in Falcon Communications, Inc., a global provider of mobile and fixed satellite communications services. The investment consists of $6 million in senior unsecured notes and $2 million in common stock.

On April 7, 2005 the Company increased the commitment for additional senior secured notes to Endurance International Group by $5 million to a total of $8 million. In addition, on April 21, April 29 and May 5, 2005, Endurance drew down $1.0 million, $1.7 million and $3.3 million, respectively, against the existing commitment for senior secured notes.

On April 27, 2005, the Board of Directors declared a cash dividend of $0.20 per share to holders of record on June 10, 2005, payable on June 30, 2005.

On April 29, 2005, the Company completed a $5 million investment in senior secured notes issued by Climax Group Inc., and warrants issued by its parent, Climax Group Limited, which will also serve as a guarantor of the senior secured notes. Climax Group Inc. is a video game developer that is headquartered in Los Angeles, CA with offices in the U.K.

ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

FORWARD-LOOKING STATEMENTS

The information contained in this section should be read in conjunction with the Selected Financial Data and Other Data, and our Financial Statements and notes thereto appearing elsewhere in this Quarterly Report. This Quarterly Report, including the Management's Discussion and Analysis of Financial Condition and Results of Operations, contains forward-looking statements that involve substantial risks and uncertainties. These forward-looking statements are not historical facts, but rather are based on current expectations, estimates and projections about our industry, our beliefs, and our assumptions. Words such as "anticipates", "expects", "intends", "plans", "believes", "seeks", and "estimates" and variations of these words and similar expressions are intended to identify forward-looking statements. These statements are not guarantees of future performance and are subject to risks, uncertainties, and other factors, some of which are beyond our control and difficult to predict and could cause actual results to differ materially from those expressed or forecasted in the forward-looking statements including without limitation:


•	economic downturns or recessions may impair our portfolio companies' performance;


•	a contraction of available credit and/or an inability to access the equity markets could impair our lending and investment activities;


•	the risks associated with the possible disruption in the Company's operations due to terrorism; and


•	the risks, uncertainties and other factors we identify from time to time in our filings with the Securities and Exchange Commission, including our Form 10-Ks, Form 10-Qs and Form 8-Ks.

Although we believe that the assumptions on which these forward-looking statements are based are reasonable, any of those assumptions could prove to be inaccurate, and as a result, the forward-looking statements based on those assumptions also could be incorrect. In light of these and other uncertainties, the inclusion of a projection or forward-looking statement in this Quarterly Report should not be regarded as a representation by us that our plans and objectives will be achieved. You should not place undue reliance on these forward-looking statements, which apply only as of the date of this Quarterly Report. We undertake no obligation to update such statements to reflect subsequent events.

The following analysis of our financial condition and results of operations should be read in conjunction with our financial statements and the notes thereto contained elsewhere in this report.

OVERVIEW

Our investment objective is to maximize our portfolio's total return, principally by investing in the debt and/or equity securities of technology-related companies. Our primary focus is seeking current income through investment in non-public debt and long-term capital appreciation by acquiring accompanying warrants or other equity securities. We may also invest in the publicly traded debt and/or equity securities of other technology-related companies. We operate as a closed-end, non-diversified management investment company, and have elected to be treated as a business development company under the 1940 Act. We have elected to be treated for tax purposes as a regulated investment company ("RIC") under the Internal Revenue Code of 1986, as amended, beginning with our 2003 taxable year.

Our investment activities are managed by TIM, a registered investment adviser under the Investment Advisers Act of 1940. TIM is owned by BDC Partners, its managing member, and Royce & Associates, LLC ("Royce"). Jonathan H. Cohen, our chief executive officer, and Saul B. Rosenthal, our president and chief operating officer, are the members of BDC Partners, and Charles M. Royce, our non-executive chairman, is the president of Royce. Under the investment advisory agreement, we have agreed to pay TIM an annual base fee calculated on gross assets, and an incentive fee based upon our performance. Under an administration agreement, we have agreed to pay or reimburse BDC Partners, as administrator, for certain expenses incurred in operating the Company.

We concentrate our investments in companies having annual revenues of less than $100 million and/or a market capitalization of less than $200 million. We focus on companies that create products or provide services requiring advanced technology and companies that compete in industries characterized by such products or services, including companies in the following businesses: Internet, IT services, media, telecommunications, semiconductors, hardware, software and technology-enabled services.

While the structure of our investments will vary, we invest primarily in the debt of established target technology-related companies. We seek to invest in entities that, as a general matter, have been operating for at least one year prior to the date of our investment and that such entities will, at the time of our investment, have employees and revenues. Many of these companies will have financial backing provided by private equity or venture capital funds or other financial or strategic sponsors at the time we make an investment. Our investments typically range from $5 million to $25 million and accrue interest at fixed and variable rates. As of March 31, 2005, our debt investments had stated interest rates of between 7.5% and 15.0% and maturity dates of between 1 and 66 months. In addition, our total portfolio of debt investments had a weighted average interest rate of approximately 10.5% as of March 31, 2005. Our loans may carry a provision for deferral of some or all of the interest payments, which will be added to the principal amount of the loan. This form of deferred interest is referred to as "payment-in-kind" or "PIK" interest and, when earned, is recorded as interest income and an increase in the principal amount of the loan. We had PIK interest of approximately $1.2 million for the quarter ended March 31, 2005.

To the extent possible, our loans will be collateralized by a security interest in the borrower's assets or guaranteed by a principal to the transaction. Interest payments, if not deferred, are normally payable quarterly with amortization of principal being deferred for several years. When we receive a warrant to purchase stock in a portfolio company, the warrant will typically have a nominal strike price, and will entitle us to purchase a modest percentage of the borrower's stock.

In addition, as a business development company under the 1940 Act, we are required to make available significant managerial assistance, for which we may receive fees, to our portfolio companies. These fees are generally non-recurring, however in some instances they may have a recurring component. We have received no fee income for managerial assistance to date.

Prior to making an investment, we typically enter into a non-binding term sheet with the potential portfolio company. These term sheets are generally subject to a number of conditions, including but not limited to the satisfactory completion of our due diligence investigations of the company's business and legal documentation for the loan.

Since our initial public offering in November 2003 through May 6, 2005, we have made investments in fifteen companies in the total amount of $141.4 million, with a commitment of an additional $27.0 million to four of our portfolio companies.

Set forth below is our current portfolio of investments as of May 6, 2005.

Portfolio Company (1)

Industry

Investment

Fair Value (2)

(in thousands)

Questia Media, Inc.

digital media

senior secured notes (3)(4)

9,737

MortgageIT, Inc.

financial services

senior secured notes

15,000

Advanced Aesthetics Institute

medical services

senior secured notes

10,000

warrants to purchase

common stock

—

The Endurance International

webhosting

senior secured notes (4)

12,870

Group

warrants to purchase

convertible preferred stock

153

DirectRevenue, LLC

internet advertising

senior secured notes

4,675

warrants to purchase

common units

240

Avue Technologies Corporation

software

warrants to purchase
common stock

Trenstar Inc.

logistics technology

senior secured notes (3)

15,793

warrants to purchase

convertible preferred stock

—

3001, Inc.

geospatial imaging

senior unsecured notes

10,000

preferred stock (6)

2,000

common stock (6)

1,000

eXact Advertising, LLC

internet advertising

senior secured notes (4)

4,696

warrants to purchase

common units

339

WinZip Computing, Inc.

software

senior secured notes

15,000

Segovia, Inc.

satellite

senior secured notes

14,747

communications

warrants to purchase

common stock

260

WHITTMANHART, Inc.

IT consulting

senior secured notes (4)

5,000

warrants to purchase

common stock

—

convertible preferred stock

476

warrants to purchase

convertible preferred stock

CrystalTech Web Hosting, Inc.

webhosting

senior secured notes

8,000

Falcon Communications, Inc.

satellite

senior unsecured notes

6,000

(5)

communications

common stock

2,000

(5)

Climax Group, Inc.

software

senior secured notes

5,000

(5)

warrants to purchase

common stock

—

(5)

Total Investments:

143,023

(7)


(1)	We do not "control" and are not an "affiliate" of any of our portfolio companies, each as defined in the 1940 Act. In general, under the 1940 Act, we would "control" a portfolio company if we owned 25% or more of its voting securities and would be an "affiliate" of a portfolio company if we owned 5% or more of its voting securities.


(2)	Fair value is determined in good faith by our Board of Directors.


(3)	Investment includes payment-in-kind interest.


(4)	Transaction also includes a commitment to fund additional investments.


(5)	Because these investments were made subsequent to the quarter ended March 31, 2005, our Board of Directors has not yet determined the fair value of these investments, and they are therefore listed at cost.


(6)	Preferred stock and common stock are indirectly held through limited liability company interests.


(7)	This total includes the investments for which our Board of Directors has not yet determined the fair value. See note 5 above. Such investments are included at cost.

We currently have several transactions in our pipeline. We continue to conduct due diligence and finalize terms regarding further transactions. However, there can be no assurance when or if these transactions will close.

In addition, we believe that we have a strong pipeline of potential transactions in various stages. We continue to work diligently toward the consummation of additional investments, and our management is actively involved in identifying and evaluating potential opportunities.

CRITICAL ACCOUNTING POLICIES

The preparation of financial statements and related disclosures in conformity with generally accepted accounting principles in the United States requires management to make estimates and assumptions that affect the reported consolidated amounts of assets and liabilities, disclosure of contingent assets and liabilities at the date of the financial statements, and revenues and expenses during the periods reported. Actual results could materially differ from those estimates. We have identified our investment valuation process as our most critical accounting policy.

Investment Valuation

The most significant estimate inherent in the preparation of our consolidated financial statements is the valuation of investments and the related amounts of unrealized appreciation and depreciation of investments recorded.

We value our investment portfolio each quarter. Members of our portfolio management team prepare the portfolio company valuations using the most recent portfolio company financial statements and forecasts. We have engaged the firm of Houlihan Lokey Howard & Zukin ("HLHZ") to evaluate our portfolio investments, although the Board of Directors retains ultimate authority as to the appropriate valuation of each investment. Commencing March 2004, the Board used the recommended valuations as prepared by HLHZ as a component of the final fair value determination, as noted in the Schedule of Investments.

The valuations provided by HLHZ of fair value securities are subject to approval by the Board. The independent valuation firm's determination of fair value is based on some or all of the following factors, as applicable in their judgment, and any other factors considered to be relevant:


•	the nature of any restrictions on disposition of the securities;


•	assessment of the general liquidity/illiquidity of the securities;


•	the issuer's financial condition, including its ability to make payments and its earnings and discounted cash flow;


•	the markets in which the issuer does business;


•	the cost of the investment;


•	the size of the holding and the capitalization of issuer;


•	the nature and value of any collateral;


•	the prices of any recent transactions or bids/offers for the securities or similar securities or any comparable securities that are publicly traded; and


•	any available analyst, media or other reports or information deemed reliable by the independent valuation firm regarding the issuer or the markets or industry in which it operates.

Fair value securities may include, but are not limited to, the following:


•	private placements and restricted securities that do not have an active trading market;


•	securities whose trading has been suspended or for which market quotes are no longer available;


•	debt securities that have recently gone into default and for which there is no current market;


•	securities whose prices are stale; and


•	securities affected by significant events.

RESULTS OF OPERATIONS

Set forth below is a comparison of our results of operations for the three months ended March 31, 2005 to the three months ended March 31, 2004.

INVESTMENT INCOME

Interest income from debt investments for the three months ended March 31, 2005 was approximately $3,195,000 compared to approximately $177,000 for the comparable period in 2004. This is a direct result of the number of portfolio investments entered into over the past year. A significant portion of our interest income from debt investments during each respective period was attributable to PIK interest received from debt investments that contain a PIK provision. PIK interest is added to the principal balance of our investment and is recorded as income. Specifically, for the three months ended March 31, 2005, interest from debt investments included approximately $1.2 million in PIK interest, compared to approximately $168,000 during the first quarter of 2004.

Interest income from cash and cash equivalents was approximately $345,000 for the three months ended March 31, 2005, compared to approximately $286,000 for the three months ended March 31, 2004; the increase is due in part to higher interest rates on short-term investments, as well as a larger balance of cash equivalents resulting from shares sold under the rights offering that we completed in January 2005.

Non-recurring other fee income totaled approximately $690,000 for the three months ended March 31, 2005, representing primarily closing fees associated with investments in portfolio companies. This represented an increase from non-recurring other fee income of approximately $450,000 during the comparable period in 2004.

OPERATING EXPENSES

Operating expenses for the three months ended March 31, 2005 were approximately $1,424,000, which represented an increase of approximately $465,000 over the same period in 2004. The increase was primarily due to an increase in professional fees of approximately $299,000, and the investment advisory fee, which increased approximately $110,000, over the first quarter of 2004.

Professional fees, consisting of legal, audit, valuation and consulting fees, were approximately $408,000 for the three months ended March 31, 2005 compared to $110,000 during the comparable period in 2004. Audit fees increased by approximately $160,000 as a result of the additional work required for compliance with Sarbanes-Oxley standards, and valuation fees increased by approximately $99,000 as a result of the greater number of investments to be reviewed.

The investment advisory fee for the first quarter of 2005 was approximately $800,000, compared to $689,000 for the first quarter of 2004, representing the base fee as provided for in the advisory agreement. The increase is directly related to the increase in the size of the fund. There were no incentive fees earned under the agreement during either period.

Salaries and benefits for the three months ended March 31, 2005 and 2004, respectively, were approximately $89,000 and $46,000, reflecting the allocation of compensation expenses for the services

of our chief financial officer, controller, office manager, and the vice president of business development. The increase from the prior year is primarily related to salary increases and the addition of the position of controller to our staff.

General and administrative expenses, consisting primarily of office supplies, facilities costs and other expenses, were approximately $38,000 for the three months ended March 31, 2005, compared to approximately $40,000 in the first quarter of 2004. General and administrative expenses are allocated to the Company under the terms of the administration agreement with TIM and BDC Partners.

NET INCREASE IN STOCKHOLDERS' EQUITY FROM OPERATIONS

We had a net increase in stockholders' equity resulting from operations of $2,805,410 for the three months ended March 31, 2005, compared to a decrease of $45,597 for the same period in 2004. Based on a weighted-average of 12,443,224 (basic and fully diluted) shares outstanding, our net increase in stockholders' equity from operations per common share for the three months ended March 31, 2005 was $0.23 for basic and fully diluted earnings.

LIQUIDITY AND CAPITAL RESOURCES

At March 31, 2005, we had investments in debt securities of thirteen private companies, totaling approximately $121.0 million, and equity investments of approximately $4.5 million. The debt investment amount includes approximately $2.5 million in accrued PIK interest which, as described in "Overview," is added to the carrying value of our investments.

Cash provided by operating activities for the three months ended March 31, 2005, consisting primarily of the items described in "Results of Operations," was approximately $1.9 million reflecting the income resulting from operations, offset by non-cash income related to PIK interest and OID income. Net cash used by investing activities was approximately $42.1 million, reflecting new investments offset by principal repayments.

The Company raised approximately $41.5 million from a rights offering which closed in January 2005. Under the terms of the offering, each stockholder of record on December 29, 2005 was entitled to purchase an additional share of stock for each three shares owned on that date. The Company issued 3,115,666 shares at a price of $14.029.

During the three months ended March 31, 2005, cash and cash equivalents increased from approximately $57.3 million at the beginning of the period to approximately $ 67.5 million at the end of the period.

In order to qualify as a regulated investment company and to avoid corporate level tax on the income we distribute to our stockholders, we are required, under Subchapter M of the Code, to distribute at least 90% of our ordinary income and short-term capital gains to our stockholders on an annual basis. On April 27, 2005, our Board of Directors declared a dividend of $0.20 per share for the second quarter to stockholders of record as of June 10, 2005, payable on June 30, 2005.

RISK FACTORS

An investment in our securities involves certain risks relating to our structure and investment objectives. The risks set out below are not the only risks we face, and we face other risks which are not yet predictable. If any of the following risks occur, our business, financial condition and results of operations could be materially adversely affected. In such case, our net asset value and the trading price of our common stock could decline, and you may lose all or part of your investment.

RISKS RELATING TO OUR BUSINESS AND STRUCTURE

We are a new company with a limited operating history.

We were incorporated in July 2003 and have a limited operating history. We are subject to all of the business risks and uncertainties associated with any new business enterprise, including the risk that we will not achieve our investment objective and that the value of your investment in us could decline substantially.

Any failure on our part to maintain our status as a business development company would reduce our operating flexibility.

If we do not remain a business development company, we might be regulated as a closed-end investment company under the 1940 Act, which would decrease our operating flexibility.

We are dependent upon TIM's key management personnel for our future success, particularly Jonathan H. Cohen, Saul B. Rosenthal and Lee D. Stern.

We depend on the diligence, skill and network of business contacts of the senior management of TIM. The senior management, together with other investment professionals, will evaluate, negotiate, structure, close, monitor and service our investments. Our future success will depend to a significant extent on the continued service and coordination of the senior management team, particularly Jonathan H. Cohen, the Chief Executive Officer of TIM, Saul B. Rosenthal, the President and Chief Operating Officer of TIM, and Lee D. Stern, the Chief Transaction Officer of TIM. Only Messrs. Rosenthal and Stern devote substantially all of their business time to our operations. None of these individuals is subject to an employment contract. The departure of any of these employees could have a material adverse effect on our ability to achieve our investment objective.

Our financial condition and results of operations will depend on our ability to manage our future growth effectively.

TIM is a recently formed investment adviser, and TICC is a recently organized company. As such, each entity is subject to the business risks and uncertainties associated with any new business enterprise, including the lack of experience in managing or operating a business development company. Our ability to achieve our investment objective will depend on our ability to grow, which will depend, in turn, on our investment adviser's ability to identify, analyze, invest in and finance companies that meet our investment criteria. Accomplishing this result on a cost-effective basis is largely a function of our investment adviser's structuring of the investment process, its ability to provide competent, attentive and efficient services to us and our access to financing on acceptable terms.

As we grow, we and TIM, through TIM's managing member, BDC Partners, will need to hire, train, supervise and manage new employees. Failure to manage our future growth effectively could have a material adverse effect on our business, financial condition and results of operations.

We operate in a highly competitive market for investment opportunities.

A large number of entities compete with us to make the types of investments that we make in technology-related companies. We compete with a large number of private equity and venture capital funds, other equity and non-equity based investment funds, investment banks and other sources of financing, including traditional financial services companies such as commercial banks and specialty finance companies. Many of our competitors are substantially larger and have considerably greater financial, technical and marketing resources than we do. For example, some competitors may have a lower cost of funds and access to funding sources that are not available to us. In addition, some of our competitors may have higher risk tolerances or different risk assessments, which could allow them to consider a wider variety of investments and establish more relationships than us. Furthermore, many of our competitors are not subject to the regulatory restrictions that the 1940 Act imposes on us as a business development company. There can be no assurance that the competitive pressures we face will not have a material adverse effect on our business, financial condition and results of operations. Also, as a result of this competition, we may not be able to take advantage of attractive investment opportunities from time to time, and we can offer no assurance that we will be able to identify and make investments that are consistent with our investment objective.

Our business model depends upon the development of strong referral relationships with private equity and venture capital funds and investment banking firms.

If we fail to maintain our relationships with key firms, or if we fail to establish strong referral relationships with other firms or other sources of investment opportunities, we will not be able to

grow our portfolio of loans and achieve our investment objective. In addition, persons with whom we have informal relationships are not obligated to provide us with investment opportunities, and therefore there is no assurance that such relationships will lead to the origination of debt or other investments.

We may not realize gains from our equity investments.

When we invest in debt securities, we generally expect to acquire warrants or other equity securities as well. However, the equity interests we receive may not appreciate in value and, in fact, may decline in value. Accordingly, we may not be able to realize gains from our equity interests, and any gains that we do realize on the disposition of any equity interests may not be sufficient to offset any other losses we experience.

Because most of our investments are not in publicly traded securities, there is uncertainty regarding the value of our investments, which could adversely affect the determination of our net asset value.

Our portfolio investments are not generally in publicly traded securities. As a result, the fair value of these securities is not readily determinable. We value these securities at fair value as determined in good faith by our Board of Directors based upon the recommendation of its Valuation Committee. The Valuation Committee utilizes the services of Houlihan Lokey Howard & Zukin ("Houlihan Lokey"), an independent valuation firm. However, the Board of Directors retains ultimate authority as to the appropriate valuation of each investment. The types of factors that the Valuation Committee takes into account in providing its fair value recommendation to the Board of Directors includes, as relevant, the nature and value of any collateral, the portfolio company's ability to make payments and its earnings, the markets in which the portfolio company does business, comparison to valuations of publicly traded companies, comparisons to recent sales of comparable companies, the discounted value of the cash flows of the portfolio company and other relevant factors. Because such valuations are inherently uncertain and may be based on estimates, our determinations of fair value may differ materially from the values that would be assessed if a ready market for these securities existed.

The lack of liquidity in our investments may adversely affect our business.

As stated above, our investments are not generally in publicly traded securities. Substantially all of these securities are subject to legal and other restrictions on resale or will otherwise be less liquid than publicly traded securities. The illiquidity of our investments may make it difficult for us to sell such investments if the need arises. Also, if we are required to liquidate all or a portion of our portfolio quickly, we may realize significantly less than the value at which we have previously recorded our investments.

In addition, since we generally invest in debt securities with a term of up to seven years and generally intend to hold such investments until maturity of the debt, we do not expect realization events, if any, to occur in the near-term. We expect that our holdings of equity securities may require several years to appreciate in value, and we can offer no assurance that such appreciation will occur.

We may experience fluctuations in our quarterly results.

We may experience fluctuations in our quarterly operating results due to a number of factors, including the rate at which we make new investments, the interest rates payable on the debt securities we acquire, the default rate on such securities, the level of our expenses, variations in and the timing of the recognition of realized and unrealized gains or losses, the degree to which we encounter competition in our markets and general economic conditions. As a result of these factors, results for any period should not be relied upon as being indicative of performance in future periods.

Even in the event the value of your investment declines, the management fee and, in certain circumstances, the incentive fee will still be payable.

The management fee is calculated as 2.0% of the value of our gross assets at a specific time. Accordingly, the management fee will be payable regardless of whether the value of our gross assets

and/or your investment have decreased. Moreover, a portion of our incentive fee is payable if our net investment income for a calendar quarter exceeds a designated "hurdle rate." This portion of the incentive fee is payable without regard to any capital gain, capital loss or unrealized depreciation that may occur during the quarter. Accordingly, this portion of our incentive fee may also be payable notwithstanding a decline in net asset value that quarter. In addition, in the event we realize deferred loan interest in excess of our available capital, we may be required to liquidate assets in order to pay a portion of the incentive fee.

Regulations governing our operation as a business development company affect our ability to, and the way in which we raise additional capital, which may expose us to risks, including the typical risks associated with leverage.

Our business will require a substantial amount of capital, which we may acquire from the following sources:

Senior securities and other indebtedness

We may issue debt securities or preferred stock and/or borrow money from banks or other financial institutions, which we refer to collectively as "senior securities," up to the maximum amount permitted by the 1940 Act. Under the provisions of the 1940 Act, we are permitted, as a business development company, to issue senior securities in amounts such that our asset coverage ratio, as defined in the 1940 Act, equals at least 200% of gross assets, less all liabilities and indebtedness not represented by senior securities, after each issuance of senior securities. If we issue senior securities, including preferred stock and debt securities, we will be exposed to typical risks associated with leverage, including an increased risk of loss. If we incur leverage to make investments, a decrease in the value of our investments would have a greater negative impact on the value of our common stock. If we issue debt securities or preferred stock, it is likely that such securities will be governed by an indenture or other instrument containing covenants restricting our operating flexibility. In addition, such securities may be rated by rating agencies, and in obtaining a rating for such securities, we may be required to abide by operating and investment guidelines that could further restrict our operating flexibility.

Our ability to pay dividends or issue additional senior securities would be restricted if our asset coverage ratio was not at least 200%. If the value of our assets declines, we may be unable to satisfy this test. If that happens, we may be required to sell a portion of our investments and, depending on the nature of our leverage, repay a portion of our indebtedness at a time when such sales may be disadvantageous. Furthermore, any amounts that we use to service our indebtedness would not be available for distributions to our common stockholders.

Common stock

We are not generally able to issue and sell our common stock at a price below net asset value per share. We may, however, sell our common stock, or warrants, options or rights to acquire our common stock, at a price below the then-current net asset value of our common stock if our Board of Directors determines that such sale is in the best interests of TICC and its stockholders, and our stockholders approve such sale. In certain limited circumstances, pursuant to an SEC staff interpretation, we may also issue shares at a price below net asset value in connection with a transferable rights offering so long as: (1) the offer does not discriminate among shareholders; (2) we use our best efforts to ensure an adequate trading market exists for the rights; and (3) the ratio of the offering does not exceed one new share for each three rights held. If we raise additional funds by issuing more common stock or senior securities convertible into, or exchangeable for, our common stock, the percentage ownership of our stockholders at that time would decrease and they may experience dilution. Moreover, we can offer no assurance that we will be able to issue and sell additional equity securities in the future, on favorable terms or at all.

Our Board of Directors is authorized to reclassify any unissued shares of stock into one or more classes of preferred stock, which could convey special rights and privileges to its owners.

Our charter permits our Board of Directors to reclassify any authorized but unissued shares of stock into one or more classes of preferred stock. We are currently authorized to issue up to 100,000,000

shares of common stock, of which 13,323,431 shares are currently issued and outstanding. In the event our Board of Directors opts to reclassify a portion of our unissued shares of common stock into a class of preferred stock, those preferred shares would have a preference over our common stock with respect to dividends and liquidation. The class voting rights of any preferred shares we may issue could make it more difficult for us to take some actions that may, in the future, be proposed by the Board of Directors and/or the holders of our common stock, such as a merger, exchange of securities, liquidation, or alteration of the rights of a class of our securities, if these actions were perceived by the holders of preferred shares as not in their best interests. The issuance of preferred shares convertible into shares of common stock might also reduce the net income and net asset value per share of our common stock upon conversion. These effects, among others, could have an adverse effect on your investment in our common stock.

A change in interest rates may adversely affect our profitability.

A portion of our income will depend upon the difference between the rate at which we borrow funds (if we do borrow) and the interest rate on the debt securities in which we invest. We anticipate using a combination of equity and long-term and short-term borrowings to finance our investment activities. Some of our investments in debt securities are at fixed rates and others at variable rates. We may, but will not be required to, hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts, subject to applicable legal requirements. These activities may limit our ability to participate in the benefits of lower interest rates with respect to the hedged portfolio. Adverse developments resulting from changes in interest rates or hedging transactions could have a material adverse effect on our business, financial condition and results of operations. Also, we have limited experience in entering into hedging transactions, and we will initially have to purchase or develop such expertise.

We will be subject to corporate-level income tax if we are unable to qualify as a RIC.

To remain entitled to the tax benefits accorded RICs under the Code, we must meet certain income source, asset diversification and annual distribution requirements. The annual distribution requirement for a RIC is satisfied if we distribute at least 90% of our ordinary income and realized net short-term capital gains in excess of realized net long-term capital losses, if any, to our stockholders on an annual basis. Because we may use debt financing in the future, we may be subject to certain asset coverage ratio requirements under the 1940 Act and financial covenants under loan and credit agreements that could, under certain circumstances, restrict us from making distributions necessary to satisfy the annual distribution requirement. If we are unable to obtain cash from other sources, we may fail to qualify for special tax treatment as a RIC and, thus, may be subject to corporate-level income tax on all our income. To qualify as a RIC, we must also meet certain asset diversification requirements at the end of each calendar quarter. Failure to meet these tests may result in our having to dispose of certain investments quickly in order to prevent the loss of RIC status. Because most of our investments will be in private companies, any such dispositions could be made at disadvantageous prices and may result in substantial losses. If we fail to qualify as a RIC for any reason and remain or become subject to corporate income tax, the resulting corporate taxes could substantially reduce our net assets, the amount of income available for distribution and the amount of our distributions. Such a failure would have a material adverse effect on us and our stockholders.

We may have difficulty paying our required distributions if we recognize income before or without receiving cash representing such income.

For federal income tax purposes, we will include in income certain amounts that we have not yet received in cash, such as original issue discount, which may arise if we receive warrants in connection with the making of a loan or possibly in other circumstances, or contracted PIK interest, which represents contractual interest added to the loan balance and due at the end of the loan term. A significant portion of our interest income from debt investments since our inception has been attributable to PIK interest received from our debt investments that contain a PIK provision. We also may be required to include in income certain other amounts that we will not receive in cash.

Since in certain cases we may recognize income before or without receiving cash representing such income, we may have difficulty satisfying the annual distribution requirement applicable to RICs. Accordingly, we may have to sell some of our investments at times we would not consider advantageous, raise additional debt or equity capital or reduce new investments to meet these distribution requirements. If we are not able to obtain cash from other sources, we may fail to qualify for RIC tax treatment and thus be subject to corporate-level income tax.

There are significant potential conflicts of interest, which could impact our investment returns.

Our executive officers and directors, and the executive officers of our investment adviser, TIM, and its managing member, BDC Partners, serve or may serve as officers and directors of entities who operate in the same or related line of business as we do. Accordingly, they may have obligations to investors in those entities, the fulfillment of which might not be in the best interests of us or our stockholders. For example, Jonathan H. Cohen, the Chief Executive Officer of TIM, BDC Partners and TICC, is the principal of JHC Capital Management, LLC, a registered investment adviser. Steven P. Novak, one of our independent directors, is also the President of Palladio Capital Management, LLC, the manager of an equity-oriented hedge fund. Charles M. Royce, the non-executive Chairman of our Board of Directors, is the President and Chief Investment Officer of Royce & Associates, LLC, the non-managing member of our investment adviser. In addition, Messrs. Cohen and Rosenthal serve as Chief Executive Officer and President, respectively, of TAC Acquisition Corp., a special purpose acquisition company formed for the purpose of acquiring one or more operating companies in the technology-related sector. Messrs. Cohen, Rosenthal and Novak also serve on the Board of Directors, and Mr. Royce is a significant shareholder, of TAC Acquisition Corp. Because of these possible conflicts of interest, such individuals may direct potential business and investment opportunities to other entities rather than to us.

In order to minimize the potential conflicts of interest that might arise, we have adopted a policy that prohibits us from making investments in, or otherwise knowingly doing business with, any company in which any fund or other client account managed by JHC Capital Management, Royce & Associates, LLC, or Palladio Capital Management holds a long or short position. The investment focus of each of these entities tends to be different from our investment objective. Nevertheless, it is possible that new investment opportunities that meet our investment objective may come to the attention of one of these entities in connection with another investment advisory client or program, and, if so, such opportunity might not be offered, or otherwise made available, to us. Also, our investment policy precluding the investments referenced above could cause us to miss out on some investment opportunities. However, our executive officers, directors and investment adviser intend to treat us in a fair and equitable manner over time consistent with their applicable duties under law so that we will not be disadvantaged in relation to any other particular client. In addition, we have adopted a formal Code of Ethics that governs the conduct of our officers and directors. Our officers and directors also remain subject to the fiduciary obligations imposed by both the 1940 Act and applicable state corporate law. Finally, we pay BDC Partners our allocable portion of overhead and other expenses incurred by BDC Partners in performing its obligations under the administration agreement, including a portion of the rent and the compensation of our Chief Financial Officer, Vice President of Investor Relations and other administrative support personnel, which creates conflicts of interest that our Board of Directors must monitor.

Changes in laws or regulations governing our operations may adversely affect our business.

We and our portfolio companies are subject to regulation by laws at the local, state and federal levels. These laws and regulations, as well as their interpretation, may be changed from time to time. Any change in these laws or regulations could have a material adverse effect on our business.

Our ability to invest in private companies may be limited in certain circumstances.

If we are to maintain our status as a business development company, we must not acquire any assets other than "qualifying assets" unless, at the time of and after giving effect to such acquisition, at least 70% of our total assets are qualifying assets. If we acquire debt or equity securities from an issuer that

has outstanding marginable securities at the time we make an investment, these acquired assets cannot be treated as qualifying assets. This result is dictated by the definition of "eligible portfolio company" under the 1940 Act, which in part looks to whether a company has outstanding marginable securities. For a more detailed discussion of the definition of an "eligible portfolio company" and the marginable securities requirement, see the section entitled "Regulation as a Business Development Company."

Amendments promulgated in 1998 by the Federal Reserve expanded the definition of a marginable security under the Federal Reserve's margin rules to include any non-equity security. Thus, any debt securities issued by any entity are marginable securities under the Federal Reserve's current margin rules. As a result, the staff of the SEC has raised the question to the business development company industry as to whether a private company that has outstanding debt securities would qualify as an "eligible portfolio company" under the 1940 Act.

The SEC has recently issued proposed rules to correct the unintended consequence of the Federal Reserve's 1998 margin rule amendments of apparently limiting the investment opportunities of business development companies. In general, the SEC's proposed rules would define an eligible portfolio company as any company that does not have securities listed on a national securities exchange or association. We are currently in the process of reviewing the SEC's proposed rules and assessing their impact, to the extent such proposed rules are subsequently approved by the SEC, on our investment activities. We do not believe that these proposed rules will have a material adverse effect on our operations.

Until the SEC or its staff has taken a final public position with respect to the issue discussed above, we will continue to monitor this issue closely, and may be required to adjust our investment focus to comply with and/or take advantage of any future administrative position, judicial decision or legislative action.

Provisions of the Maryland General Corporation Law and of our charter and bylaws could deter takeover attempts and have an adverse impact on the price of our common stock.

Our charter and bylaws, as well as certain statutory and regulatory requirements, contain certain provisions that may have the effect of discouraging a third party from making an acquisition proposal for us. These anti-takeover provisions may inhibit a change of control in circumstances that could give the holders of our common stock the opportunity to realize a premium over the market price for our common stock.

RISKS RELATED TO OUR INVESTMENTS

Our portfolio may be concentrated in a limited number of portfolio companies in the technology-related sector, which will subject us to a risk of significant loss if any of these companies defaults on its obligations under any of its debt securities that we hold or if the technology-related sector experiences a further downturn.

A consequence of this limited number of investments is that the aggregate returns we realize may be significantly adversely affected if a small number of investments perform poorly or if we need to write down the value of any one investment. Beyond our income tax asset diversification requirements, we do not have fixed guidelines for diversification, and our investments could be concentrated in relatively few issuers. In addition, we intend to concentrate in the technology-related sector and to invest, under normal circumstances, at least 80% of the value of our net assets (including the amount of any borrowings for investment purposes) in technology-related companies. As a result, a further downturn in the technology-related sector could materially adversely affect us.

The technology-related sector is subject to many risks, including volatility, intense competition, decreasing life cycles and periodic downturns.

We invest in companies in the technology-related sector, some of which may have relatively short operating histories. The revenues, income (or losses) and valuations of technology-related companies can and often do fluctuate suddenly and dramatically. Also, the technology-related market is generally

characterized by abrupt business cycles and intense competition. Since mid-2000, there has been substantial excess capacity and a significant slowdown in many industries in the technology-related sector. In addition, this overcapacity, together with a cyclical economic downturn, resulted in substantial decreases in the market capitalization of many technology-related companies. While such valuations have recovered to some extent, we can offer no assurance that such decreases in market capitalizations will not recur, or that any future decreases in technology company valuations will be insubstantial or temporary in nature. Therefore, our portfolio companies may face considerably more risk of loss than companies in other industry sectors.

In addition, because of rapid technological change, the average selling prices of products and some services provided by the technology-related sector have historically decreased over their productive lives. As a result, the average selling prices of products and services offered by our portfolio companies may decrease over time, which could adversely affect their operating results and their ability to meet their obligations under their debt securities, as well as the value of any equity securities, that we may hold. This could, in turn, materially adversely affect our business, financial condition and results of operations.

Our investments in the technology-related companies that we are targeting may be extremely risky and we could lose all or part of our investments.

Although a prospective portfolio company's assets are one component of our analysis when determining whether to provide debt capital, we generally do not base an investment decision primarily on the liquidation value of a company's balance sheet assets. Instead, given the nature of the companies that TICC invests in, we also review the company's historical and projected cash flows, equity capital and "soft" assets, including intellectual property (patented and non-patented), databases, business relationships (both contractual and non-contractual) and the like. Accordingly, considerably higher levels of overall risk will likely be associated with TICC's portfolio compared with that of a traditional asset-based lender whose security consists primarily of receivables, inventories, equipment and other tangible assets. Interest rates payable by our portfolio companies may not compensate for these additional risks.

Specifically, investment in the technology-related companies that we are targeting involves a number of significant risks, including:


	•	these companies may have limited financial resources and may be unable to meet their obligations under their debt securities that we hold, which may be accompanied by a deterioration in the value of any collateral and a reduction in the likelihood of us realizing any value from the liquidation of such collateral;


	•	they typically have limited operating histories, narrower product lines and smaller market shares than larger businesses, which tend to render them more vulnerable to competitors' actions and market conditions, as well as general economic downturns;


	•	because they tend to be privately owned, there is generally little publicly available information about these businesses; therefore, although TIM's agents will perform "due diligence" investigations on these portfolio companies, their operations and their prospects, we may not learn all of the material information we need to know regarding these businesses;


	•	they are more likely to depend on the management talents and efforts of a small group of persons; therefore, the death, disability, resignation or termination of one or more of these persons could have a material adverse impact on our portfolio company and, in turn, on us; and


	•	they generally have less predictable operating results, may from time to time be parties to litigation, may be engaged in rapidly changing businesses with products subject to a substantial risk of obsolescence, and may require substantial additional capital to support their operations, finance expansion or maintain their competitive position.

A portfolio company's failure to satisfy financial or operating covenants imposed by us or other lenders could lead to defaults and, potentially, termination of its loans and foreclosure on its secured

assets, which could trigger cross-defaults under other agreements and jeopardize our portfolio company's ability to meet its obligations under the debt securities that we hold. We may incur expenses to the extent necessary to seek recovery upon default or to negotiate new terms with a defaulting portfolio company. In addition, if a portfolio company goes bankrupt, even though we may have structured our interest as senior debt, depending on the facts and circumstances, including the extent to which we actually provided significant "managerial assistance" to that portfolio company, a bankruptcy court might recharacterize our debt holding and subordinate all or a portion of our claim to that of other creditors.

Our failure to make follow-on investments in our portfolio companies could impair the value of our portfolio.

Following an initial investment in a portfolio company, we may make additional investments in that portfolio company as "follow-on" investments, in order to: (1) increase or maintain in whole or in part our equity ownership percentage; (2) exercise warrants, options or convertible securities that were acquired in the original or subsequent financing; or (3) attempt to preserve or enhance the value of our investment.

We may elect not to make follow-on investments or otherwise lack sufficient funds to make those investments. We have the discretion to make any follow-on investments, subject to the availability of capital resources. The failure to make follow-on investments may, in some circumstances, jeopardize the continued viability of a portfolio company and our initial investment, or may result in a missed opportunity for us to increase our participation in a successful operation. Even if we have sufficient capital to make a desired follow-on investment, we may elect not to make a follow-on investment because we may not want to increase our concentration of risk, because we prefer other opportunities, or because we are inhibited by compliance with business development company requirements or the desire to maintain our tax status.

Our incentive fee may induce TIM to make speculative investments.

The incentive fee payable by us to TIM may create an incentive for TIM to make investments on our behalf that are risky or more speculative than would be the case in the absence of such compensation arrangement. The way in which the incentive fee payable to TIM is determined, which is calculated as a percentage of the return on invested capital, may encourage TIM to use leverage to increase the return on our investments. Under certain circumstances, the use of leverage may increase the likelihood of default, which would disfavor holders of our common stock. Similarly, because TIM will receive the incentive fee based, in part, upon the capital gains realized on our investments, the investment adviser may invest more than would otherwise be appropriate in companies whose securities are likely to yield capital gains, as compared to income producing securities. Such a practice could result in our investing in more speculative securities than would otherwise be the case, which could result in higher investment losses, particularly during cyclical economic downturns.

Our portfolio companies may incur debt that ranks equally with, or senior to, our investments in such companies.

We intend to invest primarily in senior debt securities, but may also invest in subordinated debt securities, issued by our portfolio companies. In some cases portfolio companies will be permitted to have other debt that ranks equally with, or senior to, the debt securities in which we invest. By their terms, such debt instruments may provide that the holders thereof are entitled to receive payment of interest or principal on or before the dates on which we are entitled to receive payments in respect of the debt securities in which we invest. Also, in the event of insolvency, liquidation, dissolution, reorganization or bankruptcy of a portfolio company, holders of debt instruments ranking senior to our investment in that portfolio company would typically be entitled to receive payment in full before we receive any distribution in respect of our investment. After repaying such senior creditors, such portfolio company may not have any remaining assets to use for repaying its obligations to us. In the case of debt ranking equally with debt securities in which we invest, we would have to share on an

equal basis any distributions with other creditors holding such debt in the event of an insolvency, liquidation, dissolution, reorganization or bankruptcy of the relevant portfolio company. In addition, we will not be in a position to control any portfolio company by investing in its debt securities. As a result, we are subject to the risk that a portfolio company in which we invest may make business decisions with which we disagree and the management of such companies, as representatives of the holders of their common equity, may take risks or otherwise act in ways that do not best serve our interests as debt investors.

Because we generally do not hold controlling equity interests in our portfolio companies, we may not be in a position to exercise control over our portfolio companies or to prevent decisions by management of our portfolio companies that could decrease the value of our investments.

Although we may do so in the future, to date we have generally not taken controlling equity positions in our portfolio companies. As a result, we are subject to the risk that a portfolio company may make business decisions with which we disagree, and the stockholders and management of a portfolio company may take risks or otherwise act in ways that are adverse to our interests. Due to the lack of liquidity for the debt and equity investments that we typically hold in our portfolio companies, we may not be able to dispose of our investments in the event we disagree with the actions of a portfolio company, and may therefore suffer a decrease in the value of our investments.

RISKS RELATED TO AN INVESTMENT IN OUR COMMON STOCK

Our common stock price may be volatile.

The trading price of our common stock may fluctuate substantially. The price of the common stock that will prevail in the market after this offering may be higher or lower than the price you pay, depending on many factors, some of which are beyond our control and may not be directly related to our operating performance. These factors include, but are not limited to, the following:


	•	price and volume fluctuations in the overall stock market from time to time;


	•	significant volatility in the market price and trading volume of securities of regulated investment companies, business development companies or other financial services companies;


	•	changes in regulatory policies or tax guidelines with respect to regulated investment companies or business development companies;


	•	actual or anticipated changes in our earnings or fluctuations in our operating results or changes in the expectations of securities analysts;


	•	general economic conditions and trends;


	•	loss of a major funding source; or


	•	departures of key personnel.

In the past, following periods of volatility in the market price of a company's securities, securities class action litigation has often been brought against that company. Due to the potential volatility of our stock price, we may therefore be the target of securities litigation in the future. Securities litigation could result in substantial costs and divert management's attention and resources from our business.

Our shares may trade at discounts from net asset value or at premiums that are unsustainable over the long term.

Shares of business development companies may trade at a market price that is less than the net asset value that is attributable to those shares. The possibility that our shares of common stock will trade at a discount from net asset value or at premiums that are unsustainable over the long term are separate and distinct from the risk that our net asset value will decrease. During the second and third quarters of 2004, our shares of common stock traded at a discount to the net asset value attributable to those shares. It is not possible to predict whether our shares will trade at, above, or below net asset value.

There is a risk that you may not receive dividends or that our dividends may not grow over time.

We cannot assure you that we will achieve investment results or maintain a tax status that will allow or require any specified level of cash distributions or year-to-year increases in cash distributions.

ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

We are subject to financial market risks, including changes in interest rates. At March 31, 2005 five debt investments in our portfolio were at fixed rates, and the remaining eight investments were at variable rates, representing $46 million and $76 million in principal debt respectively. The variable rates are based upon the five-year US Treasury note. We expect that out future debt investments will generally be made at variable rates.

To illustrate the potential impact of a change in the underlying interest rate on our net increase in stockholders' equity resulting from operations, we have assumed a 1% increase in the underlying five-year US Treasury note, and no other change in our portfolio as of March 31, 2005. Under this analysis, the impact would be approximately $190,000 for the quarter.

We may in the future hedge against interest rate fluctuations by using standard hedging instruments such as futures, options and forward contracts. While hedging activities may insulate us against adverse changes in interest rates, they may also limit our ability to participate in the benefits of lower interest rates with respect to our portfolio of investments. We did not engage in any hedging activities during the first quarter of 2005.

ITEM 4. CONTROLS AND PROCEDURES.

As of March 31, 2005, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures. Based on that evaluation, our management, including the Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective in timely alerting management, including the Chief Executive Officer and Chief Financial Officer, of material information about us required to be included in periodic Securities and Exchange Commission filings. However, in evaluating the disclosure controls and procedures, management recognized that any controls and procedures, no matter how well designed and operated can provide only reasonable assurance of achieving the desired control objectives, and management necessarily was required to apply its judgment in evaluating the cost-benefit relationship of possible controls and procedures.

There have been no changes in our internal control over financial reporting that occurred during the quarter ended March 31, 2005 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II—OTHER INFORMATION

ITEM 1. LEGAL PROCEEDINGS.

We are not currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us. From time to time, we may be a party to certain legal proceedings incidental to the normal course of our business including the enforcement of our rights under contracts with our portfolio companies. While the outcome of these legal proceedings cannot be predicted with certainty, we do not expect that these proceedings will have a material effect upon our financial condition or results of operations.

ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS.

Not applicable.

ITEM 3. DEFAULTS UPON SENIOR SECURITIES.

Not applicable.

ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

Not applicable.

ITEM 5. OTHER INFORMATION.

Not applicable.

ITEM 6. EXHIBITS

(a) EXHIBITS

The following exhibits are filed as part of this report or hereby incorporated by reference to exhibits previously filed with the SEC:


3.1				Articles of Incorporation (Incorporated by reference to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on September 23, 2003).
3.2				Amended and Restated Bylaws (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003).
4.1				Form of Share Certificate (Incorporated by reference to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on September 23, 2003).
10.1				Form of Amended and Restated Investment Advisory Agreement between Registrant and Technology Investment Management, LLC (Incorporated by reference to Appendix B to the Registrant's Proxy Materials on Schedule 14A (File No. 000-50398) filed on May 18, 2004).
10.2				Custodian Agreement between Registrant and State Street Bank and Trust Company (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003).
10.3				Administration Agreement between Registrant and BDC Partners, LLC (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003).


10.4				Transfer Agency and Service Agreement among Registrant, EquiServe Trust Company, N.A. and EquiServe, Inc (Incorporated by reference to Pre-Effective Amendment No. 2 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 19, 2003).
10.5				Dividend Reinvestment Plan (Incorporated by reference to Pre-Effective Amendment No. 1 to the Registrant's Registration Statement on Form N-2 (File No. 333-109055), filed on November 6, 2003).
11				Computation of Per Share Earnings (included in the notes to the audited financial statements contained in this report).
31.1*				Certification of Chief Executive Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
31.2*				Certification of Chief Financial Officer pursuant to Rule 13a-14 of the Securities Exchange Act of 1934, as amended.
32.1*				Certification of Chief Executive Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.
32.2*				Certification of Chief Financial Officer pursuant to section 906 of The Sarbanes-Oxley Act of 2002.


*	Filed herewith.

SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.

Technology Investment Capital Corp.


Date: May 9, 2005	By: /s/ Jonathan H. Cohen Jonathan H. Cohen Chief Executive Officer


Date: May 9, 2005	By: /s/ Patrick F. Conroy Patrick F. Conroy Chief Financial Officer (Principal Accounting and Financial Officer)