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

 
Form 10-Q

(Mark One)
 
x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 	 	
 	FOR THE QUARTERLY PERIOD ENDED MARCH 31, 2017	
 	 	
 	OR	
 	 	
¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934	
 
FOR THE TRANSITION PERIOD FROM                TO
 
COMMISSION FILE NUMBER: 814-00802

 
HORIZON TECHNOLOGY FINANCE CORPORATION
(Exact name of registrant as specified in its charter)

 
DELAWARE	 	27-2114934	
(State or other jurisdiction of incorporation or organization)	 	(I.R.S. Employer Identification No.)	
 	 	 	
312 Farmington Avenue	 	 	
Farmington, CT	 	06032	
(Address of principal executive offices)	 	(Zip Code)	
 
(860) 676-8654
(Registrant’s telephone number, including area code)

 
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes  x  No  ¨
 
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes  ¨  No  ¨
 
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
 
Large accelerated filer  	¨	Accelerated filer	x	
 	 	 	 	
Non-accelerated filer	¨  (Do not check if a smaller reporting company)	Smaller reporting company	¨	
 	 	 	 	
Emerging growth company	¨	 	 	
 
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act	¨	
 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No  x
 
The number of shares of the registrant’s common stock, $0.001 par value per share, outstanding as of May 2, 2017 was 11,516,691. 

 

 
HORIZON TECHNOLOGY FINANCE CORPORATION
 
FORM 10-Q
TABLE OF CONTENTS
 
 	 	Page	
 	PART I	 	
Item 1.	Consolidated Financial Statements	3	
 	 	 	
 	Consolidated Statements of Assets and Liabilities as of March 31, 2017 and December 31, 2016 (unaudited)	3	
 	Consolidated Statements of Operations for the three months ended March 31, 2017 and 2016 (unaudited)	4	
 	Consolidated Statements of Changes in Net Assets for the three months ended March 31, 2017 and 2016 (unaudited)	5	
 	Consolidated Statements of Cash Flows for the three months ended March 31, 2017 and 2016 (unaudited)	6	
 	Consolidated Schedules of Investments as of March 31, 2017 and December 31, 2016 (unaudited)	7	
 	Notes to the Consolidated Financial Statements (unaudited)	18	
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	35	
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	46	
Item 4.	Controls and Procedures	47	
 	 	 	
 	PART II	 	
Item 1.	Legal Proceedings	48	
Item 1A.	Risk Factors	48	
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	48	
Item 3.	Defaults Upon Senior Securities	48	
Item 4.	Mine Safety Disclosures	48	
Item 5.	Other Information	48	
Item 6.	Exhibits	48	
 	Signatures	49	

EX-31.1	 	 	
EX-31.2	 	 	
EX-32.1	 	 	
EX-32.2	 	 	
 
 	2	 	

 
PART I: FINANCIAL INFORMATION
 
Item 1. Consolidated Financial Statements
 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Assets and Liabilities (Unaudited)
(Dollars in thousands, except share and per share data)
 
 	 	March 31,
2017	 	 	December 31,
2016	 	
 	 	 	 	 	 	 	
Assets	 	 	 	 	 	 	 	 	
Non-affiliate investments at fair value (cost of $188,446 and $211,627, respectively) (Note 4)	 	$	180,114	 	 	$	194,003	 	
Cash	 	 	43,644	 	 	 	37,135	 	
Interest receivable	 	 	4,586	 	 	 	6,036	 	
Other assets	 	 	1,613	 	 	 	2,078	 	
Total assets	 	 	229,957	 	 	$	239,252	 	
 	 	 	 	 	 	 	 	 	
Liabilities	 	 	 	 	 	 	 	 	
Borrowings (Note 6)	 	$	85,644	 	 	$	95,597	 	
Distributions payable	 	 	3,455	 	 	 	3,453	 	
Base management fee payable (Note 3)	 	 	312	 	 	 	337	 	
Incentive fee payable (Note 3)	 	 	430	 	 	 	-	 	
Other accrued expenses	 	 	677	 	 	 	673	 	
Total liabilities	 	 	90,518	 	 	 	100,060	 	
 	 	 	 	 	 	 	 	 	
Commitments and Contingencies (Note 7)	 	 	 	 	 	 	 	 	
 	 	 	 	 	 	 	 	 	
Net assets	 	 	 	 	 	 	 	 	
Preferred stock, par value $0.001 per share, 1,000,000 shares authorized, zero shares issued and outstanding as of March 31, 2017 and December 31, 2016	 	 	-	 	 	 	-	 	
Common stock, par value $0.001 per share, 100,000,000 shares authorized, 11,676,723 and 11,671,966 shares issued and 11,515,181 and 11,510,424 shares outstanding as of March 31, 2017 and December 31, 2016, respectively	 	 	12	 	 	 	12	 	
Paid-in capital in excess of par	 	 	179,600	 	 	 	179,551	 	
Distributions in excess of net investment income	 	 	(485	)	 	 	(397	)	
Net unrealized depreciation on investments	 	 	(8,332	)	 	 	(19,463	)	
Net realized loss on investments	 	 	(31,356	)	 	 	(20,511	)	
Total net assets	 	 	139,439	 	 	 	139,192	 	
Total liabilities and net assets	 	$	229,957	 	 	$	239,252	 	
Net asset value per common share	 	$	12.11	 	 	$	12.09	 	
 
See Notes to Consolidated Financial Statements
 
 	3	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Operations (Unaudited)
(Dollars in thousands, except share and per share data)
 
 	 	For the Three Months Ended	 	
 	 	March 31,	 	
 	 	2017	 	 	2016	 	
Investment income	 	 	 	 	 	 	 	 	
Interest income on non-affiliate investments	 	$	6,279	 	 	$	9,003	 	
Prepayment fee income on non-affiliate investments	 	 	460	 	 	 	167	 	
Fee income on non-affiliate investments	 	 	223	 	 	 	127	 	
Total investment income	 	 	6,962	 	 	 	9,297	 	
Expenses	 	 	 	 	 	 	 	 	
Interest expense	 	 	1,316	 	 	 	1,534	 	
Base management fee (Note 3)	 	 	974	 	 	 	1,284	 	
Performance based incentive fee (Note 3)	 	 	430	 	 	 	1,099	 	
Administrative fee (Note 3)	 	 	194	 	 	 	281	 	
Professional fees	 	 	506	 	 	 	501	 	
General and administrative	 	 	175	 	 	 	201	 	
Total expenses	 	 	3,595	 	 	 	4,900	 	
Net investment income	 	 	3,367	 	 	 	4,397	 	
 	 	 	 	 	 	 	 	 	
Net realized and unrealized gain (loss) on investments	 	 	 	 	 	 	 	 	
Net realized loss on investments	 	 	(10,845	)	 	 	(1,986	)	
Net unrealized appreciation (depreciation) on investments	 	 	11,131	 	 	 	(1,014	)	
Net realized and unrealized gain (loss) on investments	 	 	286	 	 	 	(3,000	)	
 	 	 	 	 	 	 	 	 	
Net increase in net assets resulting from operations	 	$	3,653	 	 	$	1,397	 	
Net investment income per common share	 	$	0.29	 	 	$	0.38	 	
Net increase in net assets per common share	 	$	0.32	 	 	$	0.12	 	
Distributions declared per share	 	$	0.30	 	 	$	0.345	 	
Weighted average shares outstanding	 	 	11,512,853	 	 	 	11,538,003	 	
 
See Notes to Consolidated Financial Statements
 
 	4	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Changes in Net Assets (Unaudited)
(Dollars in thousands, except share data)
 
 	 	Common Stock	 	 	Paid-In
Capital in
Excess of	 	 	Distributions
in Excess of
Net
Investment	 	 	Net Unrealized
Depreciation
on	 	 	Net Realized
Loss on	 	 	Total Net	 	
 	 	Shares	 	 	Amount	 	 	Par	 	 	Income	 	 	Investments	 	 	Investments	 	 	Assets	 	
Balance at December 31, 2015	 	 	11,535,212	 	 	$	12	 	 	$	179,707	 	 	$	(2,006	)	 	$	(5,227	)	 	$	(12,735	)	 	$	159,751	 	
Net increase in net assets resulting from operations, net of excise tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	4,397	 	 	 	(1,014	)	 	 	(1,986	)	 	 	1,397	 	
Issuance of common stock under dividend reinvestment plan	 	 	5,378	 	 	 	-	 	 	 	54	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	54	 	
Distributions declared	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,982	)	 	 	-	 	 	 	-	 	 	 	(3,982	)	
Balance at March 31, 2016	 	 	11,540,590	 	 	$	12	 	 	$	179,761	 	 	$	(1,591	)	 	$	(6,241	)	 	$	(14,721	)	 	$	157,220	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Balance at December 31, 2016	 	 	11,510,424	 	 	$	12	 	 	$	179,551	 	 	$	(397	)	 	$	(19,463	)	 	$	(20,511	)	 	$	139,192	 	
Net increase in net assets resulting from operations, net of excise tax	 	 	-	 	 	 	-	 	 	 	-	 	 	 	3,367	 	 	 	11,131	 	 	 	(10,845	)	 	 	3,653	 	
Issuance of common stock under dividend reinvestment plan	 	 	4,757	 	 	 	-	 	 	 	49	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	49	 	
Distributions declared	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(3,455	)	 	 	-	 	 	 	-	 	 	 	(3,455	)	
Balance at March 31, 2017	 	 	11,515,181	 	 	$	12	 	 	$	179,600	 	 	$	(485	)	 	$	(8,332	)	 	$	(31,356	)	 	$	139,439	 	
 
See Notes to Consolidated Financial Statements
 
 	5	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Statements of Cash Flows (Unaudited)
(Dollars in thousands)
 
 	 	For the Three Months Ended	 	
 	 	March 31,	 	
 	 	2017	 	 	2016	 	
Cash flows from operating activities:	 	 	 	 	 	 	 	 	
Net increase in net assets resulting from operations	 	$	3,653	 	 	$	1,397	 	
Adjustments to reconcile net increase in net assets resulting from operations to net cash provided by operating activities:	 	 	 	 	 	 	 	 	
Amortization of debt issuance costs	 	 	127	 	 	 	153	 	
Net realized loss on investments	 	 	10,845	 	 	 	1,986	 	
Net unrealized (appreciation) depreciation on investments	 	 	(11,131	)	 	 	1,014	 	
Purchase of investments	 	 	(25,916	)	 	 	(16,500	)	
Principal payments received on investments	 	 	39,511	 	 	 	18,033	 	
Proceeds from sale of investments	 	 	1,226	 	 	 	836	 	
Changes in assets and liabilities:	 	 	 	 	 	 	 	 	
Net increase in investments in money market funds	 	 	-	 	 	 	(6	)	
Net decrease in restricted investments in money market funds	 	 	-	 	 	 	439	 	
Decrease (increase) in interest receivable	 	 	112	 	 	 	(243	)	
Decrease (increase) in end-of-term payments	 	 	927	 	 	 	(1,075	)	
Decrease in unearned income	 	 	(235	)	 	 	(118	)	
Decrease in other assets	 	 	385	 	 	 	89	 	
Increase in other accrued expenses	 	 	4	 	 	 	160	 	
(Decrease) increase in base management fee payable	 	 	(25	)	 	 	40	 	
Increase in incentive fee payable	 	 	430	 	 	 	71	 	
Net cash provided by operating activities	 	 	19,913	 	 	 	6,276	 	
Cash flows from financing activities:	 	 	 	 	 	 	 	 	
Repayment of Asset-Backed Notes	 	 	-	 	 	 	(5,850	)	
Advances on credit facility	 	 	15,000	 	 	 	-	 	
Repayment of credit facility	 	 	(25,000	)	 	 	-	 	
Distributions paid	 	 	(3,404	)	 	 	(3,928	)	
Net cash used in financing activities	 	 	(13,404	)	 	 	(9,778	)	
Net increase (decrease) in cash	 	 	6,509	 	 	 	(3,502	)	
Cash:	 	 	 	 	 	 	 	 	
Beginning of period	 	 	37,135	 	 	 	20,765	 	
End of period	 	$	43,644	 	 	$	17,263	 	
Supplemental disclosure of cash flow information:	 	 	 	 	 	 	 	 	
Cash paid for interest	 	$	1,257	 	 	$	1,350	 	
Supplemental non-cash investing and financing activities:	 	 	 	 	 	 	 	 	
Warrant investments received and recorded as unearned income	 	$	877	 	 	$	81	 	
Distributions payable	 	$	3,455	 	 	$	3,982	 	
End-of-term payments receivable	 	$	3,736	 	 	$	6,143	 	
 
See Notes to Consolidated Financial Statements
 
 	6	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2017
(Dollars in thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Debt Investments - 119.1% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Investments - Life Science - 27.5% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Palatin Technologies, Inc. (2)(5)	 	Biotechnology	 	Term Loan (9.31% cash (Libor + 8.50%; Floor	 	$	3,500	 	 	$	3,465	 	 	$	3,465	 	
 	 	 	 	9.00%), 5.00% ETP, Due 1/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.31% cash (Libor + 8.50%; Floor	 	 	4,667	 	 	 	4,627	 	 	 	4,627	 	
 	 	 	 	9.00%), 5.00% ETP, Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Sample6, Inc. (2)	 	Biotechnology	 	Term Loan (9.81% cash (Libor + 9.00%; Floor	 	 	778	 	 	 	775	 	 	 	775	 	
 	 	 	 	9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.81% cash (Libor + 9.00%; Floor	 	 	472	 	 	 	470	 	 	 	470	 	
 	 	 	 	9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.81% cash (Libor + 9.00%; Floor	 	 	1,667	 	 	 	1,658	 	 	 	1,658	 	
 	 	 	 	9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Strongbridge U.S. Inc. (5)	 	Biotechnology	 	Term Loan (9.01% cash (Libor + 8.22%; Floor	 	 	7,500	 	 	 	7,358	 	 	 	7,358	 	
 	 	 	 	8.75%), 8.00% ETP, Due 12/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
vTv Therapeutics Inc. (2)(5)	 	Biotechnology	 	Term Loan (10.81% cash (Libor + 10.00%; Floor	 	 	6,250	 	 	 	6,154	 	 	 	6,154	 	
 	 	 	 	10.50%), 6.00% ETP, Due 5/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.98% cash (Libor + 10.00%; Floor	 	 	3,750	 	 	 	3,687	 	 	 	3,687	 	
 	 	 	 	10.50%), 6.00% ETP, Due 10/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Lantos Technologies, Inc. (2)	 	Medical Device	 	Term Loan (11.50% cash (Libor + 10.50%; Floor	 	 	2,479	 	 	 	2,459	 	 	 	2,345	 	
 	 	 	 	11.50%), 5.00% ETP, Due 2/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Mederi Therapeutics, Inc. (2)	 	Medical Device	 	Term Loan (12.45% cash (Libor + 11.82%; Floor	 	 	959	 	 	 	953	 	 	 	953	 	
 	 	 	 	12.00%), 6.00% ETP, Due 12/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (12.45% cash (Libor + 11.82%; Floor	 	 	959	 	 	 	953	 	 	 	953	 	
 	 	 	 	12.00%), 6.00% ETP, Due 12/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
NinePoint Medical, Inc. (2)	 	Medical Device	 	Term Loan (9.56% cash (Libor + 8.75%; Floor	 	 	4,000	 	 	 	3,966	 	 	 	3,966	 	
 	 	 	 	9.25%), 4.50% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.56% cash (Libor + 8.75%; Floor	 	 	2,000	 	 	 	1,978	 	 	 	1,978	 	
 	 	 	 	9.25%), 4.50% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Life Science	 	 	 	 	 	 	38,503	 	 	 	38,389	 	
Debt Investments - Technology - 81.5% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Gwynnie Bee, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (11.29% cash (Libor + 10.50%; Floor	 	 	467	 	 	 	460	 	 	 	460	 	
 	 	 	 	11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.29% cash (Libor + 10.50%; Floor	 	 	333	 	 	 	326	 	 	 	326	 	
 	 	 	 	11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.29% cash (Libor + 10.50%; Floor	 	 	400	 	 	 	394	 	 	 	394	 	
 	 	 	 	11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Le Tote, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (10.46% cash (Libor + 9.65%; Floor	 	 	4,000	 	 	 	3,946	 	 	 	3,946	 	
 	 	 	 	10.15%), 5.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.46% cash (Libor + 9.65%; Floor	 	 	3,000	 	 	 	2,959	 	 	 	2,959	 	
 	 	 	 	10.15%), 5.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Rhapsody International, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (11.31% cash (Libor + 10.50%; Floor	 	 	7,500	 	 	 	7,351	 	 	 	7,351	 	
 	 	 	 	11.00%), 3.00% ETP, Due 10/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
SavingStar, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (11.21% cash (Libor + 10.40%; Floor	 	 	2,600	 	 	 	2,564	 	 	 	2,564	 	
 	 	 	 	10.90%), 3.00% ETP, Due 6/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.21% cash (Libor + 10.40%; Floor	 	 	2,000	 	 	 	1,968	 	 	 	1,968	 	
 	 	 	 	10.90%), 3.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
IgnitionOne, Inc. (2)	 	Internet and Media	 	Term Loan (11.21% cash (Libor + 10.23%; Floor	 	 	3,000	 	 	 	2,802	 	 	 	2,802	 	
 	 	 	 	10.23%), 2.00% ETP, Due 4/1/22)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.21% cash (Libor + 10.23%; Floor	 	 	3,000	 	 	 	2,802	 	 	 	2,802	 	
 	 	 	 	10.23%), 2.00% ETP, Due 4/1/22)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.21% cash (Libor + 10.23%; Floor	 	 	3,000	 	 	 	2,802	 	 	 	2,802	 	
 	 	 	 	10.23%), 2.00% ETP, Due 4/1/22)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.21% cash (Libor + 10.23%; Floor	 	 	3,000	 	 	 	2,802	 	 	 	2,802	 	
 	 	 	 	10.23%), 2.00% ETP, Due 4/1/22)	 	 	 	 	 	 	 	 	 	 	 	 	
Jump Ramp Games, Inc. (2)	 	Internet and Media	 	Term Loan (10.71% cash (Libor + 9.73%),	 	 	4,000	 	 	 	3,928	 	 	 	3,928	 	
 	 	 	 	3.00% ETP, Due 4/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
MediaBrix, Inc. (2)	 	Internet and Media	 	Term Loan (11.81% cash (Libor + 11.00%; Floor	 	 	4,000	 	 	 	3,969	 	 	 	3,969	 	
 	 	 	 	11.50%), 3.00% ETP, Due 1/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Zinio Holdings, LLC (2)	 	Internet and Media	 	Term Loan (12.06% cash (Libor + 11.25%; Floor	 	 	4,000	 	 	 	3,970	 	 	 	3,970	 	
 	 	 	 	11.75%), 4.00% ETP, Due 2/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
The NanoSteel Company, Inc. (2)	 	Materials	 	Term Loan (10.31% cash (Libor + 9.50%; Floor	 	 	5,000	 	 	 	4,946	 	 	 	4,946	 	
 	 	 	 	10.00%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.31% cash (Libor + 9.50%; Floor	 	 	2,500	 	 	 	2,473	 	 	 	2,473	 	
 	 	 	 	10.00%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.31% cash (Libor + 9.50%; Floor	 	 	2,500	 	 	 	2,467	 	 	 	2,467	 	
 	 	 	 	10.00%), 5.00% ETP, Due 1/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 
See Notes to Consolidated Financial Statements
 
 	7	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2017
(Dollars in thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Nanocomp Technologies, Inc. (2)	 	Networking	 	Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)	 	 	272	 	 	 	271	 	 	 	271	 	
 	 	 	 	Term Loan (11.81% cash (Libor + 11.00%; Floor	 	 	3,000	 	 	 	2,944	 	 	 	2,944	 	
 	 	 	 	11.50%), 3.00% ETP, Due 4/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Powerhouse Dynamics, Inc. (2)	 	Power Management	 	Term Loan (11.51% cash (Libor + 10.70%; Floor	 	 	2,000	 	 	 	1,973	 	 	 	1,973	 	
 	 	 	 	11.20%), 3.00% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	Term Loan (10.06% cash (Libor + 9.25%; Floor 10.00%;	 	 	104	 	 	 	104	 	 	 	104	 	
 	 	 	 	Ceiling 11.75%), 2.40% ETP, Due 4/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.06% cash (Libor + 9.25%; Floor 10.00%;	 	 	1,153	 	 	 	1,150	 	 	 	1,150	 	
 	 	 	 	Ceiling 11.75%), 2.40% ETP, Due 10/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.06% cash (Libor + 9.25%; Floor 10.00%;	 	 	1,369	 	 	 	1,342	 	 	 	1,342	 	
 	 	 	 	Ceiling 11.75%), 2.00% ETP, Due 2/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Luxtera, Inc.	 	Semiconductors	 	Term Loan (10.75% cash (Prime + 6.75%), Due 3/28/20)	 	 	2,000	 	 	 	1,869	 	 	 	1,869	 	
Bridge2 Solutions, Inc. (2)	 	Software	 	Term Loan (11.81% cash (Libor + 11.00%; Floor	 	 	3,733	 	 	 	3,712	 	 	 	3,712	 	
 	 	 	 	11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.81% cash (Libor + 11.00%; Floor	 	 	1,000	 	 	 	997	 	 	 	997	 	
 	 	 	 	11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
ControlScan, Inc. (2)	 	Software	 	Term Loan (11.06% cash (Libor + 10.25%),	 	 	4,500	 	 	 	4,452	 	 	 	4,452	 	
 	 	 	 	3.00% ETP, Due 7/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Decisyon, Inc.	 	Software	 	Term Loan (13.118% cash (Libor + 12.308%; Floor	 	 	1,523	 	 	 	1,521	 	 	 	1,180	 	
 	 	 	 	12.50%), 6.50% ETP, Due 6/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (13.118% cash (Libor + 12.308%; Floor	 	 	833	 	 	 	735	 	 	 	569	 	
 	 	 	 	12.50%), 6.50% ETP, Due 6/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Digital Signal Corporation (11)(13)	 	Software	 	Term Loan (11.06% cash (Libor + 10.25%; Floor	 	 	1,285	 	 	 	1,251	 	 	 	919	 	
 	 	 	 	10.43%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.06% cash (Libor + 10.25%; Floor	 	 	1,285	 	 	 	1,251	 	 	 	919	 	
 	 	 	 	10.43%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.00% cash, Due 6/30/17)	 	 	221	 	 	 	221	 	 	 	162	 	
Education Elements, Inc. (2)	 	Software	 	Term Loan (10.81% cash (Libor + 10.00%; Floor	 	 	1,400	 	 	 	1,381	 	 	 	1,381	 	
 	 	 	 	10.50%), 4.00% ETP, Due 1/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.81% cash (Libor + 10.00%; Floor	 	 	1,400	 	 	 	1,381	 	 	 	1,381	 	
 	 	 	 	10.50%), 4.00% ETP, Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Netuitive, Inc.	 	Software	 	Term Loan (13.06% cash (Libor + 12.25%; Floor	 	 	265	 	 	 	265	 	 	 	265	 	
 	 	 	 	12.50%), 3.33% ETP, Due 9/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
ScoreBig, Inc. (2)(11)(12)	 	Software	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	3,403	 	 	 	3,332	 	 	 	1,526	 	
 	 	 	 	10.50%), 4.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	3,403	 	 	 	3,360	 	 	 	1,539	 	
 	 	 	 	10.50%), 4.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	2,000	 	 	 	1,950	 	 	 	894	 	
 	 	 	 	10.50%), 4.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	203	 	 	 	203	 	 	 	93	 	
 	 	 	 	10.50%), 4.00% ETP, Due 10/31/16)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	324	 	 	 	324	 	 	 	148	 	
 	 	 	 	10.50%), 4.00% ETP, Due 11/11/19)	 	 	 	 	 	 	 	 	 	 	 	 	
ShopKeep.com, Inc. (2)	 	Software	 	Term Loan (10.76% cash (Libor + 9.95%; Floor	 	 	6,000	 	 	 	5,898	 	 	 	5,898	 	
 	 	 	 	10.45%), 3.00% ETP, Due 4/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.76% cash (Libor + 9.95%; Floor	 	 	4,000	 	 	 	3,923	 	 	 	3,923	 	
 	 	 	 	10.45%), 3.00% ETP, Due 9/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
SIGNiX, Inc.	 	Software	 	Term Loan (11.81% cash (Libor + 11.00%; Floor	 	 	2,200	 	 	 	2,060	 	 	 	1,974	 	
 	 	 	 	11.50%), ETP 3.5%, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
SilkRoad Technology, Inc. (2)	 	Software	 	Term Loan (11.16% cash (Libor + 10.35%; Floor	 	 	7,000	 	 	 	6,888	 	 	 	6,888	 	
 	 	 	 	10.85%; Ceiling 12.85%), 4.00% ETP, Due 12/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Skyword, Inc.	 	Software	 	Term Loan (11.76% cash (Libor + 10.95%; Floor	 	 	3,867	 	 	 	3,817	 	 	 	3,817	 	
 	 	 	 	11.45%), 3.00% ETP, Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Sys-Tech Solutions, Inc. (2)	 	Software	 	Term Loan (11.96% cash (Libor + 11.15%; Floor	 	 	2,400	 	 	 	2,387	 	 	 	2,387	 	
 	 	 	 	11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.96% cash (Libor + 11.15%; Floor	 	 	2,333	 	 	 	2,318	 	 	 	2,318	 	
 	 	 	 	11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
VBrick Systems, Inc. (2)	 	Software	 	Term Loan (11.81% cash (Libor + 11.00%; Floor	 	 	400	 	 	 	398	 	 	 	398	 	
 	 	 	 	11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
xTech Holdings, Inc. (2)	 	Software	 	Term Loan (11.31% cash (Libor + 10.50%; Floor	 	 	1,333	 	 	 	1,315	 	 	 	1,315	 	
 	 	 	 	11.00%), 3.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 
See Notes to Consolidated Financial Statements
 
 	8	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2017
(Dollars in thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Amount	 	 	Investments (6)	 	 	Value	 	
 	 	 	 	Term Loan (11.31% cash (Libor + 10.50%; Floor	 	 	1,944	 	 	 	1,917	 	 	 	1,917	 	
 	 	 	 	11.00%), 3.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Technology		 	 	 	 	 	 	119,839	 	 	 	113,554	 	
Debt Investments - Cleantech - 4.3% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Lehigh Technologies, Inc. (2)	 	Waste Recycling	 	Term Loan (10.53% cash (Libor + 9.72%), 1.67% ETP,	 	 	3,000	 	 	 	2,983	 	 	 	2,983	 	
 	 	 	 	Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.53% cash (Libor + 9.72%), 1.67% ETP,	 	 	3,000	 	 	 	2,983	 	 	 	2,983	 	
 	 	 	 	Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Cleantech	 	 	 	 	 	 	5,966	 	 	 	5,966	 	
Debt Investments - Healthcare information and services - 5.8% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Interleukin Genetics, Inc. (2)(5)	 	Diagnostics	 	Term Loan (11.31% cash (Libor + 10.50%;	 	 	3,649	 	 	 	3,526	 	 	 	3,469	 	
 	 	 	 	Floor 11.00%), 6.50% ETP, Due 10/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Watermark Medical, Inc. (2)	 	Other Healthcare	 	Term Loan (10.31% cash (Libor + 9.50%; Floor 10.00%;	 	 	1,896	 	 	 	1,893	 	 	 	1,893	 	
 	 	 	 	Ceiling 11.00%); 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.31% cash (Libor + 9.50%; Floor 10.00%;	 	 	1,896	 	 	 	1,893	 	 	 	1,893	 	
 	 	 	 	Ceiling 11.00%); 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.31% cash (Libor + 9.50%; Floor 10.00%;	 	 	903	 	 	 	902	 	 	 	902	 	
 	 	 	 	Ceiling 11.00%); 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Healthcare information and services	 	 	 	 	 	 	8,214	 	 	 	8,157	 	
Total Debt Investments	 	 	 	 	 	 	172,522	 	 	 	166,066	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant Investments - 5.1% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Warrants - Life Science - 0.7% (8)	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
ACT Biotech Corporation		 	Biotechnology	 	1,521,820 Preferred Stock Warrants	 	 	 	 	 	 	83	 	 	 	-	 	
Argos Therapeutics, Inc. (2)(5)	 	Biotechnology	 	73,112 Common Stock Warrants	 	 	 	 	 	 	33	 	 	 	-	 	
Celsion Corporation (5)	 	Biotechnology	 	5,708 Common Stock Warrants	 	 	 	 	 	 	15	 	 	 	-	 	
Inotek Pharmaceuticals Corporation (5)	 	Biotechnology	 	28,204 Common Stock Warrants	 	 	 	 	 	 	17	 	 	 	-	 	
Nivalis Therapeutics, Inc. (5)		 	Biotechnology	 	18,534 Common Stock Warrants	 	 	 	 	 	 	122	 	 	 	-	 	
Ocera Therapeutics, Inc. (2)(5)	 	Biotechnology	 	6,491 Common Stock Warrants	 	 	 	 	 	 	6	 	 	 	-	 	
Palatin Technologies, Inc. (2)(5)	 	Biotechnology	 	608,058 Common Stock Warrants	 	 	 	 	 	 	51	 	 	 	-	 	
Revance Therapeutics, Inc. (5)		 	Biotechnology	 	34,113 Common Stock Warrants	 	 	 	 	 	 	68	 	 	 	239	 	
Sample6, Inc. (2)	 	Biotechnology	 	494,988 Preferred Stock Warrants	 	 	 	 	 	 	45	 	 	 	16	 	
Strongbridge U.S. Inc. (5)	 	Biotechnology	 	160,714 Common Stock Warrants	 	 	 	 	 	 	72	 	 	 	400	 	
Sunesis Pharmaceuticals, Inc. (5)	 	Biotechnology	 	2,050 Common Stock Warrants	 	 	 	 	 	 	5	 	 	 	-	 	
vTv Therapeutics Inc. (2)(5)	 	Biotechnology	 	93,896 Common Stock Warrants	 	 	 	 	 	 	44	 	 	 	108	 	
AccuVein Inc. (2)	 	Medical Device	 	75,769 Preferred Stock Warrants	 	 	 	 	 	 	24	 	 	 	27	 	
EnteroMedics, Inc. (5)		 	Medical Device	 	134 Common Stock Warrants	 	 	 	 	 	 	347	 	 	 	-	 	
IntegenX, Inc. (2)	 	Medical Device	 	170,646 Preferred Stock Warrants	 	 	 	 	 	 	35	 	 	 	32	 	
Lantos Technologies, Inc. (2)	 	Medical Device	 	66,665,256 Preferred Stock Warrants	 	 	 	 	 	 	38	 	 	 	41	 	
Mederi Therapeutics, Inc. (2)	 	Medical Device	 	248,736 Preferred Stock Warrants	 	 	 	 	 	 	26	 	 	 	39	 	
Mitralign, Inc. (2)	 	Medical Device	 	641,909 Preferred Stock Warrants	 	 	 	 	 	 	52	 	 	 	44	 	
NinePoint Medical, Inc. (2)	 	Medical Device	 	566,038 Preferred Stock Warrants	 	 	 	 	 	 	33	 	 	 	39	 	
OraMetrix, Inc. (2)		 	Medical Device	 	812,348 Preferred Stock Warrants	 	 	 	 	 	 	78	 	 	 	-	 	
Tryton Medical, Inc. (2)	 	Medical Device	 	122,362 Preferred Stock Warrants	 	 	 	 	 	 	15	 	 	 	12	 	
ViOptix, Inc. 		 	Medical Device	 	375,763 Preferred Stock Warrants	 	 	 	 	 	 	13	 	 	 	-	 	
Total Warrants - Life Science	 	 	 	 	 	 	 	 	 	 	1,222	 	 	 	997	 	
Warrants - Technology - 3.8% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Ekahau, Inc. (2)	 	Communications	 	978,261 Preferred Stock Warrants	 	 	 	 	 	 	32	 	 	 	23	 	
Additech, Inc. (2)	 	Consumer-related Technologies	 	150,000 Preferred Stock Warrants	 	 	 	 	 	 	32	 	 	 	31	 	
Gwynnie Bee, Inc. (2)	 	Consumer-related Technologies	 	268,591 Preferred Stock Warrants	 	 	 	 	 	 	68	 	 	 	698	 	
If(we), Inc. 		 	Consumer-related Technologies	 	190,868 Preferred Stock Warrants	 	 	 	 	 	 	27	 	 	 	33	 	
Le Tote, Inc. (2)	 	Consumer-related Technologies	 	202,974 Preferred Stock Warrants	 	 	 	 	 	 	63	 	 	 	358	 	
Rhapsody International Inc. (2)	 	Consumer-related Technologies	 	852,273 Common Stock Warrants	 	 	 	 	 	 	164	 	 	 	55	 	
SavingStar, Inc. (2)	 	Consumer-related Technologies	 	98,860 Preferred Stock Warrants	 	 	 	 	 	 	60	 	 	 	71	 	
XIOtech, Inc. 		 	Data Storage	 	96 Preferred Stock Warrants	 	 	 	 	 	 	22	 	 	 	-	 	
IgnitionOne, Inc. (2)	 	Internet and Media	 	262,910 Preferred Stock Warrants	 	 	 	 	 	 	672	 	 	 	672	 	
Jump Ramp Games, Inc. (2)	 	Internet and Media	 	159,766 Preferred Stock Warrants	 	 	 	 	 	 	32	 	 	 	32	 	
The NanoSteel Company, Inc. (2)	 	Materials	 	299,211 Preferred Stock Warrants	 	 	 	 	 	 	93	 	 	 	349	 	
IntelePeer, Inc. 		 	Networking	 	141,549 Common Stock Warrants	 	 	 	 	 	 	39	 	 	 	-	 	
Nanocomp Technologies, Inc. (2)	 	Networking	 	1,414,921 Preferred Stock Warrants	 	 	 	 	 	 	67	 	 	 	47	 	
Powerhouse Dynamics, Inc. (2)	 	Power Management	 	290,698 Preferred Stock Warrants	 	 	 	 	 	 	28	 	 	 	26	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	202,602 Preferred Stock Warrants	 	 	 	 	 	 	101	 	 	 	40	 	
eASIC Corporation (2)	 	Semiconductors	 	40,445 Preferred Stock Warrants	 	 	 	 	 	 	25	 	 	 	28	 	
 
See Notes to Consolidated Financial Statements
 
 	9	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2017
(Dollars in thousands)
 
 	 	 	 	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Investments (6)	 	 	Value	 	
InVisage Technologies, Inc. (2)	 	Semiconductors	 	395,009 Preferred Stock Warrants	 	 	48	 	 	 	45	 	
Kaminario, Inc.	 	Semiconductors	 	1,087,203 Preferred Stock Warrants	 	 	59	 	 	 	45	 	
Luxtera, Inc.(2)	 	Semiconductors	 	3,212,948 Preferred Stock Warrants	 	 	160	 	 	 	305	 	
Soraa, Inc. (2)	 	Semiconductors	 	203,616 Preferred Stock Warrants	 	 	80	 	 	 	432	 	
Bolt Solutions Inc. (2)	 	Software	 	202,892 Preferred Stock Warrants	 	 	112	 	 	 	118	 	
Bridge2 Solutions, Inc. (2)		 	Software	 	75,458 Common Stock Warrants	 	 	18	 	 	 	341	 	
Clarabridge, Inc. 		 	Software	 	53,486 Preferred Stock Warrants	 	 	14	 	 	 	81	 	
ControlScan, Inc. (2)	 	Software	 	2,295,918 Preferred Stock Warrants	 	 	19	 	 	 	288	 	
Decisyon, Inc.	 	Software	 	82,967 Common Stock Warrants	 	 	46	 	 	 	-	 	
Digital Signal Corporation	 	Software	 	125,116 Common Stock Warrants	 	 	32	 	 	 	-	 	
Education Elements, Inc. (2)	 	Software	 	238,122 Preferred Stock Warrants	 	 	28	 	 	 	28	 	
Lotame Solutions, Inc. (2)	 	Software	 	288,115 Preferred Stock Warrants	 	 	22	 	 	 	276	 	
Netuitive, Inc. 		 	Software	 	41,569 Common Stock Warrants	 	 	48	 	 	 	-	 	
Riv Data Corp. (2)	 	Software	 	237,361 Preferred Stock Warrants	 	 	12	 	 	 	12	 	
ShopKeep.com, Inc. (2)	 	Software	 	165,779 Preferred Stock Warrants	 	 	98	 	 	 	118	 	
SIGNiX, Inc.	 	Software	 	114,767 Preferred Stock Warrants	 	 	210	 	 	 	86	 	
Skyword, Inc.	 	Software	 	301,056 Preferred Stock Warrants	 	 	48	 	 	 	56	 	
SpringCM, Inc. (2)	 	Software	 	2,385,686 Preferred Stock Warrants	 	 	55	 	 	 	131	 	
Sys-Tech Solutions, Inc.	 	Software	 	375,000 Preferred Stock Warrants	 	 	242	 	 	 	406	 	
Visage Mobile, Inc.	 	Software	 	1,692,047 Preferred Stock Warrants	 	 	19	 	 	 	-	 	
xTech Holdings, Inc. (2)	 	Software	 	158,730 Preferred Stock Warrants	 	 	43	 	 	 	41	 	
Total Warrants - Technology	 	 	 	 	 	 	2,938	 	 	 	5,272	 	
Warrants - Cleantech - 0.1% (8)	 	 	 	 	 	 	 	 	
Renmatix, Inc.	 	Alternative Energy	 	53,022 Preferred Stock Warrants	 	 	68	 	 	 	-	 	
Rypos, Inc. (2)	 	Energy Efficiency	 	5,627 Preferred Stock Warrants	 	 	44	 	 	 	47	 	
Tigo Energy, Inc. (2)		 	Energy Efficiency	 	804,604 Preferred Stock Warrants	 	 	100	 	 	 	115	 	
Total Warrants - Cleantech	 	 	 	 	 	 	212	 	 	 	162	 	
Warrants - Healthcare information and services - 0.5% (8)	 	 	 	 	 	 	 	 	
Candescent Health, Inc. (2) 		 	 Diagnostics	 	519,991 Preferred Stock Warrants	 	 	378	 	 	 	-	 	
Interleukin Genetics, Inc. (2)(5)	 	 Diagnostics	 	7,662,100 Common Stock Warrants	 	 	168	 	 	 	143	 	
LifePrint Group, Inc. (2)	 	 Diagnostics	 	49,000 Preferred Stock Warrants	 	 	29	 	 	 	2	 	
ProterixBio, Inc. (2)		 	 Diagnostics	 	3,156 Common Stock Warrants	 	 	54	 	 	 	-	 	
Singulex, Inc. 		 	 Other Healthcare	 	294,231 Preferred Stock Warrants	 	 	44	 	 	 	51	 	
Verity Solutions Group, Inc. 		 	 Other Healthcare	 	300,360 Preferred Stock Warrants	 	 	100	 	 	 	42	 	
Watermark Medical, Inc. (2)	 	 Other Healthcare	 	27,373 Preferred Stock Warrants	 	 	74	 	 	 	59	 	
Medsphere Systems Corporation (2)	 	 Software	 	7,097,791 Preferred Stock Warrants	 	 	60	 	 	 	205	 	
Recondo Technology, Inc. (2) 		 	 Software	 	556,796 Preferred Stock Warrants	 	 	95	 	 	 	205	 	
Total Warrants - Healthcare information and services	 	 	 	 	 	 	1,002	 	 	 	707	 	
Total Warrants	 	 	 	 	 	 	5,374	 	 	 	7,138	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Investments - 4.2% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Espero  Pharmaceuticals, Inc. (14)	 	 Biotechnology	 	Royalty Agreement	 	 	5,300	 	 	 	5,300	 	
ZetrOZ, Inc.	 	 Medical Device	 	Royalty Agreement	 	 	354	 	 	 	500	 	
Vette Technology, LLC		 	 Data Storage	 	Royalty Agreement Due 4/18/2019	 	 	4,308	 	 	 	100	 	
Total Other Investments	 	 	 	 	 	 	9,962	 	 	 	5,900	 	
Equity - 0.7% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Insmed Incorporated (5)		 	 Biotechnology	 	33,208 Common Stock	 	 	238	 	 	 	581	 	
Revance Therapeutics, Inc.(5)	 	 Biotechnology	 	5,125 Common Stock	 	 	73	 	 	 	107	 	
Sunesis Pharmaceuticals, Inc. (5)		 	 Biotechnology	 	13,082 Common Stock	 	 	83	 	 	 	54	 	
SnagAJob.com, Inc. 		 	 Consumer-related Technologies	 	82,974 Common Stock	 	 	9	 	 	 	83	 	
Decisyon, Inc.	 	 Software	 	4,200,934 Common Stock	 	 	185	 	 	 	185	 	
Total Equity	 	 	 	 	 	 	588	 	 	 	1,010	 	
Total Portfolio Investment Assets - 129.1%	(8)	 	$	188,446	 	 	$	180,114	 	

 
 
(1)	All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.	
 	 	
(2)	Has been pledged as collateral under the Key Facility.	
 	 	
(3)	All investments are less than 5% ownership of the class and ownership of the portfolio company.	
 
See Notes to Consolidated Financial Statements
 
 	10	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
March 31, 2017
(Dollars in thousands)
 
(4)	All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include end-of-term payments (“ETPs”) and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. Debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of March 31, 2017 is provided.	
 	 	
(5)	Portfolio company is a public company.	
 	 	
(6)	For debt investments, represents principal balance less unearned income.	
 	 	
(7)	Warrants, Equity and Other Investments are non-income producing.	
 	 	
(8)	Value as a percent of net assets.	
 	 	
(9)	The Company did not have any non-qualifying assets under Section 55(a) of the Investment Company Act of 1940, as amended (the “1940 Act”), as of March 31, 2017. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.	
 	 	
(10)	ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash. 	
 	 	
(11)	Debt investment is on non-accrual status at March 31, 2017.	
 	 	
(12)	ScoreBig, Inc., a Delaware corporation (“ScoreBig”), made an assignment for the benefit of its creditors whereby ScoreBig assigned all of its assets to SB (assignment for the benefit of creditors), LLC, a California limited liability company (“SBABC”), established under California law to effectuate the Assignment for the Benefit of Creditors of ScoreBig. SBABC subsequently entered into a License Agreement with a third party (“Licensee”), whereby SBABC granted a license of certain of SBABC’s intellectual property and general intangibles to Licensee in exchange for certain royalty payments on the future net profits, if any, of Licensee. SBABC, in consideration for the Company’s consent to the License Agreement, agreed to pay all payments due under the License Agreement, if any, to the Company until the payment in full in cash of the Company’s debt investments in ScoreBig. 	
 	 	
(13)	Digital Signal Corporation, a Delaware corporation (“DSC”), made an assignment for the benefit of its creditors whereby DSC assigned all of its assets to DSC (assignment for the benefit of creditors), LLC, a Delaware limited liability company, established under Delaware law to effectuate the Assignment for the Benefit of Creditors of DSC. 	
 	 	
(14)	Royalty Agreement received in partial satisfaction of obligations of New Haven Pharmaceuticals, Inc. (“NHP”) to the Company in connection with the sale of substantially all of the assets of NHP to Espero Pharmaceuticals, Inc.	
 
See Notes to Consolidated Financial Statements
 
 	11	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2016
(Dollars in thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Amount	 	 	Investments (6)	 	 	Value	 	
Debt Investments - 133.8% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Debt Investments - Life Science - 38.5% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Argos Therapeutics, Inc. (2)(5)	 	Biotechnology	 	Term Loan (9.38% cash (Libor + 8.75%; Floor 9.25%;	 	$	4,375	 	 	$	4,339	 	 	$	4,339	 	
 	 	 	 	Ceiling 10.75%), 5.00% ETP, Due 10/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.38% cash (Libor + 8.75%; Floor 9.25%;	 	 	5,000	 	 	 	4,969	 	 	 	4,969	 	
 	 	 	 	Ceiling 10.75%), 5.00% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
New Haven Pharmaceuticals, Inc. (11)	 	Biotechnology	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	1,282	 	 	 	1,274	 	 	 	651	 	
 	 	 	 	11.50%), 11.42% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	427	 	 	 	424	 	 	 	217	 	
 	 	 	 	11.50%), 11.42% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	1,973	 	 	 	1,960	 	 	 	1,002	 	
 	 	 	 	10.50%), 6.10% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.13% cash (Libor + 9.50%; Floor	 	 	6,185	 	 	 	6,118	 	 	 	3,127	 	
 	 	 	 	10.00%), 4.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.13% cash (Libor + 9.50%; Floor	 	 	593	 	 	 	593	 	 	 	303	 	
 	 	 	 	10.00%), Due 1/31/17)	 	 	 	 	 	 	 	 	 	 	 	 	
Palatin Technologies, Inc. (2)(5)	 	Biotechnology	 	Term Loan (9.13% cash (Libor + 8.50%; Floor	 	 	4,000	 	 	 	3,960	 	 	 	3,960	 	
 	 	 	 	9.00%), 5.00% ETP, Due 1/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.13% cash (Libor + 8.50%; Floor	 	 	5,000	 	 	 	4,955	 	 	 	4,955	 	
 	 	 	 	9.00%), 5.00% ETP, Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Sample6, Inc. (2)	 	Biotechnology	 	Term Loan (9.63% cash (Libor + 9.00%; Floor	 	 	972	 	 	 	969	 	 	 	969	 	
 	 	 	 	9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.63% cash (Libor + 9.00%; Floor	 	 	591	 	 	 	588	 	 	 	588	 	
 	 	 	 	9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.63% cash (Libor + 9.00%; Floor	 	 	2,083	 	 	 	2,073	 	 	 	2,073	 	
 	 	 	 	9.50%; Ceiling 11.00%), 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Strongbridge U.S. Inc. (5)	 	Biotechnology	 	Term Loan (8.84% cash (Libor + 8.22%; Floor	 	 	7,500	 	 	 	7,353	 	 	 	7,353	 	
 	 	 	 	8.75%), 8.00% ETP, Due 12/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
vTv Therapeutics Inc. (2)(5)	 	Biotechnology	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	6,250	 	 	 	6,106	 	 	 	6,106	 	
 	 	 	 	10.50%), 6.00% ETP, Due 5/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Lantos Technologies, Inc. (2)	 	Medical Device	 	Term Loan (11.50% cash (Libor + 10.50%; Floor	 	 	2,479	 	 	 	2,455	 	 	 	2,320	 	
 	 	 	 	11.50%), 5.00% ETP, Due 2/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Mederi Therapeutics, Inc. (2)	 	Medical Device	 	Term Loan (12.27% cash (Libor + 11.82%; Floor	 	 	1,352	 	 	 	1,344	 	 	 	1,344	 	
 	 	 	 	12.00%), 4.00% ETP, Due 7/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (12.27% cash (Libor + 11.82%; Floor	 	 	1,352	 	 	 	1,344	 	 	 	1,344	 	
 	 	 	 	12.00%), 4.00% ETP, Due 7/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
NinePoint Medical, Inc. (2)	 	Medical Device	 	Term Loan (9.38% cash (Libor + 8.75%; Floor	 	 	4,500	 	 	 	4,461	 	 	 	4,461	 	
 	 	 	 	9.25%), 4.50% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.38% cash (Libor + 8.75%; Floor	 	 	2,250	 	 	 	2,225	 	 	 	2,225	 	
 	 	 	 	9.25%), 4.50% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Tryton Medical, Inc. (2)	 	Medical Device	 	Term Loan (10.66% cash (Prime + 7.16%), 2.50% ETP,	 	 	1,313	 	 	 	1,309	 	 	 	1,309	 	
 	 	 	 	Due 3/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Life Science	 	 	 	 	 	 	58,819	 	 	 	53,615	 	
Debt Investments - Technology - 75.4% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Ekahau, Inc. (2)	 	Communications	 	Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)	 	 	57	 	 	 	57	 	 	 	57	 	
 	 	 	 	Term Loan (11.75% cash, 2.50% ETP, Due 2/1/17)	 	 	19	 	 	 	19	 	 	 	19	 	
Gwynnie Bee, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	667	 	 	 	657	 	 	 	657	 	
 	 	 	 	11.00%; Ceiling 12.50%), 2.00% ETP, Due 11/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	433	 	 	 	424	 	 	 	424	 	
 	 	 	 	11.00%; Ceiling 12.50%), 2.00% ETP, Due 2/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	500	 	 	 	492	 	 	 	492	 	
 	 	 	 	11.00%; Ceiling 12.50%), 2.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Le Tote, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (10.28% cash (Libor + 9.65%; Floor	 	 	4,000	 	 	 	3,942	 	 	 	3,942	 	
 	 	 	 	10.15%), 5.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.28% cash (Libor + 9.65%; Floor	 	 	3,000	 	 	 	2,955	 	 	 	2,955	 	
 	 	 	 	10.15%), 5.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Rhapsody International, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	7,500	 	 	 	7,336	 	 	 	7,336	 	
 	 	 	 	11.00%), 3.00% ETP, Due 10/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
SavingStar, Inc. (2)	 	Consumer-related Technologies	 	Term Loan (11.03% cash (Libor + 10.40%; Floor	 	 	2,900	 	 	 	2,860	 	 	 	2,860	 	
 	 	 	 	10.90%), 3.00% ETP, Due 6/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.03% cash (Libor + 10.40%; Floor	 	 	2,000	 	 	 	1,965	 	 	 	1,965	 	
 	 	 	 	10.90%), 3.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 
See Notes to Consolidated Financial Statements
 
 	12	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2016
(Dollars in thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Amount	 	 	Investments (6)	 	 	Value	 	
MediaBrix, Inc. (2)	 	Internet and Media	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	4,000	 	 	 	3,966	 	 	 	3,966	 	
 	 	 	 	11.50%), 3.00% ETP, Due 1/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Zinio Holdings, LLC (2)	 	Internet and Media	 	Term Loan (11.88% cash (Libor + 11.25%; Floor	 	 	4,000	 	 	 	3,967	 	 	 	3,967	 	
 	 	 	 	11.75%), 4.00% ETP, Due 2/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
The NanoSteel Company, Inc. (2)	 	Materials	 	Term Loan (10.13% cash (Libor + 9.50%; Floor	 	 	5,000	 	 	 	4,940	 	 	 	4,940	 	
 	 	 	 	10.00%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.13% cash (Libor + 9.50%; Floor	 	 	2,500	 	 	 	2,470	 	 	 	2,470	 	
 	 	 	 	10.00%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.13% cash (Libor + 9.50%; Floor	 	 	2,500	 	 	 	2,464	 	 	 	2,464	 	
 	 	 	 	10.00%), 5.00% ETP, Due 1/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Nanocomp Technologies, Inc. (2)	 	Networking	 	Term Loan (11.50% cash, 3.00% ETP, Due 11/1/17)	 	 	369	 	 	 	367	 	 	 	367	 	
 	 	 	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	3,000	 	 	 	2,939	 	 	 	2,939	 	
 	 	 	 	11.50%), 3.00% ETP, Due 4/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Powerhouse Dynamics, Inc. (2)	 	Power Management	 	Term Loan (11.33% cash (Libor + 10.70%; Floor	 	 	2,250	 	 	 	2,220	 	 	 	2,220	 	
 	 	 	 	11.20%), 3.00% ETP, Due 3/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;	 	 	417	 	 	 	416	 	 	 	416	 	
 	 	 	 	Ceiling 11.75%), 2.40% ETP, Due 4/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;	 	 	1,335	 	 	 	1,331	 	 	 	1,331	 	
 	 	 	 	Ceiling 11.75%), 2.40% ETP, Due 10/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.00% cash (Libor + 9.25%; Floor 10.00%;	 	 	1,548	 	 	 	1,517	 	 	 	1,517	 	
 	 	 	 	Ceiling 11.75%), 2.00% ETP, Due 2/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Luxtera, Inc. (2)	 	Semiconductors	 	Term Loan (10.38% cash (Libor + 9.75%; Floor 10.25%;	 	 	614	 	 	 	607	 	 	 	607	 	
 	 	 	 	Ceiling 12.25%), 13.00% ETP, Due 7/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.38% cash (Libor + 9.75%; Floor 10.25%;	 	 	343	 	 	 	341	 	 	 	341	 	
 	 	 	 	Ceiling 12.25%), 13.00% ETP, Due 7/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.13% cash (Libor + 8.50%; Floor 9.00%),	 	 	667	 	 	 	663	 	 	 	663	 	
 	 	 	 	4.50% ETP, Due 12/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.13% cash (Libor + 8.50%; Floor 9.00%),	 	 	667	 	 	 	663	 	 	 	663	 	
 	 	 	 	4.50% ETP, Due 12/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.63% cash (Libor + 9.00%; Floor 9.50%),	 	 	2,000	 	 	 	1,990	 	 	 	1,990	 	
 	 	 	 	4.50% ETP, Due 11/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Xtera Communications, Inc. (5)(11)		 	Semiconductors	 	Term Loan (12.50% cash, 22.92% ETP, Due 11/1/16)	 	 	3,056	 	 	 	3,047	 	 	 	-	 	
 	 	 	 	Term Loan (12.50% cash, 22.92% ETP, Due 11/1/16)	 	 	936	 	 	 	933	 	 	 	-	 	
Bridge2 Solutions, Inc.	 	Software	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	4,000	 	 	 	3,976	 	 	 	3,976	 	
 	 	 	 	11.50%; Ceiling 14.50%), 2.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	1,000	 	 	 	996	 	 	 	996	 	
 	 	 	 	11.50%; Ceiling 14.50%), 2.00% ETP, Due 1/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
ControlScan, Inc. (2)	 	Software	 	Term Loan (10.88% cash (Libor + 10.25%),	 	 	4,500	 	 	 	4,413	 	 	 	4,413	 	
 	 	 	 	3.00% ETP, Due 7/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Decisyon, Inc.	 	Software	 	Term Loan (12.94% cash (Libor + 12.308%; Floor	 	 	1,523	 	 	 	1,521	 	 	 	1,519	 	
 	 	 	 	12.50%), 6.50% ETP, Due 6/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (12.94% cash (Libor + 12.308%; Floor	 	 	833	 	 	 	715	 	 	 	713	 	
 	 	 	 	12.50%), 6.50% ETP, Due 6/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Digital Signal Corporation (11)(13)	 	Software	 	Term Loan (10.88% cash (Libor + 10.25%; Floor	 	 	1,280	 	 	 	1,246	 	 	 	928	 	
 	 	 	 	10.43%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.88% cash (Libor + 10.25%; Floor	 	 	1,280	 	 	 	1,246	 	 	 	928	 	
 	 	 	 	10.43%), 5.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.00% cash, Due 6/30/17)	 	 	194	 	 	 	194	 	 	 	144	 	
Education Elements, Inc. (2)	 	Software	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	1,600	 	 	 	1,578	 	 	 	1,578	 	
 	 	 	 	10.50%), 4.00% ETP, Due 1/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	1,500	 	 	 	1,479	 	 	 	1,479	 	
 	 	 	 	10.50%), 4.00% ETP, Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Netuitive, Inc.	 	Software	 	Term Loan (12.88% cash (Libor + 12.25%; Floor	 	 	461	 	 	 	460	 	 	 	460	 	
 	 	 	 	12.50%), 3.33% ETP, Due 9/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
ScoreBig, Inc. (2)(11)(12)	 	Software	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	3,403	 	 	 	3,332	 	 	 	1,526	 	
 	 	 	 	10.50%), 4.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	3,403	 	 	 	3,360	 	 	 	1,539	 	
 	 	 	 	10.50%), 4.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	2,000	 	 	 	1,950	 	 	 	894	 	
 	 	 	 	10.50%), 4.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	203	 	 	 	203	 	 	 	93	 	
 	 	 	 	10.50%), 4.00% ETP, Due 10/31/16)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.63% cash (Libor + 10.00%; Floor	 	 	324	 	 	 	324	 	 	 	148	 	
 	 	 	 	10.50%), 4.00% ETP, Due 11/11/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 
See Notes to Consolidated Financial Statements
 
 	13	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2016
(Dollars in thousands)
 
 	 	 	 	 	 	Principal	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Amount	 	 	Investments (6)	 	 	Value	 	
ShopKeep.com, Inc. (2)	 	Software	 	Term Loan (10.47% cash (Libor + 9.95%; Floor	 	 	6,000	 	 	 	5,811	 	 	 	5,811	 	
 	 	 	 	10.45%), 3.00% ETP, Due 4/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
SIGNiX, Inc.	 	Software	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	2,250	 	 	 	2,124	 	 	 	2,012	 	
 	 	 	 	11.50%), Due 10/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
SilkRoad Technology, Inc. (2)	 	Software	 	Term Loan (10.98% cash (Libor + 10.35%; Floor	 	 	7,500	 	 	 	7,455	 	 	 	7,455	 	
 	 	 	 	10.85%; Ceiling 12.85%), 3.00% ETP, Due 6/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Skyword, Inc.	 	Software	 	Term Loan (11.58% cash (Libor + 10.95%; Floor	 	 	4,000	 	 	 	3,944	 	 	 	3,870	 	
 	 	 	 	11.45%), 3.00% ETP, Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Social Intelligence Corp. (2)	 	Software	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	323	 	 	 	316	 	 	 	315	 	
 	 	 	 	11.00%; Ceiling 13.00%), 3.50% ETP, Due 12/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
Sys-Tech Solutions, Inc. (2)	 	Software	 	Term Loan (11.78% cash (Libor + 11.15%; Floor	 	 	3,000	 	 	 	2,983	 	 	 	2,983	 	
 	 	 	 	11.65%; Ceiling 12.65%), 4.50% ETP, Due 3/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.78% cash (Libor + 11.15%; Floor	 	 	2,833	 	 	 	2,814	 	 	 	2,814	 	
 	 	 	 	11.65%; Ceiling 12.65%), 9.00% ETP, Due 5/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
VBrick Systems, Inc. (2)	 	Software	 	Term Loan (11.63% cash (Libor + 11.00%; Floor	 	 	700	 	 	 	696	 	 	 	696	 	
 	 	 	 	11.50%; Ceiling 13.50%), 5.00% ETP, Due 7/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
Vidsys, Inc. (2)	 	Software	 	Term Loan (13.00% cash, 12.58% ETP, Due 12/1/17)	 	 	2,610	 	 	 	2,610	 	 	 	2,610	 	
xTech Holdings, Inc. (2)	 	Software	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	1,500	 	 	 	1,479	 	 	 	1,479	 	
 	 	 	 	11.00%), 3.00% ETP, Due 4/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.13% cash (Libor + 10.50%; Floor	 	 	2,000	 	 	 	1,970	 	 	 	1,970	 	
 	 	 	 	11.00%), 3.00% ETP, Due 3/1/20)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Technology		 	 	 	 	 	 	114,743	 	 	 	104,917	 	
Debt Investments - Cleantech - 5.7% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Rypos, Inc. (2)	 	Energy Efficiency	 	Term Loan (11.93% cash (Libor + 11.55%;	 	 	1,260	 	 	 	1,252	 	 	 	1,252	 	
 	 	 	 	Floor 11.80%), 4.25% ETP, Due 6/1/17)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (11.93% cash (Libor + 11.55%;	 	 	697	 	 	 	690	 	 	 	690	 	
 	 	 	 	Floor 11.80%), 4.25% ETP, Due 1/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Lehigh Technologies, Inc. (2)	 	Waste Recycling	 	Term Loan (10.35% cash (Libor + 9.72%), 6.75% ETP,	 	 	3,000	 	 	 	2,982	 	 	 	2,982	 	
 	 	 	 	Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.35% cash (Libor + 9.72%), 6.75% ETP,	 	 	3,000	 	 	 	2,982	 	 	 	2,982	 	
 	 	 	 	Due 8/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Cleantech	 	 	 	 	 	 	7,906	 	 	 	7,906	 	
Debt Investments - Healthcare information and services - 14.2% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Interleukin Genetics, Inc. (2)(5)	 	Diagnostics	 	Term Loan (11.13% cash (Libor + 10.50%;	 	 	4,225	 	 	 	4,081	 	 	 	4,081	 	
 	 	 	 	Floor 11.00%), 6.50% ETP, Due 10/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
Watermark Medical, Inc. (2)	 	Other Healthcare	 	Term Loan (10.13% cash (Libor + 9.50%; Floor 10.00%;	 	 	2,333	 	 	 	2,330	 	 	 	2,330	 	
 	 	 	 	Ceiling 11.00%); 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.13% cash (Libor + 9.50%; Floor 10.00%;	 	 	2,333	 	 	 	2,330	 	 	 	2,330	 	
 	 	 	 	Ceiling 11.00%); 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (10.13% cash (Libor + 9.50%; Floor 10.00%;	 	 	1,111	 	 	 	1,110	 	 	 	1,110	 	
 	 	 	 	Ceiling 11.00%); 4.00% ETP, Due 4/1/18)	 	 	 	 	 	 	 	 	 	 	 	 	
MedAvante, Inc. (2)	 	Software	 	Term Loan (9.88% cash (Libor + 9.25%; Floor	 	 	3,000	 	 	 	2,972	 	 	 	2,972	 	
 	 	 	 	9.75%), 4.00% ETP, Due 1/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.88% cash (Libor + 9.25%; Floor	 	 	3,000	 	 	 	2,972	 	 	 	2,972	 	
 	 	 	 	9.75%), 4.00% ETP, Due 1/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	 	Term Loan (9.88% cash (Libor + 9.25%; Floor	 	 	4,000	 	 	 	3,953	 	 	 	3,953	 	
 	 	 	 	9.75%), 4.00% ETP, Due 7/1/19)	 	 	 	 	 	 	 	 	 	 	 	 	
Total Debt Investments - Healthcare information and services	 	 	 	 	 	 	19,748	 	 	 	19,748	 	
Total Debt Investments	 	 	 	 	 	 	 	 	 	 	201,216	 	 	 	186,186	 	
 
See Notes to Consolidated Financial Statements
 
 	14	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2016
(Dollars in thousands)
 
 	 	 	 	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Investments (6)	 	 	Value	 	
Warrant Investments - 4.6% (8)	 	 	 	 	 	 	 	 	
Warrants - Life Science - 0.5% (8)	 	 	 	 	 	 	 	 	
ACT Biotech Corporation		 	Biotechnology	 	1,521,820 Preferred Stock Warrants	 	 	83	 	 	 	-	 	
Argos Therapeutics, Inc. (2)(5)	 	Biotechnology	 	33,112 Common Stock Warrants	 	 	33	 	 	 	2	 	
Celsion Corporation (5)	 	Biotechnology	 	5,708 Common Stock Warrants	 	 	15	 	 	 	-	 	
Inotek Pharmaceuticals Corporation (5)	 	Biotechnology	 	28,204 Common Stock Warrants	 	 	17	 	 	 	21	 	
New Haven Pharmaceuticals, Inc.	 	Biotechnology	 	103,982 Preferred Stock Warrants	 	 	88	 	 	 	-	 	
Nivalis Therapeutics, Inc. (5)		 	Biotechnology	 	18,534 Common Stock Warrants	 	 	122	 	 	 	-	 	
Ocera Therapeutics, Inc. (2)(5)	 	Biotechnology	 	6,491 Common Stock Warrants	 	 	6	 	 	 	-	 	
Palatin Technologies, Inc. (2)(5)	 	Biotechnology	 	608,058 Common Stock Warrants	 	 	51	 	 	 	4	 	
Revance Therapeutics, Inc. (5)		 	Biotechnology	 	34,377 Common Stock Warrants	 	 	68	 	 	 	241	 	
Sample6, Inc. (2)	 	Biotechnology	 	494,988 Preferred Stock Warrants	 	 	45	 	 	 	16	 	
Strongbridge U.S. Inc. (5)	 	Biotechnology	 	160,714 Common Stock Warrants	 	 	72	 	 	 	72	 	
vTv Therapeutics Inc. (2)(5)	 	Biotechnology	 	76,290 Common Stock Warrants	 	 	23	 	 	 	23	 	
Sunesis Pharmaceuticals, Inc. (5)	 	Biotechnology	 	2,050 Common Stock Warrants	 	 	5	 	 	 	-	 	
AccuVein Inc. (2)	 	Medical Device	 	75,769 Preferred Stock Warrants	 	 	24	 	 	 	27	 	
EnteroMedics, Inc. (5)		 	Medical Device	 	134 Common Stock Warrants	 	 	347	 	 	 	-	 	
IntegenX, Inc. (2)	 	Medical Device	 	170,646 Preferred Stock Warrants	 	 	35	 	 	 	31	 	
Lantos Technologies, Inc. (2)	 	Medical Device	 	66,665,256 Preferred Stock Warrants	 	 	38	 	 	 	41	 	
Mederi Therapeutics, Inc. (2)	 	Medical Device	 	248,736 Preferred Stock Warrants	 	 	26	 	 	 	39	 	
Mitralign, Inc. (2)	 	Medical Device	 	641,909 Preferred Stock Warrants	 	 	52	 	 	 	44	 	
NinePoint Medical, Inc. (2)	 	Medical Device	 	566,038 Preferred Stock Warrants	 	 	33	 	 	 	39	 	
OraMetrix, Inc. (2)		 	Medical Device	 	812,348 Preferred Stock Warrants	 	 	78	 	 	 	-	 	
Tryton Medical, Inc. (2)	 	Medical Device	 	122,362 Preferred Stock Warrants	 	 	15	 	 	 	12	 	
ViOptix, Inc. 		 	Medical Device	 	375,763 Preferred Stock Warrants	 	 	13	 	 	 	-	 	
Total Warrants - Life Science	 	 	 	 	 	 	1,289	 	 	 	612	 	
Warrants - Technology - 3.3% (8)	 	 	 	 	 	 	 	 	
Ekahau, Inc. (2)	 	Communications	 	978,261 Preferred Stock Warrants	 	 	32	 	 	 	23	 	
Additech, Inc. (2)	 	Consumer-related Technologies	 	150,000 Preferred Stock Warrants	 	 	33	 	 	 	31	 	
Gwynnie Bee, Inc. (2)	 	Consumer-related Technologies	 	268,591 Preferred Stock Warrants	 	 	68	 	 	 	698	 	
If(we), Inc. 		 	Consumer-related Technologies	 	190,868 Preferred Stock Warrants	 	 	27	 	 	 	47	 	
Le Tote, Inc. (2)	 	Consumer-related Technologies	 	202,974 Preferred Stock Warrants	 	 	63	 	 	 	411	 	
Rhapsody International Inc. (2)	 	Consumer-related Technologies	 	852,273 Common Stock Warrants	 	 	164	 	 	 	150	 	
SavingStar, Inc. (2)	 	Consumer-related Technologies	 	98,860 Preferred Stock Warrants	 	 	60	 	 	 	70	 	
XIOtech, Inc. 		 	Data Storage	 	2,217,979 Preferred Stock Warrants	 	 	22	 	 	 	-	 	
The NanoSteel Company, Inc. (2)	 	Materials	 	299,211 Preferred Stock Warrants	 	 	92	 	 	 	348	 	
IntelePeer, Inc. 		 	Networking	 	141,549 Common Stock Warrants	 	 	39	 	 	 	31	 	
Nanocomp Technologies, Inc. (2)	 	Networking	 	707,387 Preferred Stock Warrants	 	 	67	 	 	 	72	 	
Aquion Energy, Inc.	 	Power Management	 	115,051 Preferred Stock Warrants	 	 	7	 	 	 	72	 	
Powerhouse Dynamics, Inc. (2)	 	Power Management	 	290,698 Preferred Stock Warrants	 	 	28	 	 	 	26	 	
Avalanche Technology, Inc. (2)	 	Semiconductors	 	202,602 Preferred Stock Warrants	 	 	101	 	 	 	40	 	
eASIC Corporation (2)	 	Semiconductors	 	40,445 Preferred Stock Warrants	 	 	25	 	 	 	28	 	
InVisage Technologies, Inc. (2)	 	Semiconductors	 	395,009 Preferred Stock Warrants	 	 	48	 	 	 	45	 	
Kaminario, Inc.	 	Semiconductors	 	1,087,203 Preferred Stock Warrants	 	 	59	 	 	 	45	 	
Luxtera, Inc.(2)	 	Semiconductors	 	2,508,671 Preferred Stock Warrants	 	 	49	 	 	 	193	 	
Soraa, Inc. (2)	 	Semiconductors	 	203,616 Preferred Stock Warrants	 	 	80	 	 	 	432	 	
Xtera Communications, Inc. (5) 		 	Semiconductors	 	37,831 Common Stock Warrants	 	 	206	 	 	 	-	 	
Bolt Solutions Inc. (2)	 	Software	 	202,892 Preferred Stock Warrants	 	 	113	 	 	 	135	 	
Bridge2 Solutions, Inc.		 	Software	 	75,458 Common Stock Warrants	 	 	18	 	 	 	341	 	
Clarabridge, Inc. 		 	Software	 	53,486 Preferred Stock Warrants	 	 	14	 	 	 	81	 	
ControlScan, Inc. (2)	 	Software	 	2,295,918 Preferred Stock Warrants	 	 	19	 	 	 	30	 	
Decisyon, Inc.	 	Software	 	82,967 Common Stock Warrants	 	 	46	 	 	 	-	 	
Digital Signal Corporation	 	Software	 	125,116 Common Stock Warrants	 	 	32	 	 	 	-	 	
Education Elements, Inc. (2)	 	Software	 	238,122 Preferred Stock Warrants	 	 	28	 	 	 	28	 	
Lotame Solutions, Inc. (2)	 	Software	 	288,115 Preferred Stock Warrants	 	 	22	 	 	 	276	 	
Netuitive, Inc. 		 	Software	 	41,569 Common Stock Warrants	 	 	48	 	 	 	-	 	
Riv Data Corp. (2)	 	Software	 	237,361 Preferred Stock Warrants	 	 	12	 	 	 	12	 	
ScoreBig, Inc. (2)	 	Software	 	879,014 Preferred Stock Warrants	 	 	88	 	 	 	-	 	
ShopKeep.com, Inc. (2)	 	Software	 	165,779 Preferred Stock Warrants	 	 	98	 	 	 	118	 	
SIGNiX, Inc.	 	Software	 	89,767 Preferred Stock Warrants	 	 	168	 	 	 	167	 	
 
See Notes to Consolidated Financial Statements
 
 	15	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2016
(Dollars in thousands)
 
 	 	 	 	 	 	Cost of	 	 	Fair	 	
Portfolio Company (1)	 	Sector	 	Type of Investment (3)(4)(7)(9)(10)	 	Investments (6)	 	 	Value	 	
Skyword, Inc.	 	  Software	 	301,056 Preferred Stock Warrants	 	 	48	 	 	 	56	 	
SpringCM, Inc. (2)	 	  Software	 	2,385,686 Preferred Stock Warrants	 	 	55	 	 	 	131	 	
Sys-Tech Solutions, Inc.	 	  Software	 	375,000 Preferred Stock Warrants	 	 	242	 	 	 	389	 	
Vidsys, Inc.	 	  Software	 	85,399 Preferred Stock Warrants	 	 	23	 	 	 	12	 	
Visage Mobile, Inc.	 	  Software	 	1,692,047 Preferred Stock Warrants	 	 	19	 	 	 	-	 	
xTech Holdings, Inc. (2)	 	  Software	 	158,730 Preferred Stock Warrants	 	 	43	 	 	 	52	 	
Total Warrants - Technology	 	 	 	 	 	 	2,406	 	 	 	4,590	 	
Warrants - Cleantech - 0.1% (8)	 	 	 	 	 	 	 	 	
Renmatix, Inc.	 	  Alternative Energy	 	53,022 Preferred Stock Warrants	 	 	68	 	 	 	-	 	
Semprius, Inc.	 	  Alternative Energy	 	519,981 Preferred Stock Warrants	 	 	25	 	 	 	-	 	
Rypos, Inc. (2)	 	  Energy Efficiency	 	5,627 Preferred Stock Warrants	 	 	44	 	 	 	25	 	
Tigo Energy, Inc. (2)		 	  Energy Efficiency	 	804,604 Preferred Stock Warrants	 	 	100	 	 	 	115	 	
Lehigh Technologies, Inc. (2)	 	  Waste Recycling	 	272,727 Preferred Stock Warrants	 	 	33	 	 	 	39	 	
Total Warrants - Cleantech	 	 	 	 	 	 	270	 	 	 	179	 	
Warrants - Healthcare information and services - 0.7% (8)	 	 	 	 	 	 	 	 	
Accumetrics, Inc.	 	Diagnostics  	 	100,928 Preferred Stock Warrants	 	 	107	 	 	 	180	 	
Candescent Health, Inc. (2) 		 	Diagnostics  	 	519,991 Preferred Stock Warrants	 	 	378	 	 	 	-	 	
Interleukin Genetics, Inc. (2)(5)	 	Diagnostics  	 	7,662,100 Common Stock Warrants	 	 	168	 	 	 	142	 	
LifePrint Group, Inc. (2)	 	Diagnostics  	 	49,000 Preferred Stock Warrants	 	 	29	 	 	 	2	 	
ProterixBio, Inc. (2)		 	Diagnostics  	 	3,156 Common Stock Warrants	 	 	54	 	 	 	-	 	
Singulex, Inc. 		 	Other Healthcare  	 	294,231 Preferred Stock Warrants	 	 	44	 	 	 	51	 	
Verity Solutions Group, Inc. 		 	Other Healthcare  	 	300,360 Preferred Stock Warrants	 	 	100	 	 	 	42	 	
Watermark Medical, Inc. (2)	 	Other Healthcare  	 	27,373 Preferred Stock Warrants	 	 	74	 	 	 	76	 	
MedAvante, Inc. (2)	 	Software  	 	114,285 Preferred Stock Warrants	 	 	66	 	 	 	79	 	
Medsphere Systems Corporation (2)	 	Software  	 	7,097,791 Preferred Stock Warrants	 	 	60	 	 	 	205	 	
Recondo Technology, Inc. (2) 		 	Software  	 	556,796 Preferred Stock Warrants	 	 	95	 	 	 	204	 	
Total Warrants - Healthcare information and services	 	 	 	 	 	 	1,175	 	 	 	981	 	
Total Warrants	 	 	 	 	 	 	5,140	 	 	 	6,362	 	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other Investments - 0.4% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
ZetrOZ, Inc.	 	Medical Device  	 	Royalty Agreement	 	 	365	 	 	 	500	 	
Vette Technology, LLC		 	Data Storage  	 	Royalty Agreement Due 4/18/2019	 	 	4,318	 	 	 	100	 	
Total Other Investments	 	 	 	 	 	 	4,683	 	 	 	600	 	
Equity - 0.6% (8)	 	 	 	 	 	 	 	 	 	 	 	 	
Insmed Incorporated (5)		 	Biotechnology  	 	33,208 Common Stock	 	 	238	 	 	 	439	 	
Revance Therapeutics, Inc.(5)	 	Biotechnology  	 	4,861 Common Stock	 	 	73	 	 	 	101	 	
Sunesis Pharmaceuticals, Inc. (5)		 	Biotechnology  	 	13,082 Common Stock	 	 	83	 	 	 	47	 	
SnagAJob.com, Inc. 		 	Consumer-related Technologies  	 	82,974 Common Stock	 	 	9	 	 	 	83	 	
Decisyon, Inc.	 	Software  	 	4,200,934 Common Stock	 	 	185	 	 	 	185	 	
Total Equity	 	 	 	 	 	 	588	 	 	 	855	 	
Total Portfolio Investment Assets - 139.4%	(8)	 	$	211,627	 	 	$	194,003	 	

 
 
(1)	All investments of the Company are in entities which are organized under the laws of the United States and have a principal place of business in the United States.	
 	 	
(2)	Has been pledged as collateral under the Key Facility.	
 	 	
(3)	All investments are less than 5% ownership of the class and ownership of the portfolio company.	
 	 	
(4)	All interest is payable in cash due monthly in arrears, unless otherwise indicated, and applies only to the Company’s debt investments. Interest rate is the annual interest rate on the debt investment and does not include ETPs and any additional fees related to the investments, such as deferred interest, commitment fees or prepayment fees. All debt investments are at fixed rates for the term of the debt investment, unless otherwise indicated. Debt investments based on LIBOR are based on one-month LIBOR. For each debt investment, the current interest rate in effect as of December 31, 2016 is provided.	
 	 	
(5)	Portfolio company is a public company.	
 	 	
(6)	For debt investments, represents principal balance less unearned income.	
 	 	
(7)	Warrants, Equity and Other Investments are non-income producing.	
 	 	
(8)	Value as a percent of net assets.	
 
See Notes to Consolidated Financial Statements
 
 	16	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Consolidated Schedule of Investments (Unaudited)
December 31, 2016
(Dollars in thousands)
 
(9)	The Company did not have any non-qualifying assets under Section 55(a) of the 1940 Act as of December 31, 2016. Under the 1940 Act, the Company may not acquire any non-qualifying assets unless, at the time the acquisition is made, qualifying assets represent at least 70% of the Company’s total assets.	
 	 	
(10)	ETPs are contractual fixed-interest payments due in cash at the maturity date of the applicable debt investment, including upon any prepayment, and are a fixed percentage of the original principal balance of the debt investments unless otherwise noted. Interest will accrue during the life of the debt investment on each ETP and will be recognized as non-cash income until it is actually paid. Therefore, a portion of the incentive fee the Company may pay its Advisor will be based on income that the Company has not yet received in cash. 	
 	 	
(11)	Debt investment is on non-accrual status at December 31, 2016.	
 	 	
(12)	ScoreBig made an assignment for the benefit of its creditors whereby ScoreBig assigned all of its assets to SBABC, established under California law to effectuate the Assignment for the Benefit of Creditors of ScoreBig. SBABC subsequently entered into a License Agreement with a Licensee, whereby SBABC granted a license of certain of SBABC’s intellectual property and general intangibles to Licensee in exchange for certain royalty payments on the future net profits, if any, of Licensee. SBABC, in consideration for the Company’s consent to the License Agreement, agreed to pay all payments due under the License Agreement, if any, to the Company until the payment in full in cash of the Company’s debt investments in ScoreBig. 	
 	 	
(13)	DSC made an assignment for the benefit of its creditors whereby DSC assigned all of its assets to DSC (assignment for the benefit of creditors), LLC, a Delaware limited liability company, established under Delaware law to effectuate the Assignment for the Benefit of Creditors of DSC.	
 
See Notes to Consolidated Financial Statements
 
 	17	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Note 1.  Organization
 
Horizon Technology Finance Corporation (the “Company”) was organized as a Delaware corporation on March 16, 2010 and is an externally managed, non-diversified, closed-end investment company. The Company has elected to be regulated as a business development company (“BDC”) under the 1940 Act. In addition, for tax purposes, the Company has elected to be treated as a regulated investment company (“RIC”) as defined under Subchapter M of the Internal Revenue Code of 1986, as amended (the “Code”). As a RIC, the Company generally is not subject to corporate-level federal income tax on the portion of its taxable income and capital gains the Company distributes to its stockholders. The Company primarily makes secured debt investments to development-stage companies in the technology, life science, healthcare information and services and cleantech industries. All of the Company’s debt investments consist of loans secured by all of, or a portion of, the applicable debtor company’s tangible and intangible assets.
 
On October 28, 2010, the Company completed an initial public offering (“IPO”) and its common stock trades on the NASDAQ Global Select Market under the symbol “HRZN”. The Company was formed to continue and expand the business of Compass Horizon Funding Company LLC, a Delaware limited liability company, which commenced operations in March 2008 and became the Company’s wholly owned subsidiary upon the completion of the Company’s IPO.
 
Horizon Credit II LLC (“Credit II”) was formed as a Delaware limited liability company on June 28, 2011, with the Company as its sole equity member. Credit II is a special purpose bankruptcy remote entity and is a separate legal entity from the Company. Any assets conveyed to Credit II are not available to creditors of the Company or any other entity other than Credit II’s lenders.
 
The Company formed Horizon Funding 2013-1 LLC (“2013-1 LLC”) as a Delaware limited liability company on June 7, 2013 and Horizon Funding Trust 2013-1 (“2013-1 Trust” and, together with the 2013-1 LLC, the “2013-1 Entities”) as a Delaware trust on June 18, 2013. The 2013-1 Entities were special purpose bankruptcy remote entities and were separate legal entities from the Company. The Company formed the 2013-1 Entities for purposes of securitizing $189.3 million of secured loans (the “2013-1 Securitization”) and issuing fixed-rate asset-backed notes in an aggregate principal amount of $90 million (the “Asset-Backed Notes”). The 2013-1 Entities were dissolved as of September 30, 2016.
 
The Company has also established an additional wholly owned subsidiary, which is structured as a Delaware limited liability company, to hold the assets of a portfolio company acquired in connection with foreclosure or bankruptcy, which is a separate legal entity from the Company.
 
The Company’s investment strategy is to maximize the investment portfolio’s return by generating current income from the debt investments the Company makes and capital appreciation from the warrants the Company receives when making such debt investments. The Company has entered into an investment management agreement, (the “Investment Management Agreement”) with Horizon Technology Finance Management LLC (the “Advisor”) under which the Advisor manages the day-to-day operations of, and provides investment advisory services to, the Company.
 
Note 2.  Basis of presentation and significant accounting policies
 
The consolidated financial statements of the Company have been prepared in accordance with U.S. generally accepted accounting principles (“GAAP”) and pursuant to the requirements for reporting on Form 10-Q and Articles 6 and 10 of Regulation S-X (“Regulation S-X”) under the Securities Act of 1933, as amended (the “Securities Act”). In the opinion of management, the consolidated financial statements reflect all adjustments and reclassifications that are necessary for the fair presentation of financial results as of and for the periods presented. All intercompany balances and transactions have been eliminated. The current period’s results of operations are not necessarily indicative of results that ultimately may be achieved for the year. Therefore, the unaudited financial statements and notes should be read in conjunction with the audited financial statements and notes thereto for the year ended December 31, 2016.
 
 	18	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Principles of consolidation
 
As required under GAAP and Regulation S-X, the Company will generally consolidate its investment in a company that is an investment company subsidiary or a controlled operating company whose business consists of providing services to the Company. Accordingly, the Company consolidated the results of the Company’s wholly-owned subsidiaries in its consolidated financial statements.
 
Use of estimates
 
In preparing the consolidated financial statements in accordance with GAAP, management is required to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosures of contingent assets and liabilities, as of the date of the balance sheet and income and expenses for the period. Actual results could differ from those estimates. Material estimates that are particularly susceptible to significant change in the near term relate to the valuation of investments.
 
Fair value
 
The Company records all of its investments at fair value in accordance with relevant GAAP, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. The Company has categorized its investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy as more fully described in Note 5. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, the Company’s own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.
 
The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. Accordingly, the degree of judgment exercised by the Company in determining fair value is greatest for financial instruments classified as Level 3.
 
See Note 5 for additional information regarding fair value.
 
Segments
 
The Company has determined that it has a single reporting segment and operating unit structure. The Company lends to and invests in portfolio companies in various technology, life science, healthcare information and services and cleantech industries. The Company separately evaluates the performance of each of its lending and investment relationships. However, because each of these debt investments and investment relationships has similar business and economic characteristics, they have been aggregated into a single lending and investment segment.
 
Investments
 
Investments are recorded at fair value. The Company’s board of directors (the “Board”) determines the fair value of the Company’s portfolio investments. The Company has the intent to hold its debt investments for the foreseeable future or until maturity or payoff.
 
Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if the Company otherwise does not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. As of March 31, 2017, there were two debt investments on non-accrual status with a cost of $11.9 million and a fair value of $6.2 million. As of December 31, 2016, there were four investments on non-accrual status with a cost of $26.2 million and a fair value of $11.5 million. For the three months ended March 31, 2017 and 2016, the Company did not recognize any interest income from debt investments on non-accrual status.
 
 	19	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
The Company receives a variety of fees from borrowers in the ordinary course of conducting its business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, the Company may also receive a non-refundable deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred and, along with unearned income, are amortized as a level-yield adjustment over the respective term of the debt investment. All other income is recognized when earned. Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.
 
Certain debt investment agreements also require the borrower to make an ETP, that is accrued into interest receivable and taken into income over the life of the debt investment to the extent such amounts are expected to be collected. The Company will generally cease accruing the income if there is insufficient value to support the accrual or the Company does not expect the borrower to be able to pay the ETP when due. The proportion of the Company’s total investment income that resulted from the portion of ETPs not received in cash for the three months ended March 31, 2017 and 2016 was 7.5% and 20.5%, respectively.
 
In connection with substantially all lending arrangements, the Company receives warrants to purchase shares of stock from the borrower. The warrants are recorded as assets at estimated fair value on the grant date using the Black-Scholes valuation model. The warrants are considered loan fees and are recorded as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with the Company’s income recognition policy. Subsequent to debt investment origination, the fair value of the warrants is determined using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized appreciation or depreciation on investments. Gains and losses from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.
 
Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, are calculated using the specific identification method. The Company measures realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair values of the Company’s portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
 
Debt issuance costs
 
Debt issuance costs are fees and other direct incremental costs incurred by the Company in obtaining debt financing from its lenders and issuing debt securities. The unamortized balance of debt issuance costs as of March 31, 2017 and December 31, 2016 was $1.4 million and $1.6 million, respectively. These amounts are amortized and included in interest expense in the consolidated statements of operations over the life of the borrowings. The accumulated amortization balances as of March 31, 2017 and December 31, 2016 were $4.6 million and $4.4 million, respectively. The amortization expense for the three months ended March 31, 2017 and 2016 was $0.1 million and $0.2 million, respectively.
 
 	20	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Income taxes
 
As a BDC, the Company has elected to be treated as a RIC under Subchapter M of the Code and operates in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid the imposition of corporate-level income tax on the income distributed to stockholders, among other things, the Company is required to meet certain source of income and asset diversification requirements and to timely distribute dividends out of assets legally available for distribution to its stockholders of an amount generally at least equal to 90% of its investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. The Company, among other things, has made and intends to continue to make the requisite distributions to its stockholders, which generally relieves the Company from corporate-level U.S. federal income taxes. Accordingly, no provision for federal income tax has been recorded in the financial statements. Differences between taxable income and net increase in net assets resulting from operations either can be temporary, meaning they will reverse in the future, or permanent. In accordance with Topic 946,  Financial Services - Investment Companies , of the Financial Accounting Standards Board’s, Accounting Standards Codification, as amended (“ASC”), permanent tax differences, such as non-deductible excise taxes paid, are reclassified from distributions in excess of net investment income and net realized loss on investments to paid-in-capital at the end of each year. These permanent book-to-tax differences are reclassified on the consolidated statements of changes in net assets to reflect their tax character but have no impact on total net assets. For the year ended December 31, 2016, the Company reclassified $0.1 million to paid-in capital from distributions in excess of net investment income, which related to excise taxes refunded in 2016.
 
Depending on the level of taxable income earned in a tax year, the Company may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% U.S. federal excise tax on such income, as required. To the extent that the Company determines that its estimated current year annual taxable income will be in excess of estimated current year distributions, the Company accrues excise tax, if any, on estimated excess taxable income as taxable income is earned. For the three months ended March 31, 2017 and 2016, there was no U.S. federal excise tax accrual recorded.
 
The Company evaluates tax positions taken in the course of preparing the Company’s tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740,  Income Taxes , as modified by ASC Topic 946. Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, would be recorded as a tax expense in the current year. It is the Company’s policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. The Company had no material uncertain tax positions at March 31, 2017 and December 31, 2016. The Company’s income tax returns for the 2015, 2014 and 2013 tax years remain subject to examination by U.S. federal and state tax authorities.
 
Distributions
 
Distributions to common stockholders are recorded on the declaration date. The amount to be paid out as distributions is determined by the Board. Net realized long-term capital gains, if any, are distributed at least annually, although the Company may decide to retain such capital gains for investment.
 
The Company has adopted a dividend reinvestment plan that provides for reinvestment of cash distributions on behalf of its stockholders, unless a stockholder elects to receive cash. As a result, if the Board declares a cash distribution, then stockholders who have not “opted out” of the dividend reinvestment plan will have their cash distributions automatically reinvested in additional shares of the Company’s common stock, rather than receiving the cash distribution. The Company may use newly issued shares to implement the plan or the Company may purchase shares in the open market to fulfill its obligations under the plan.
 
Stock Repurchase Program
 
On April 27, 2017, the Board extended a previously authorized stock repurchase program which allows the Company to repurchase up to $5.0 million of its common stock at prices below the Company’s net asset value per share as reported in its most recent consolidated financial statements. Under the repurchase program, the Company may, but is not obligated to, repurchase shares of its outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by the Company will comply with the requirements of Rule 10b-18 under the Securities Exchange Act of 1934, as amended, and any applicable requirements of the 1940 Act. Unless extended by the Board, the repurchase program will terminate on the earlier of June 30, 2018 or the repurchase of $5.0 million of the Company’s common stock. During the three months ended March 31, 2017 and 2016, the Company did not make any repurchases of its common stock. From the inception of the stock repurchase program through March 31, 2017, the Company repurchased 161,542 shares of its common stock at an average price of $11.27 on the open market at a total cost of $1.8 million.
 
 	21	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Transfers of financial assets
 
Assets related to transactions that do not meet the requirements under ASC Topic 860, Transfers and Servicing for accounting sale treatment are reflected in the Company’s consolidated statements of assets and liabilities as investments. Those assets are owned by special purpose entities that are consolidated in the Company’s financial statements. The creditors of the special purpose entities have received security interests in such assets and such assets are not intended to be available to the creditors of the Company (or any other affiliate of the Company).
 
Transfers of financial assets are accounted for as sales when control over the assets has been surrendered. Control over transferred assets is deemed to be surrendered when (1) the assets have been isolated from the Company - put presumptively beyond the reach of the transferor and its creditors, even in bankruptcy or other receivership, (2) the transferee obtains the right (free of conditions that constrain it from taking advantage of that right) to pledge or exchange the transferred assets and (3) the transferor does not maintain effective control over the transferred assets through either (a) an agreement that both entitles and obligates the transferor to repurchase or redeem the assets before maturity or (b) the ability to unilaterally cause the holder to return specific assets, other than through a cleanup call.
 
Note 3.  Related party transactions
 
Investment Management Agreement
 
The Investment Management Agreement was reapproved by the Board on July 29, 2016. Under the terms of the Investment Management Agreement, the Advisor determines the composition of the Company’s investment portfolio, the nature and timing of the changes to the investment portfolio and the manner of implementing such changes; identifies, evaluates and negotiates the structure of the investments the Company makes (including performing due diligence on the Company’s prospective portfolio companies); and closes, monitors and administers the investments the Company makes, including the exercise of any voting or consent rights.
 
The Advisor’s services under the Investment Management Agreement are not exclusive to the Company, and the Advisor is free to furnish similar services to other entities so long as its services to the Company are not impaired. The Advisor is a registered investment adviser with the U.S. Securities and Exchange Commission. The Advisor receives fees for providing services to the Company under the Investment Management Agreement, consisting of two components, a base management fee and an incentive fee.
 
The base management fee under the Investment Management Agreement is calculated at an annual rate of 2.00% of (i) the Company’s gross assets, less (ii) assets consisting of cash and cash equivalents, and is payable monthly in arrears. For purposes of calculating the base management fee, the term “gross assets” includes any assets acquired with the proceeds of leverage.
 
The base management fee payable at March 31, 2017 and December 31, 2016 was $0.3 million. The base management fee expense was $1.0 million and $1.3 million, respectively, for the three months ended March 31, 2017 and 2016.
 
The incentive fee has two parts, as follows:
 
The first part, which is subject to the Incentive Fee Cap and Deferral Mechanism, as defined below, is calculated and payable quarterly in arrears based on the Company’s pre-incentive fee net investment income for the immediately preceding calendar quarter. For this purpose, “Pre-Incentive Fee Net Investment Income” means interest income, dividend income and any other income (including any other fees (other than fees for providing managerial assistance), such as commitment, origination, structuring, diligence and consulting fees or other fees received from portfolio companies) accrued during the calendar quarter, minus expenses for the quarter (including the base management fee, expenses payable under the Administration Agreement (as defined below), and any interest expense and any dividends paid on any issued and outstanding preferred stock, but excluding the incentive fee). Pre-Incentive Fee Net Investment Income includes, in the case of investments with a deferred interest feature (such as original issue discount, debt instruments with payment-in-kind interest and zero coupon securities), accrued income the Company has not yet received in cash. The incentive fee with respect to the Pre-Incentive Fee Net Investment Income is 20.00% of the amount, if any, by which the Pre-Incentive Fee Net Investment Income for the immediately preceding calendar quarter exceeds a hurdle rate of 1.75% (which is 7.00% annualized) of the Company’s net assets at the end of the immediately preceding calendar quarter, subject to a “catch-up” provision measured as of the end of each calendar quarter. Under this provision, in any calendar quarter, the Advisor receives no incentive fee until the Pre-Incentive Fee Net Investment Income equals the hurdle rate of 1.75%, but then receives, as a “catch-up,” 100.00% of the Pre-Incentive Fee Net Investment Income with respect to that portion of such Pre-Incentive Fee Net Investment Income, if any, that exceeds the hurdle rate but is less than 2.1875% quarterly (which is 8.75% annualized). The effect of this “catch-up” provision is that, if Pre-Incentive Fee Net Investment Income exceeds 2.1875% in any calendar quarter, the Advisor will receive 20.00% of the Pre-Incentive Fee Net Investment Income as if the hurdle rate did not apply.
 
 	22	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Pre-Incentive Fee Net Investment Income does not include any realized capital gains, realized capital losses or unrealized capital appreciation or depreciation. Because of the structure of the incentive fee, it is possible that the Company may pay an incentive fee in a quarter in which the Company incurs a loss. For example, if the Company receives Pre-Incentive Fee Net Investment Income in excess of the quarterly minimum hurdle rate, the Company will pay the applicable incentive fee up to the Incentive Fee Cap, defined below, even if the Company has incurred a loss in that quarter due to realized and unrealized capital losses. The Company’s net investment income used to calculate this part of the incentive fee is also included in the amount of the Company’s gross assets used to calculate the 2.00% base management fee. These calculations are appropriately prorated for any period of less than three months and adjusted for any share issuances or repurchases during the current quarter.
 
Commencing with the calendar quarter beginning July 1, 2014, the incentive fee on Pre-Incentive Fee Net Investment Income is subject to a fee cap and deferral mechanism which is determined based upon a look-back period of up to three years and is expensed when incurred. For this purpose, the look-back period for the incentive fee based on Pre-Incentive Fee Net Investment Income (the “Incentive Fee Look-back Period”) commenced on July 1, 2014 and increases by one quarter in length at the end of each calendar quarter until June 30, 2017, after which time, the Incentive Fee Look-back Period will include the relevant calendar quarter and the 11 preceding full calendar quarters. Each quarterly incentive fee payable on Pre-Incentive Fee Net Investment Income is subject to a cap (the “Incentive Fee Cap”) and a deferral mechanism through which the Advisor may recoup a portion of such deferred incentive fees (collectively, the “Incentive Fee Cap and Deferral Mechanism”). The Incentive Fee Cap is equal to (a) 20.00% of Cumulative Pre-Incentive Fee Net Return (as defined below) during the Incentive Fee Look-back Period less (b) cumulative incentive fees of any kind paid to the Advisor during the Incentive Fee Look-back Period. To the extent the Incentive Fee Cap is zero or a negative value in any calendar quarter, the Company will not pay an incentive fee on Pre-Incentive Fee Net Investment Income to the Advisor in that quarter. To the extent that the payment of incentive fees on Pre-Incentive Fee Net Investment Income is limited by the Incentive Fee Cap, the payment of such fees will be deferred and paid in subsequent calendar quarters up to three years after their date of deferment, subject to certain limitations, which are set forth in the Investment Management Agreement. The Company only pays incentive fees on Pre-Incentive Fee Net Investment Income to the extent allowed by the Incentive Fee Cap and Deferral Mechanism. “Cumulative Pre-Incentive Fee Net Return” during any Incentive Fee Look-back Period means the sum of (a) Pre-Incentive Fee Net Investment Income and the base management fee for each calendar quarter during the Incentive Fee Look-back Period and (b) the sum of cumulative realized capital gains and losses, cumulative unrealized capital appreciation and cumulative unrealized capital depreciation during the applicable Incentive Fee Look-back Period.
 
The second part of the incentive fee is determined and payable in arrears as of the end of each calendar year (or, upon termination of the Investment Management Agreement, as of the termination date), and equals 20.00% of the Company’s realized capital gains, if any, on a cumulative basis from the date of the election to be a BDC through the end of each calendar year, computed net of all realized capital losses and unrealized capital depreciation on a cumulative basis through the end of such year, less all previous amounts paid in respect of the capital gain incentive fee. However, in accordance with GAAP, the Company is required to include the aggregate unrealized capital appreciation on investments in the calculation and accrue a capital gain incentive fee on a quarterly basis, as if such unrealized capital appreciation were realized, even though such unrealized capital appreciation is not permitted to be considered in calculating the fee actually payable under the Investment Management Agreement.
 
The performance based incentive fee expense was $0.4 million and $1.1 million for the three months ended March 31, 2017 and 2016, respectively. The incentive fee on Pre-Incentive Fee Net Investment Income was subject to the Incentive Fee Cap and Deferral Mechanism for the three months ended March 31, 2017, which resulted in $0.3 million of reduced expense and additional net investment income. The performance based incentive fee payable as of March 31, 2017 was $0.4 million. The entire incentive fee payable as of March 31, 2017 represented part one of the incentive fee. There was no performance based incentive fee payable as of December 31, 2016.
 
 	23	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Administration Agreement
 
The Company entered into an administration agreement (the “Administration Agreement”) with the Advisor to provide administrative services to the Company. For providing these services, facilities and personnel, the Company reimburses the Advisor for the Company’s allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent, the fees and expenses associated with performing compliance functions and the Company’s allocable portion of the costs of compensation and related expenses of the Company’s Chief Financial Officer and Chief Compliance Officer and their respective staffs. The administrative fee expense was $0.2 million and $0.3 million for the three months ended March 31, 2017 and 2016, respectively.
 
Note 4.  Investments
 
The following table shows the Company’s investments as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Cost	 	 	Fair Value	 	 	Cost	 	 	Fair Value	 	
 	 	 	 	 	(In thousands)	 	 	 	 	
Non-affiliate investments	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Debt	 	$	172,522	 	 	$	166,066	 	 	$	201,216	 	 	$	186,186	 	
Warrants	 	 	5,374	 	 	 	7,138	 	 	 	5,140	 	 	 	6,362	 	
Other	 	 	9,962	 	 	 	5,900	 	 	 	4,683	 	 	 	600	 	
Equity	 	 	588	 	 	 	1,010	 	 	 	588	 	 	 	855	 	
Total non-affiliate investments	 	$	188,446	 	 	$	180,114	 	 	$	211,627	 	 	$	194,003	 	
 
The following table shows the Company’s non-affiliate investments by industry sector as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Cost	 	 	Fair Value	 	 	Cost	 	 	Fair Value	 	
 	 	 	 	 	(In thousands)	 	 	 	 	
Life Science	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Biotechnology	 	$	34,449	 	 	$	34,999	 	 	$	46,703	 	 	$	41,578	 	
Medical Device	 	 	11,324	 	 	 	10,929	 	 	 	14,164	 	 	 	13,736	 	
Technology	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Communications	 	 	32	 	 	 	23	 	 	 	108	 	 	 	99	 	
Consumer-Related	 	 	20,391	 	 	 	21,297	 	 	 	21,055	 	 	 	22,121	 	
Data Storage	 	 	4,330	 	 	 	100	 	 	 	4,340	 	 	 	100	 	
Internet and Media	 	 	23,779	 	 	 	23,779	 	 	 	7,933	 	 	 	7,933	 	
Materials	 	 	9,979	 	 	 	10,235	 	 	 	9,966	 	 	 	10,222	 	
Networking	 	 	3,321	 	 	 	3,262	 	 	 	3,412	 	 	 	3,409	 	
Power Management	 	 	2,001	 	 	 	1,999	 	 	 	2,255	 	 	 	2,318	 	
Semiconductors	 	 	4,938	 	 	 	5,360	 	 	 	12,076	 	 	 	8,311	 	
Software	 	 	58,508	 	 	 	53,139	 	 	 	60,516	 	 	 	55,362	 	
Cleantech	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Alternative Energy	 	 	68	 	 	 	-	 	 	 	93	 	 	 	-	 	
Energy Efficiency	 	 	144	 	 	 	162	 	 	 	2,086	 	 	 	2,082	 	
Waste Recycling	 	 	5,966	 	 	 	5,966	 	 	 	5,997	 	 	 	6,003	 	
Healthcare Information and Services	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diagnostics	 	 	4,155	 	 	 	3,614	 	 	 	4,817	 	 	 	4,405	 	
Other	 	 	4,906	 	 	 	4,840	 	 	 	5,988	 	 	 	5,939	 	
Software	 	 	155	 	 	 	410	 	 	 	10,118	 	 	 	10,385	 	
Total non-affiliate investments	 	$	188,446	 	 	$	180,114	 	 	$	211,627	 	 	$	194,003	 	
 
 	24	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Note 5.  Fair value
 
The Company uses fair value measurements to record fair value adjustments to certain assets and liabilities and to determine fair value disclosures. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value is best determined based upon quoted market prices. However, in certain instances, there are no quoted market prices for certain assets or liabilities. In cases where quoted market prices are not available, fair values are based on estimates using present value or other valuation techniques. Those techniques are significantly affected by the assumptions used, including the discount rate and estimates of future cash flows. Accordingly, the fair value estimates may not be realized in an immediate settlement of the asset or liability.
 
Fair value measurements focus on exit prices in an orderly transaction (that is, not a forced liquidation or distressed sale) between market participants at the measurement date under current market conditions. If there has been a significant decrease in the volume and level of activity for the asset or liability, a change in valuation technique or the use of multiple valuation techniques may be appropriate. In such instances, determining the price at which willing market participants would transact at the measurement date under current market conditions depends on the facts and circumstances and requires the use of significant judgment.
 
The Company’s fair value measurements are classified into a fair value hierarchy in accordance with ASC Topic 820,  Fair Value Measurement , based on the markets in which the assets and liabilities are traded and the reliability of the assumptions used to determine fair value. The three categories within the hierarchy are as follows:
 
 	Level 1	Quoted prices in active markets for identical assets and liabilities.	
 
 	Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active, and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.	
 
 	Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.	
 
Investments are valued at fair value as determined in good faith by the Board, based on input of management, the audit committee and independent valuation firms which are engaged at the direction of the Board to assist in the valuation of each portfolio investment lacking a readily available market quotation at least once during a trailing twelve-month period under a valuation policy and a consistently applied valuation process. This valuation process is conducted at the end of each fiscal quarter, with at least 25% (based on fair value) of the Company’s valuation of portfolio companies lacking readily available market quotations subject to review by an independent valuation firm.
 
Because there is not a readily available market value for most of the investments in its portfolio, the Company values substantially all of its portfolio investments at fair value as determined in good faith by the Board, as described herein. Due to the inherent uncertainty of determining the fair value of investments that do not have a readily available market value, the fair value of the Company's investments may fluctuate from period to period. Additionally, the fair value of the Company's investments may differ significantly from the values that would have been used had a ready market existed for such investments and may differ materially from the values that the Company may ultimately realize. Further, such investments are generally subject to legal and other restrictions on resale or otherwise are less liquid than publicly traded securities. If the Company was required to liquidate a portfolio investment in a forced or liquidation sale, the Company could realize significantly less than the value at which the Company has recorded such portfolio investment.
 
Cash and interest receivable:  The carrying amount is a reasonable estimate of fair value. These financial instruments are not recorded at fair value on a recurring basis and are categorized as Level 1 within the fair value hierarchy described above.
 
 	25	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Money market funds:  The carrying amounts are valued at their net asset value as of the close of business on the day of valuation. These financial instruments are recorded at fair value on a recurring basis and are categorized as Level 2 within the fair value hierarchy described above as these funds can be redeemed daily.
 
Debt investments:  For variable rate debt investments which re-price frequently and have no significant change in credit risk, carrying values are a reasonable estimate of fair values. The fair value of fixed rate debt investments is estimated by discounting the expected future cash flows using the period end rates at which similar debt investments would be made to borrowers with similar credit ratings and for the same remaining maturities. At March 31, 2017 and December 31, 2016, the hypothetical market yields used ranged from 11% to 25%. Significant increases (decreases) in this unobservable input would result in a significantly lower (higher) fair value measurement. These assets are recorded at fair value on a recurring basis and are categorized as Level 3 within the fair value hierarchy described above.
 
Under certain circumstances, the Company may use an alternative technique to value debt investments that better reflects its fair value such as the use of multiple probability weighted cash flow models when the expected future cash flows contain elements of variability. 
 
Warrant investments:  The Company values its warrants using the Black-Scholes valuation model incorporating the following material assumptions:
 
 	•	Underlying asset value of the issuer is estimated based on information available, including any information regarding the most recent rounds of borrower funding. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.	
 
 	•	Volatility, or the amount of uncertainty or risk about the size of the changes in the warrant price, is based on indices of publicly traded companies similar in nature to the underlying company issuing the warrant. A total of seven such indices are used. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement.	
 
 	•	The risk-free interest rates are derived from the U.S. Treasury yield curve. The risk-free interest rates are calculated based on a weighted average of the risk-free interest rates that correspond closest to the expected remaining life of the warrant.	
 
 	•	Other adjustments, including a marketability discount on private company warrants, are estimated based on management’s judgment about the general industry environment.	
 
 	•	Historical portfolio experience on cancellations and exercises of the Company’s warrants are utilized as the basis for determining the estimated time to exit of the warrants in each financial reporting period. Warrants may be exercised in the event of acquisitions, mergers or IPOs, and cancelled due to events such as bankruptcies, restructuring activities or additional financings. These events cause the expected remaining life assumption to be shorter than the contractual term of the warrants. Significant increases (decreases) in this unobservable input would result in significantly higher (lower) fair value measurement.	
 
Under certain circumstances the Company may use an alternative technique to value warrants that better reflects the warrants’ fair value, such as an expected settlement of a warrant in the near term or a model that incorporates a put feature associated with the warrant. The fair value may be determined based on the expected proceeds to be received from such settlement or based on the net present value of the expected proceeds from the put option. 
 
The fair value of the Company’s warrants held in publicly traded companies is determined based on inputs that are readily available in public markets or can be derived from information available in public markets. Therefore, the Company has categorized these warrants as Level 2 within the fair value hierarchy described above. The fair value of the Company’s warrants held in private companies is determined using both observable and unobservable inputs and represents management’s best estimate of what market participants would use in pricing the warrants at the measurement date. Therefore, the Company has categorized these warrants as Level 3 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.
 
 	26	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Equity investments: The fair value of an equity investment in a privately held company is initially the face value of the amount invested. The Company adjusts the fair value of equity investments in private companies upon the completion of a new third-party round of equity financing. The Company may make adjustments to fair value, absent a new equity financing event, based upon positive or negative changes in a portfolio company’s financial or operational performance. Significant increases (decreases) in this unobservable input would result in a significantly higher (lower) fair value measurement. The Company has categorized these equity investments as Level 3 within the fair value hierarchy described above. The fair value of an equity investment in a publicly traded company is based upon the closing public share price on the date of measurement. Therefore, the Company has categorized these equity investments as Level 1 within the fair value hierarchy described above. These assets are recorded at fair value on a recurring basis.
 
Other investments: Other investments are valued based on the facts and circumstances of the underlying contractual agreement. The Company currently values these contractual agreements using a multiple probability weighted cash flow model as the contractual future cash flows contain elements of variability. Significant changes in the estimated cash flows and probability weightings would result in a significantly higher or lower fair value measurement. The Company has categorized these other investments as Level 3 within the fair value hierarchy described above. These other investments are recorded at fair value on a recurring basis.
 
The following tables provide a summary of quantitative information about the Company’s Level 3 fair value measurements of its investments as of March 31, 2017 and December 31, 2016. In addition to the techniques and inputs noted in the table below, according to the Company’s valuation policy, the Company may also use other valuation techniques and methodologies when determining its fair value measurements.
 
The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements as of March 31, 2017:
 
March 31, 2017	
 	 	Fair	 	 	Valuation Techniques/	 	Unobservable	 	 	 	Weighted	
Investment Type	 	Value	 	 	Methodologies	 	Input	 	Range	 	Average	
(Dollars in thousands, except per share data)	
Debt investments	 	$	159,866	 	 	Discounted Expected Future Cash Flows	 	Hypothetical Market Yield	 	11% - 25%	 	13%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	6,200	 	 	Liquidation Scenario	 	Probability Weighting	 	10% - 50%	 	33%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant investments	 	 	5,929	 	 	Black-Scholes Valuation Model	 	Price Per Share
Average Industry Volatility	 	$0.00 - $63.98
21%	 	$4.03
21%	
 	 	 	 	 	 	 	 	Marketability Discount	 	20%	 	20%	
 	 	 	 	 	 	 	 	Estimated Time to Exit	 	1 to 5 years	 	3 years	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	321	 	 	Expected Settlement	 	Price Per Share	 	$0.13 - $0.18	 	$0.13	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other investments	 	 	5,900	 	 	Multiple Probability Weighted Cash Flow Model	 	Discount Rate
Probability Weighting	 	18% - 25%
25% - 100%	 	19%
40%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity investments	 	 	268	 	 	Last Equity Financing	 	Price Per Share	 	$0.04 - $1.00	 	$0.34	
Total Level 3 investments	 	$	178,484	 	 	 	 	 	 	 	 	 	
 
 	27	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
The following table is not intended to be all-inclusive, but rather provides information on the significant Level 3 inputs as they relate to the Company’s fair value measurements as of December 31, 2016:
 
December 31, 2016	
 	 	Fair	 	 	Valuation Techniques/	 	Unobservable	 	 	 	Weighted	
Investment Type	 	Value	 	 	Methodologies	 	Input	 	Range	 	Average	
(Dollars in thousands, except per share data)	
Debt investments	 	$	174,686	 	 	Discounted Expected Future Cash Flows	 	Hypothetical Market Yield	 	11% - 25%	 	13%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	11,500	 	 	Liquidation Scenario	 	Probability Weighting	 	25% - 100%	 	40%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Warrant investments	 	 	5,677	 	 	Black-Scholes Valuation Model	 	Price Per Share
Average Industry Volatility Volatility	 	$0.00 - $63.98
21%	 	$4.02
21%	
 	 	 	 	 	 	 	 	Marketability Discount	 	20%	 	20%	
 	 	 	 	 	 	 	 	Estimated Time to Exit	 	1 to 5 years	 	3 years	
 	 	 	 	 	 	 	 	 	 	 	 	 	
 	 	 	180	 	 	Expected Settlement	 	Price Per Share	 	$1.78	 	$1.78	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Other investments	 	 	600	 	 	Multiple Probability Weighted Cash Flow Model	 	Discount Rate
Probability Weighting	 	25%
25% - 100%	 	25%
43%	
 	 	 	 	 	 	 	 	 	 	 	 	 	
Equity investments	 	 	268	 	 	Last Equity Financing	 	Price Per Share	 	$0.04 - $1.00	 	$0.34	
Total Level 3 investments	 	$	192,911	 	 	 	 	 	 	 	 	 	
 
Borrowings:  The carrying amount of borrowings under the Company’s revolving credit facility (the “Key Facility”) with KeyBank National Association (“Key”) approximates fair value due to the variable interest rate of the Key Facility and is categorized as Level 2 within the fair value hierarchy described above. Additionally, the Company considers its creditworthiness in determining the fair value of such borrowings. The fair value of the fixed rate 2019 Notes (as defined in Note 6) is based on the closing public share price on the date of measurement. On March 31, 2017, the closing price of the 2019 Notes on the New York Stock Exchange was $25.47 per note, or $33.6 million. Therefore, the Company has categorized this borrowing as Level 1 within the fair value hierarchy described above.
 
Off-balance-sheet instruments:  Fair values for off-balance-sheet lending commitments are based on fees currently charged to enter into similar agreements, taking into account the remaining terms of the agreements and the counterparties’ credit standings. Therefore, the Company has categorized these instruments as Level 3 within the fair value hierarchy described above.
 
The following tables detail the assets that are carried at fair value and measured at fair value on a recurring basis as of March 31, 2017 and December 31, 2016 and indicate the fair value hierarchy of the valuation techniques utilized by the Company to determine the fair value:
 
 	 	March 31, 2017	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
 	 	(In thousands)	 	
Debt investments		 	$	166,066	 	 	$	-	 	 	$	-	 	 	$	166,066	 	
Warrant investments		 	$	7,138	 	 	$	-	 	 	$	888	 	 	$	6,250	 	
Other investments		 	$	5,900	 	 	$	-	 	 	$	-	 	 	$	5,900	 	
Equity investments		 	$	1,010	 	 	$	742	 	 	$	-	 	 	$	268	 	
 
 	 	December 31, 2016	 	
 	 	Total	 	 	Level 1	 	 	Level 2	 	 	Level 3	 	
 	 	(In thousands)	 	
Debt investments		 	$	186,186	 	 	$	-	 	 	$	-	 	 	$	186,186	 	
Warrant investments		 	$	6,362	 	 	$	-	 	 	$	505	 	 	$	5,857	 	
Other investments		 	$	600	 	 	$	-	 	 	$	-	 	 	$	600	 	
Equity investments		 	$	855	 	 	$	587	 	 	$	-	 	 	$	268	 	
 
 	28	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2017:
 
 	 	Three Months Ended March 31, 2017	 	
 	 	Debt
Investments	 	 	Warrant
Investments	 	 	Equity
Investments	 	 	Other
Investments	 	 	Total	 	
 	 	(In thousands)	 	
Level 3 assets, beginning of period	 	$	186,186	 	 	$	5,857	 	 	$	268	 	 	$	600	 	 	$	192,911	 	
Purchase of investments	 	 	25,916	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	25,916	 	
Warrants and equity received and classified as Level 3	 	 	-	 	 	 	856	 	 	 	-	 	 	 	-	 	 	 	856	 	
Principal payments received on investments	 	 	(39,490	)	 	 	-	 	 	 	-	 	 	 	(21	)	 	 	(39,511	)	
Proceeds from sale of investments	 	 	-	 	 	 	(1,215	)	 	 	-	 	 	 	-	 	 	 	(1,215	)	
Net realized (loss) gain on investments	 	 	(11,019	)	 	 	780	 	 	 	-	 	 	 	-	 	 	 	(10,239	)	
Unrealized appreciation (depreciation) included in earnings	 	 	10,414	 	 	 	(28	)	 	 	-	 	 	 	21	 	 	 	10,407	 	
Transfer from debt to other investments	 	 	(5,300	)	 	 	-	 	 	 	-	 	 	 	5,300	 	 	 	-	 	
Other	 	 	(641	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(641	)	
Level 3 assets, end of period	 	$	166,066	 	 	$	6,250	 	 	$	268	 	 	$	5,900	 	 	$	178,484	 	
 
The Company’s transfers between levels are recognized at the end of each reporting period. During the three months ended March 31, 2017, there were no transfers between levels.
 
The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at March 31, 2017 includes $0.5 million in unrealized depreciation on debt and other investments, $0.1 million in unrealized depreciation on warrant investments and $0.1 million in unrealized appreciation on equity investments.
 
The following table shows a reconciliation of the beginning and ending balances for Level 3 assets measured at fair value on a recurring basis for the three months ended March 31, 2016:
 
 	 	Three Months Ended March 31, 2016	 	
 	 	Debt
Investments	 	 	Warrant
Investments	 	 	Equity
Investments	 	 	Other
Investments	 	 	Total	 	
 	 	(In thousands)	 	
Level 3 assets, beginning of period	 	$	242,167	 	 	$	5,793	 	 	$	316	 	 	$	300	 	 	$	248,576	 	
Purchase of investments	 	 	16,500	 	 	 	-	 	 	 	-	 	 	 	-	 	 	 	16,500	 	
Warrants and equity received and classified as Level 3	 	 	-	 	 	 	81	 	 	 	45	 	 	 	-	 	 	 	126	 	
Principal payments received on investments	 	 	(18,060	)	 	 	-	 	 	 	-	 	 	 	(23	)	 	 	(18,083	)	
Proceeds from sale of investments	 	 	-	 	 	 	(709	)	 	 	(127	)	 	 	-	 	 	 	(836	)	
Net realized (loss) gain on investments	 	 	(2,157	)	 	 	608	 	 	 	(369	)	 	 	-	 	 	 	(1,918	)	
Unrealized appreciation (depreciation) included in earnings	 	 	366	 	 	 	(876	)	 	 	364	 	 	 	40	 	 	 	(106	)	
Transfer from debt to other investments	 	 	(383	)	 	 	-	 	 	 	-	 	 	 	383	 	 	 	-	 	
Other	 	 	(7	)	 	 	-	 	 	 	-	 	 	 	-	 	 	 	(7	)	
Level 3 assets, end of period	 	$	238,426	 	 	$	4,897	 	 	$	229	 	 	$	700	 	 	$	244,252	 	
 
The Company’s transfers between levels are recognized at the end of each reporting period. During the three months ended March 31, 2016, there were no transfers between levels.
 
The change in unrealized appreciation included in the consolidated statement of operations attributable to Level 3 investments still held at March 31, 2016 includes $1.8 million in unrealized depreciation on debt and other investments, $0.5 million in unrealized depreciation on warrant investments and $0.1 million in unrealized appreciation on equity investments.
 
 	29	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
The Company discloses fair value information about financial instruments, whether or not recognized in the consolidated statement of assets and liabilities, for which it is practicable to estimate that value. Certain financial instruments are excluded from the disclosure requirements. Accordingly, the aggregate fair value amounts presented do not represent the underlying value of the Company.
 
The fair value amounts for 2017 and 2016 have been measured as of the reporting date and have not been reevaluated or updated for purposes of these financial statements subsequent to that date. As such, the fair values of these financial instruments subsequent to the reporting date may be different than amounts reported.
 
As of March 31, 2017 and December 31, 2016, the recorded balances equaled fair values of all the Company’s financial instruments, except for the Company’s 2019 Notes, as previously described.
 
Off-balance-sheet instruments
 
The Company assumes interest rate risk (the risk that general interest rate levels will change) as a result of its normal operations. As a result, the fair values of the Company’s financial instruments will change when interest rate levels change, and that change may be either favorable or unfavorable to the Company. Management attempts to match maturities of assets and liabilities to the extent believed necessary to minimize interest rate risk. Management monitors rates and maturities of assets and liabilities and attempts to minimize interest rate risk by adjusting terms of new debt investments and by investing in securities with terms that mitigate the Company’s overall interest rate risk.
 
Note 6.  Borrowings
 
The following table shows the Company’s borrowings as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	
 	 	 	 	 	 	 	 	(In thousands)	 	 	 	 	 	 	 	
Key Facility	 	$	95,000	 	 	$	53,000	 	 	$	42,000	 	 	$	95,000	 	 	$	63,000	 	 	$	32,000	 	
2019 Notes	 	 	33,000	 	 	 	33,000	 	 	 	-	 	 	 	33,000	 	 	 	33,000	 	 	 	-	 	
Total before debt issuance costs	 	 	128,000	 	 	 	86,000	 	 	 	42,000	 	 	 	128,000	 	 	 	96,000	 	 	 	32,000	 	
Unamortized debt issuance costs attributable to term borrowings	 	 	-	 	 	 	(356	)	 	 	-	 	 	 	-	 	 	 	(403	)	 	 	-	 	
Total borrowings outstanding, net	 	$	128,000	 	 	$	85,644	 	 	$	42,000	 	 	$	128,000	 	 	$	95,597	 	 	$	32,000	 	
 
In accordance with the 1940 Act, with certain limited exceptions, the Company is only allowed to borrow amounts such that the Company’s asset coverage, as defined in the 1940 Act, is at least 200% after such borrowings. As of March 31, 2017, the asset coverage for borrowed amounts was 262%.
 
The Company entered into the Key Facility with Key effective November 4, 2013. The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million from the current $95 million commitment. The Key Facility is collateralized by all debt investments and warrants held by Credit II and permits an advance rate of up to 50% of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require the Company to maintain a minimum net worth and to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and includes portfolio company concentration limits as defined in the related loan agreement. The Key Facility has a three-year revolving period followed by a two-year amortization period and matures on August 12, 2020. The interest rate is based upon the one-month London Interbank Offered Rate (“LIBOR”), plus a spread of 3.25%, with a LIBOR floor of 0.75%. The LIBOR rate was 0.98% and 0.77% on March 31, 2017 and December 31, 2016, respectively. The average interest rate for the three months ended March 31, 2017 and 2016 was 4.03% and 4.00%, respectively. As of March 31, 2017 and December 31, 2016, the Company had borrowing capacity of $42.0 million and $32.0 million, respectively. At March 31, 2017 and December 31, 2016, $6.2 million and $4.6 million, respectively, was available, subject to existing terms and advance rates.
 
 	30	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
On March 23, 2012, the Company issued and sold an aggregate principal amount of $30 million of 7.375% senior unsecured notes due in 2019 and on April 18, 2012, pursuant to the underwriters’ 30 day option to purchase additional notes, the Company sold an additional $3 million of such notes (collectively, the “2019 Notes”). The 2019 Notes will mature on March 15, 2019 and may be redeemed in whole or in part at the Company’s option at any time or from time to time at a redemption price of $25 per security plus accrued and unpaid interest. The 2019 Notes bear interest at a rate of 7.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2019 Notes are the Company’s direct unsecured obligations and (i) rank equally in right of payment with the Company’s future unsecured indebtedness; (ii) are senior in right of payment to any of the Company’s future indebtedness that expressly provides it is subordinated to the 2019 Notes; (iii) are effectively subordinated to all of the Company’s existing and future secured indebtedness (including indebtedness that is initially unsecured to which the Company subsequently grants security), to the extent of the value of the assets securing such indebtedness, and (iv) are structurally subordinated to all existing and future indebtedness and other obligations of any of the Company’s subsidiaries. As of March 31, 2017, the Company was in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed on the New York Stock Exchange under the symbol “HTF”.
 
On June 28, 2013, the Company completed the 2013-1 Securitization. In connection with the 2013-1 Securitization, 2013-1 Trust, a wholly owned subsidiary of the Company, issued $90 million in the Asset-Backed Notes, which were rated A1(sf) by Moody’s Investors Service, Inc. The Asset-Backed Notes were issued by 2013-1 Trust and were backed by a pool of loans made to certain portfolio companies of the Company and secured by certain assets of such portfolio companies. The Asset-Backed Notes were secured obligations of 2013-1 Trust and non-recourse to the Company. In connection with the issuance and sale of the Asset-Backed Notes, the Company made customary representations, warranties and covenants. The Asset-Backed Notes bore interest at a fixed rate of 3.00% per annum and had a stated maturity of May 15, 2018. As of December 31, 2016, the Asset-Backed Notes were repaid in full.
 
Under the terms of the Asset-Backed Notes, the Company was required to maintain a reserve cash balance, funded through principal collections from the underlying securitized debt portfolio, which was used to make monthly interest and principal payments on the Asset-Backed Notes. The Company had segregated these funds and classified them as restricted investments in money market funds on the consolidated statements of assets and liabilities.
 
Note 7.  Financial instruments with off-balance-sheet risk
 
In the normal course of business, the Company is party to financial instruments with off-balance-sheet risk to meet the financing needs of its borrowers. These financial instruments include commitments to extend credit and involve, to varying degrees, elements of credit risk in excess of the amount recognized in the consolidated statement of assets and liabilities. The Company attempts to limit its credit risk by conducting extensive due diligence and obtaining collateral where appropriate.
 
The balance of unfunded commitments to extend credit was $11.5 million and $20.8 million as of March 31, 2017 and December 31, 2016, respectively. Commitments to extend credit consist principally of the unused portions of commitments that obligate the Company to extend credit, such as revolving credit arrangements or similar transactions. These commitments are often subject to financial or non-financial milestones and other conditions to borrow that must be achieved before the commitment can be drawn. In addition, the commitments generally have fixed expiration dates or other termination clauses. Since commitments may expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements.
 
 	31	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
The following table provides the Company’s unfunded commitments by portfolio company as of March 31, 2017:
 
 	 	Principal
Balance	 	 	Fair Value of
Unfunded
Commitment
Liability	 	
 	 	(In thousands)	 	
Luxtera, Inc.	 	$	1,500	 	 	$	-	 	
Strongbridge U.S. Inc.	 	 	7,500	 	 	 	61	 	
vTv Therapeutics Inc.	 	 	2,500	 	 	 	25	 	
Total	 	$	11,500	 	 	$	86	 	
 
The table above also provides the fair value of the Company’s unfunded commitment liability as of March 31, 2017 which totaled $0.1 million. The fair value at inception of the delay draw credit agreements is equal to the fees and/or warrants received to enter into these agreements, taking into account the remaining terms of the agreements and the counterparties’ credit profile. The unfunded commitment liability reflects the fair value of these future funding commitments and is included in the Company’s consolidated statement of assets and liabilities.
 
Note 8.  Concentrations of credit risk
 
The Company’s debt investments consist primarily of loans to development-stage companies at various stages of development in the technology, life science, healthcare information and services and cleantech industries. Many of these companies may have relatively limited operating histories and also may experience variation in operating results. Many of these companies conduct business in regulated industries and could be affected by changes in government regulations. Most of the Company’s borrowers will need additional capital to satisfy their continuing working capital needs and other requirements, and in many instances, to service the interest and principal payments on the loans.
 
The Company’s largest debt investments may vary from period to period as new debt investments are recorded and existing debt investments are repaid. The Company’s five largest debt investments, at cost, represented 29% and 24% of total debt investments outstanding as of March 31, 2017 and December 31, 2016, respectively. No single debt investment represented more than 10% of the total debt investments as of March 31, 2017 and December 31, 2016. Investment income, consisting of interest and fees, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments accounted for 14% and 20%, respectively, of total interest and fee income on investments for the three months ended March 31, 2017 and 2016.
 
 	32	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Note 9. Distributions
 
The Company’s distributions are recorded on the declaration date. The following table summarizes the Company’s distribution activity for the three months ended March 31, 2017 and for the years ended December 31, 2016 and 2015:
 
Date 
Declared	 	Record Date	 	Payment Date	 	Amount
Per Share	 	 	Cash
Distribution	 	 	DRIP
Shares
Issued	 	 	DRIP
Share
Value	 	
 	 	(In thousands, except share and per share data)	 	
  Three Months Ended March 31, 2017	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
3/3/17	 	5/19/17	 	6/15/17	 	$	0.10	 	 	$	-	 	 	 	-	 	 	$	-	 	
3/3/17	 	4/21/17	 	5/16/17	 	 	0.10	 	 	 	-	 	 	 	-	 	 	 	-	 	
3/3/17	 	3/20/17	 	4/18/17	 	 	0.10	 	 	 	1,134	 	 	 	1,510	 	 	 	18	 	
 	 	 	 	 	 	$	0.30	 	 	$	1,134	 	 	 	1,510	 	 	$	18	 	
  Year Ended December 31, 2016	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
10/28/16	 	2/22/17	 	3/15/17	 	$	0.10	 	 	$	1,134	 	 	 	1,665	 	 	$	16	 	
10/28/16	 	1/19/17	 	2/15/17	 	 	0.10	 	 	 	1,133	 	 	 	1,542	 	 	 	17	 	
10/28/16	 	12/20/16	 	1/13/17	 	 	0.10	 	 	 	1,137	 	 	 	1,550	 	 	 	16	 	
7/29/16	 	11/18/16	 	12/15/16	 	 	0.115	 	 	 	1,308	 	 	 	1,712	 	 	 	19	 	
7/29/16	 	10/20/16	 	11/15/16	 	 	0.115	 	 	 	1,308	 	 	 	1,896	 	 	 	21	 	
7/29/16	 	9/20/16	 	10/17/16	 	 	0.115	 	 	 	1,305	 	 	 	1,716	 	 	 	22	 	
4/28/16	 	8/19/16	 	9/15/16	 	 	0.115	 	 	 	1,307	 	 	 	1,535	 	 	 	21	 	
4/28/16	 	7/20/16	 	8/15/16	 	 	0.115	 	 	 	1,302	 	 	 	1,842	 	 	 	25	 	
4/28/16	 	6/20/16	 	7/15/16	 	 	0.115	 	 	 	1,305	 	 	 	1,734	 	 	 	23	 	
3/3/16	 	5/19/16	 	6/15/16	 	 	0.115	 	 	 	1,305	 	 	 	1,898	 	 	 	23	 	
3/3/16	 	4/20/16	 	5/16/16	 	 	0.115	 	 	 	1,283	 	 	 	3,821	 	 	 	44	 	
3/3/16	 	3/18/16	 	4/15/16	 	 	0.115	 	 	 	1,306	 	 	 	1,840	 	 	 	21	 	
 	 	 	 	 	 	$	1.335	 	 	$	15,133	 	 	 	22,751	 	 	$	268	 	
  Year Ended December 31, 2015	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
10/30/15	 	2/22/16	 	3/15/16	 	$	0.115	 	 	$	1,309	 	 	 	1,606	 	 	$	18	 	
10/30/15	 	1/21/16	 	2/17/16	 	 	0.115	 	 	 	1,308	 	 	 	1,931	 	 	 	18	 	
10/30/15	 	12/18/15	 	1/15/16	 	 	0.115	 	 	 	1,311	 	 	 	1,841	 	 	 	18	 	
7/29/15	 	11/19/15	 	12/15/15	 	 	0.115	 	 	 	1,317	 	 	 	1,687	 	 	 	20	 	
7/29/15	 	10/20/15	 	11/16/15	 	 	0.115	 	 	 	1,317	 	 	 	1,967	 	 	 	22	 	
7/29/15	 	9/18/15	 	10/15/15	 	 	0.115	 	 	 	1,315	 	 	 	2,418	 	 	 	24	 	
5/1/15	 	8/19/15	 	9/15/15	 	 	0.115	 	 	 	1,312	 	 	 	2,577	 	 	 	26	 	
5/1/15	 	7/20/15	 	8/14/15	 	 	0.115	 	 	 	1,312	 	 	 	2,420	 	 	 	27	 	
5/1/15	 	6/18/15	 	7/15/15	 	 	0.115	 	 	 	1,312	 	 	 	2,045	 	 	 	26	 	
3/6/15	 	5/20/15	 	6/15/15	 	 	0.115	 	 	 	1,311	 	 	 	2,036	 	 	 	28	 	
3/6/15	 	4/20/15	 	5/15/15	 	 	0.115	 	 	 	1,311	 	 	 	1,950	 	 	 	28	 	
3/6/15	 	3/20/15	 	4/15/15	 	 	0.115	 	 	 	1,095	 	 	 	877	 	 	 	12	 	
 	 	 	 	 	 	$	1.380	 	 	$	15,530	 	 	 	23,355	 	 	$	267	 	
 
On April 27, 2017, the Board declared monthly distributions per share, payable as set forth in the following table:
 
Ex-Dividend Date	 	Record Date	 	Payment Date	 	Distributions Declared	 	
August 16, 2017	 	August 18, 2017	 	September 15, 2017	 	$	0.10	 	
July 18, 2017	 	July 20, 2017	 	August 15, 2017	 	$	0.10	 	
June 16, 2017	 	June 20, 2017	 	July 14, 2017	 	$	0.10	 	
 
After paying distributions of $0.30 per share and earning $0.29 per share for the quarter, the Company’s undistributed spillover income as of March 31, 2017 was $0.14 per share. Spillover income includes any ordinary income and net capital gains from the preceding tax years that were not distributed during such tax years.
 
 	33	 	

 
Horizon Technology Finance Corporation and Subsidiaries
 
Notes to Consolidated Financial Statements
 
Note 10. Financial highlights
 
The following table shows financial highlights for the Company:
 
 	 	Three Months Ended March 31,	 	
 	 	2017	 	 	2016	 	
 	 	(In thousands, except share and per share data)	 	
Per share data:	 	 	 	
Net asset value at beginning of period	 	$	12.09	 	 	$	13.85	 	
Net investment income	 	 	0.29	 	 	 	0.38	 	
Realized loss on investments	 	 	(0.94	)	 	 	(0.17	)	
Unrealized appreciation (depreciation) on investments	 	 	0.97	 	 	 	(0.09	)	
Net increase in net assets resulting from operations	 	 	0.32	 	 	 	0.12	 	
Distributions declared(1)	 	 	(0.30	)	 	 	(0.35	)	
From net investment income	 	 	(0.30	)	 	 	(0.35	)	
From net realized gain on investments	 	 	-	 	 	 	-	 	
Return of capital	 	 	-	 	 	 	-	 	
Net asset value at end of period	 	$	12.11	 	 	$	13.62	 	
Per share market value, beginning of period	 	$	10.53	 	 	$	11.73	 	
Per share market value, end of period	 	$	11.13	 	 	$	11.61	 	
Total return based on a market value(2)	 	 	8.5	%	 	 	1.9	%	
Shares outstanding at end of period	 	 	11,515,181	 	 	 	11,540,590	 	
Ratios to average net assets:	 	 	 	 	 	 	 	 	
Expenses without incentive fees	 	 	9.1	%(3)	 	 	9.5	%(3)	
Incentive fees	 	 	1.2	%(3)	 	 	2.8	%(3)	
Net expenses	 	 	10.3	%(3)	 	 	12.3	%(3)	
Net investment income with incentive fees	 	 	9.7	%(3)	 	 	11.0	%(3)	
Net assets at the end of the period	 	$	139,439	 	 	$	157,220	 	
Average net asset value	 	$	139,316	 	 	$	158,485	 	
Average debt per share	 	$	7.47	 	 	$	9.71	 	
Portfolio turnover ratio	 	 	14.4	%	 	 	6.9	%	

 	(1)	Distributions are determined based on taxable income calculated in accordance with income tax regulations, which may differ from amounts determined under GAAP due to (i) changes in unrealized appreciation and depreciation, (ii) temporary and permanent differences in income and expense recognition, and (iii) the amount of spillover income carried over from a given tax year for distribution in the following tax year. The final determination of taxable income for each tax year, as well as the tax attributes for distributions in such tax year, will be made after the close of the tax year.	
 	(2)	The total return equals the change in the ending market value over the beginning of period price per share plus distributions paid per share during the period, divided by the beginning price.	
 	(3)	Annualized.	
 
 	34	 	

 
Item 2.  Management’s Discussion and Analysis of Financial Condition and Results of Operations
 
In this quarterly report on Form 10-Q, except where the context suggests otherwise, the terms “we,” “us,” “our” and “Horizon Technology Finance” refer to Horizon Technology Finance Corporation and its consolidated subsidiaries. The information contained in this section should be read in conjunction with our consolidated financial statements and related notes thereto appearing elsewhere in this quarterly report on Form 10-Q.
 
Forward-looking statements
 
This quarterly report on Form 10-Q, including the Management’s Discussion and Analysis of Financial Condition and Results of Operations, contains statements that constitute forward-looking statements, which relate to future events or our future performance or financial condition. 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. The forward-looking statements contained in this quarterly report on Form 10-Q involve risks and uncertainties, including statements as to:
 
 	•	our future operating results, including the performance of our existing debt investments and warrants;	
 	•	the introduction, withdrawal, success and timing of business initiatives and strategies;	
 	•	changes in political, economic or industry conditions, the interest rate environment or financial and capital markets, which could result in changes in the value of our assets;	
 	•	the relative and absolute investment performance and operations of our investment advisor, Horizon Technology Finance Management LLC, or the Advisor;	
 	•	the impact of increased competition;	
 	•	the impact of investments we intend to make and future acquisitions and divestitures;	
 	•	the unfavorable resolution of legal proceedings;	
 	•	our business prospects and the prospects of our portfolio companies;	
 	•	the impact, extent and timing of technological changes and the adequacy of intellectual property protection;	
 	•	our regulatory structure and tax status;	
 	•	our ability to qualify and maintain qualification as a regulated investment company, or RIC, and as a business development company, or BDC;	
 	•	the adequacy of our cash resources and working capital;	
 	•	the timing of cash flows, if any, from the operations of our portfolio companies;	
 	•	the impact of interest rate volatility on our results, particularly if we use leverage as part of our investment strategy;	
 	•	the ability of our portfolio companies to achieve their objective;	
 	•	the impact of legislative and regulatory actions and reforms and regulatory supervisory or enforcement actions of government agencies relating to us or our Advisor;	
 	•	our contractual arrangements and relationships with third parties;	
 	•	our ability to access capital and any future financings by us;	
 	•	the ability of our Advisor to attract and retain highly talented professionals; and	
 	•	the impact of changes to tax legislation and, generally, our tax position.	
 
We use words such as “anticipates,” “believes,” “expects,” “intends,” “seeks” and similar expressions to identify forward-looking statements. Undue influence should not be placed on the forward looking statements as our actual results could differ materially from those projected in the forward-looking statements for any reason, including the factors in “Risk Factors” and elsewhere in our annual report on Form 10-K for the year ended December 31, 2016, and elsewhere in this quarterly report on Form 10-Q.
 
We have based the forward-looking statements included in this report on information available to us on the date of this report, and we assume no obligation to update any such forward-looking statements. Although we undertake no obligation to revise or update any forward-looking statements in this quarterly report on Form 10-Q, whether as a result of new information, future events or otherwise, you are advised to consult any additional disclosures that we may make directly to you or through reports that we in the future may file with the U.S. Securities and Exchange Commission, or the SEC, including periodic reports on Form 10-Q and Form 10-K and current reports on Form 8-K.
 
 	35	 	

 
Overview
 
We are a specialty finance company that lends to and invests in development-stage companies in the technology, life science, healthcare information and services and cleantech industries, which we refer to as our “Target Industries.” Our investment objective is to maximize our investment portfolio’s total return by generating current income from the debt investments we make and capital appreciation from the warrants we receive when making such debt investments. We are focused on making secured debt investments, which we refer to collectively as “Venture Loans,” to venture capital backed companies in our Target Industries, which we refer to as “Venture Lending.” We also selectively provide Venture Loans to publicly traded companies in our Target Industries. Our debt investments are typically secured by first liens or first liens behind a secured revolving line of credit, or Senior Term Loans. As of March 31, 2017, 98.8%, or $164.1 million, of our debt investment portfolio at fair value consisted of Senior Term Loans. Venture Lending is typically characterized by (1) the making of a secured debt investment after a venture capital or equity investment in the portfolio company has been made, which investment provides a source of cash to fund the portfolio company’s debt service obligations under the Venture Loan, (2) the senior priority of the Venture Loan which requires repayment of the Venture Loan prior to the equity investors realizing a return on their capital, (3) the relatively rapid amortization of the Venture Loan and (4) the lender’s receipt of warrants or other success fees with the making of the Venture Loan.
 
We are an externally managed, closed-end, non-diversified management investment company that has elected to be regulated as a BDC under the Investment Company Act of 1940, as amended, or the 1940 Act. In addition, for U.S. federal income tax purposes, we have elected to be treated as a RIC under Subchapter M of the Internal Revenue Code of 1986, as amended, or the Code. As a BDC, we are required to comply with regulatory requirements, including limitations on our use of debt. We are permitted to, and expect to, finance our investments through borrowings. However, as a BDC, we are only generally allowed to borrow amounts such that our asset coverage, as defined in the 1940 Act, equals at least 200% after such borrowing. The amount of leverage that we employ depends on our assessment of market conditions and other factors at the time of any proposed borrowing. As a RIC, we generally are not subject to corporate-level income taxes on our investment company taxable income and our net capital gain that we distribute as dividends to our stockholders as long as we meet certain source-of-income, distribution, asset diversification and other requirements.
 
Compass Horizon Funding Company LLC, or Compass Horizon, our predecessor company, commenced operations in March 2008. We were formed in March 2010 for the purpose of acquiring Compass Horizon and continuing its business as a public entity.
 
Our investment activities, and our day-to-day operations, are managed by our Advisor and supervised by our board of directors, or the Board, of which a majority of the members are independent of us. Under an amended and restated investment management agreement, or the Investment Management Agreement, we have agreed to pay our Advisor a base management fee and an incentive fee for its advisory services to us. We have also entered into an administration agreement, or the Administration Agreement, with our Advisor under which we have agreed to reimburse our Advisor for our allocable portion of overhead and other expenses incurred by our Advisor in performing its obligations under the Administration Agreement.
 
Portfolio composition and investment activity
 
The following table shows our portfolio by type of investment as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Number of
Investments	 	 	Fair
Value	 	 	Percentage
of Total
Portfolio	 	 	Number of
Investments	 	 	Fair
Value	 	 	Percentage
of Total
Portfolio	 	
 	 	 	 	 	 	 	 	(Dollars in thousands)	 	 	 	 	 	 	 	
Term loans	 	 	37	 	 	$	166,066	 	 	 	92.2	%	 	 	44	 	 	$	186,186	 	 	 	96.0	%	
Warrants	 	 	71	 	 	 	7,138	 	 	 	4.0	 	 	 	78	 	 	 	6,362	 	 	 	3.3	 	
Other investments	 	 	3	 	 	 	5,900	 	 	 	3.2	 	 	 	2	 	 	 	600	 	 	 	0.3	 	
Equity	 	 	5	 	 	 	1,010	 	 	 	0.6	 	 	 	5	 	 	 	855	 	 	 	0.4	 	
Total	 	 	 	 	 	$	180,114	 	 	 	100.0	%	 	 	 	 	 	$	194,033	 	 	 	100.0	%	
 
 	36	 	

 
The following table shows total portfolio investment activity as of and for the three months ended March 31, 2017 and 2016:
 
 	 	March 31,	 	
 	 	2017	 	 	2016	 	
 	 	(In thousands)	 	
Beginning portfolio	 	$	194,003	 	 	$	250,267	 	
New debt investments	 	 	25,916	 	 	 	16,500	 	
Principal payments received on investments	 	 	(11,891	)	 	 	(9,986	)	
Early pay-offs	 	 	(27,209	)	 	 	(8,097	)	
Accretion of debt investment fees	 	 	505	 	 	 	362	 	
New debt investment fees	 	 	(270	)	 	 	(289	)	
New equity	 	 	-	 	 	 	45	 	
Sale of investments	 	 	(1,226	)	 	 	(836	)	
Net realized loss on investments	 	 	(10,845	)	 	 	(1,917	)	
Net unrealized appreciation (depreciation) on investments	 	 	11,131	 	 	 	(1,014	)	
Ending portfolio	 	$	180,114	 	 	$	245,035	 	
 
We receive payments on our debt investments based on scheduled amortization of the outstanding balances. In addition, we receive repayments of some of our debt investments prior to their scheduled maturity date. The frequency or volume of these repayments may fluctuate significantly from period to period.
 
The following table shows our debt investments by industry sector as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Debt
Investments at
Fair Value	 	 	Percentage
of Total
Portfolio	 	 	Debt
Investments at
Fair Value	 	 	Percentage
of Total
Portfolio	 	
 	 	 	 	 	(Dollars in thousands)	 	 	 	 	
Life Science	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Biotechnology	 	$	28,194	 	 	 	17.0	%	 	$	40,612	 	 	 	21.8	%	
Medical Device	 	 	10,195	 	 	 	6.1	 	 	 	13,003	 	 	 	7.0	 	
Technology	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Communications	 	 	-	 	 	 	-	 	 	 	76	 	 	 	0.1	 	
Consumer-Related	 	 	19,968	 	 	 	12.0	 	 	 	20,631	 	 	 	11.1	 	
Internet and Media	 	 	23,075	 	 	 	13.9	 	 	 	7,933	 	 	 	4.2	 	
Materials	 	 	9,886	 	 	 	6.0	 	 	 	9,874	 	 	 	5.3	 	
Networking	 	 	3,215	 	 	 	1.9	 	 	 	3,306	 	 	 	1.8	 	
Power Management	 	 	1,973	 	 	 	1.2	 	 	 	2,220	 	 	 	1.2	 	
Semiconductors	 	 	4,465	 	 	 	2.7	 	 	 	7,528	 	 	 	4.0	 	
Software	 	 	50,972	 	 	 	30.7	 	 	 	53,349	 	 	 	28.7	 	
Cleantech	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Energy Efficiency	 	 	-	 	 	 	-	 	 	 	1,942	 	 	 	1.0	 	
Waste Recycling	 	 	5,966	 	 	 	3.6	 	 	 	5,964	 	 	 	3.2	 	
Healthcare Information and Services	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
Diagnostics	 	 	3,469	 	 	 	2.1	 	 	 	4,081	 	 	 	2.2	 	
Other	 	 	4,688	 	 	 	2.8	 	 	 	5,770	 	 	 	3.1	 	
Software	 	 	-	 	 	 	-	 	 	 	9,897	 	 	 	5.3	 	
Total	 	$	166,066	 	 	 	100.0	%	 	$	186,186	 	 	 	100.0	%	
 
 	37	 	

 
The largest debt investments in our portfolio may vary from year to year as new debt investments are originated and existing debt investments are repaid. Our five largest debt investments represented 29% and 24% of total debt investments outstanding as of March 31, 2017 and December 31, 2016, respectively. No single debt investment represented more than 10% of our total debt investments as of March 31, 2017 and December 31, 2016.
 
Debt investment asset quality
 
We use an internal credit rating system which rates each debt investment on a scale of 4 to 1, with 4 being the highest credit quality rating and 3 being the rating for a standard level of risk. A rating of 2 represents an increased level of risk and, while no loss is currently anticipated for a 2-rated debt investment, there is potential for future loss of principal. A rating of 1 represents a deteriorating credit quality and a high degree of risk of loss of principal. Our internal credit rating system is not a national credit rating system. As of March 31, 2017 and December 31, 2016, our debt investments had a weighted average credit rating of 3.0. The following table shows the classification of our debt investment portfolio by credit rating as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Number of
Investments	 	 	Debt
Investments
at Fair Value	 	 	Percentage
of Debt Investments	 	 	Number of
Investments	 	 	Debt
Investments
at Fair Value	 	 	Percentage
of Debt
Investments	 	
 	 	 	 	 	 	 	 	(Dollars in thousands)	 	 	 	 	 	 	 	
Credit Rating	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	 	
4	 	 	6	 	 	$	23,134	 	 	 	13.9	%	 	 	6	 	 	$	29,721	 	 	 	16.0	%	
3	 	 	25	 	 	 	127,192	 	 	 	76.7	 	 	 	28	 	 	 	131,605	 	 	 	70.6	 	
2	 	 	4	 	 	 	9,540	 	 	 	5.7	 	 	 	6	 	 	 	13,360	 	 	 	7.2	 	
1	 	 	2	 	 	 	6,200	 	 	 	3.7	 	 	 	4	 	 	 	11,500	 	 	 	6.2	 	
Total	 	 	37	 	 	$	166,066	 	 	 	100.0	%	 	 	44	 	 	$	186,186	 	 	 	100.0	%	
 
As of March 31, 2017, there were two debt investments with an internal credit rating of 1, with an aggregate cost of $11.9 million and an aggregate fair value of $6.2 million. As of December 31, 2016, there were four debt investments with an internal credit rating of 1, with an aggregate cost of $26.2 million and an aggregate fair value of $11.5 million.
 
Consolidated results of operations
 
As a BDC and a RIC, we are subject to certain constraints on our operations, including limitations imposed by the 1940 Act and the Code. The consolidated results of operations described below may not be indicative of the results we report in future periods.
 
Comparison of the three months ended March 31, 2017 and 2016
 
The following table shows consolidated results of operations for the three months ended March 31, 2017 and 2016:
 
 	 	For the Three Months Ended	 	
 	 	March 31,	 	
 	 	2017	 	 	2016	 	
 	 	(In thousands)	 	
Total investment income	 	$	6,962	 	 	$	9,297	 	
Total net expenses	 	 	3,595	 	 	 	4,900	 	
Net investment income	 	 	3,367	 	 	 	4,397	 	
Net realized loss on investments	 	 	(10,845	)	 	 	(1,986	)	
Net unrealized appreciation (depreciation) on investments	 	 	11,131	 	 	 	(1,014	)	
Net increase in net assets resulting from operations	 	$	3,653	 	 	$	1,397	 	
Average debt investments, at fair value	 	$	179,530	 	 	$	240,475	 	
Average borrowings outstanding	 	$	86,056	 	 	$	112,035	 	
 
Net increase in net assets resulting from operations can vary substantially from period to period for various reasons, including the recognition of realized gains and losses and unrealized appreciation and depreciation on investments. As a result, quarterly comparisons of net increase in net assets resulting from operations may not be meaningful.
 
 	38	 	

 
Investment income
 
Total investment income decreased by $2.3 million, or 25.1%, to $7.0 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. For the three months ended March 31, 2017, total investment income consisted primarily of $6.3 million in interest income from investments, which included $1.7 million in income from the accretion of origination fees and end-of-term payments, or ETPs, and $0.7 million in fee income. Interest income on investments decreased by $2.7 million, or 30.3%, for the three months ended March 31, 2017 compared to the three months ended March 31, 2016. Interest income on investments decreased primarily due to a decrease of $60.9 million, or 25.3%, in the average size of our investment portfolio for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. Fee income, which includes success fee and prepayment fee income on debt investments, increased by $0.4 million, or 132.3%, to $0.7 million primarily due to fees earned on higher principal prepayments received during the three months ended March 31, 2017 compared to the three months ended March 31, 2016.
 
For the three months ended March 31, 2017 and 2016, our dollar-weighted annualized yield on average debt investments was 15.5%. We calculate the yield on dollar-weighted average debt investments for any period measured as (1) total investment income during the period divided by (2) the average of the fair value of debt investments outstanding on (a) the last day of the calendar month immediately preceding the first day of the period and (b) the last day of each calendar month during the period. The dollar-weighted annualized yield represents the portfolio yield and will be higher than what investors will realize because it does not reflect our expenses or any sales load paid by investors.
 
Investment income, consisting of interest income and fees on debt investments, can fluctuate significantly upon repayment of large debt investments. Interest income from the five largest debt investments in the aggregate accounted for 14% and 20%, respectively, of investment income for the three months ended March 31, 2017 and 2016.
 
Expenses
 
Total expenses decreased by $1.3 million, or 26.6%, to $3.6 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. Total expenses for each period consisted of interest expense, base management fee, incentive and administrative fees, professional fees and general and administrative expenses.
 
Interest expense decreased by $0.2 million, or 14.2%, to $1.3 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. Interest expense, which includes the amortization of debt issuance costs, decreased primarily due to a decrease in average borrowings of $26.0 million, or 23.2%, which was partially offset by an increase in our effective cost of debt for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.
 
Base management fee expense decreased by $0.3 million, or 24.1%, to $1.0 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. Base management fee decreased primarily due to a decrease of $60.9 million, or 25.3%, in the average size of our investment portfolio for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.
 
Performance based incentive fee expense decreased by $0.7 million, or 60.9%, to $0.4 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. Performance based incentive fee expense decreased because the incentive fee expense for the three months ended March 31, 2017 was limited by the incentive fee cap and deferral mechanism under our Investment Management Agreement. This resulted in $0.3 million of reduced expense and additional net investment income for the three months ended March 31, 2017. The incentive fee on pre-incentive fee net investment income was subject to the incentive fee cap and deferral mechanism due to the cumulative incentive fees paid since July 1, 2014 exceeding the cumulative pre-incentive fee net return since July 1, 2015.
 
Administrative fee expense decreased by $0.1 million, or 31.0%, to $0.2 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016. Administrative fee expense decreased primarily due to a decrease in our allocated costs of compensation incurred by the Advisor on our behalf for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.
 
 	39	 	

 
Professional fees and general and administrative expenses primarily include legal and audit fees and insurance premiums. These expenses remained flat at $0.7 million for the three months ended March 31, 2017 as compared to the three months ended March 31, 2016.
 
Net realized gains and losses and net unrealized appreciation and depreciation
 
Realized gains or losses on investments are measured by the difference between the net proceeds from the repayment or sale and the cost basis of our investments without regard to unrealized appreciation or depreciation previously recognized. Realized gains or losses on investments include investments charged off during the period, net of recoveries. The net change in unrealized appreciation or depreciation on investments primarily reflects the change in portfolio investment fair values during the reporting period, including the reversal of previously recorded unrealized appreciation or depreciation when gains or losses are realized.
 
During the three months ended March 31, 2017, we realized net losses totaling $10.8 million primarily due to the resolution of two debt investments partially offset by realized gains on the sale of equity received upon the exercise of warrants. During the three months ended March 31, 2016, we realized net losses totaling $2.0 million primarily due to the resolution of one debt investment partially offset by realized gains on the sale of equity received upon the exercise of warrants.
 
During the three months ended March 31, 2017, net unrealized appreciation on investments totaled $11.1 million which was primarily due to reversal of previously recorded unrealized depreciation on two debt investments that were settled during the period. During the three months ended March 31, 2016, net unrealized depreciation on investments totaled $1.0 million which was primarily due to changes in fair value of our investment portfolio during the period offset by the reversal of previously recorded unrealized depreciation on one debt investment that was settled during the period, as described above.
 
Liquidity and capital resources
 
As of March 31, 2017 and December 31, 2016, we had cash and investments in money market funds of $43.6 million and $37.1 million, respectively. Cash and investments in money market funds are available to fund new investments, reduce borrowings, pay expenses, repurchase common stock and pay distributions. Our primary sources of capital have been from our public and private equity offerings, use of our revolving credit facilities and issuance of our 7.375% notes due 2019, or the 2019 Notes, and our fixed-rate asset-backed notes, or the Asset-Backed Notes.
 
On April 27, 2017, our Board extended a previously authorized stock repurchase program which allows us to repurchase up to $5.0 million of our common stock at prices below our net asset value per share as reported in our most recent consolidated financial statements. Under the repurchase program, we may, but are not obligated to, repurchase shares of our outstanding common stock in the open market or in privately negotiated transactions from time to time. Any repurchases by us will comply with the requirements of Rule 10b-18 under the Exchange Act and any applicable requirements of the 1940 Act. Unless extended by our Board, the repurchase program will terminate on the earlier of June 30, 2018 or the repurchase of $5.0 million of our common stock. During the three months ended March 31, 2017 and 2016, we did not make any repurchases of our common stock. From the inception of the stock repurchase program through March 31, 2017, we repurchased 161,542 shares of our common stock at an average price of $11.27 on the open market at a total cost of $1.8 million.
 
At March 31, 2017 and December 31, 2016, the outstanding principal balance under our revolving credit facility, or the Key Facility, with KeyBank National Association, or Key, was $53.0 million and $63.0 million, respectively. As of March 31, 2017 and December 31, 2016, we had borrowing capacity under the Key Facility of $42.0 million and $32.0 million, respectively. At March 31, 2017 and December 31, 2016, $6.2 million and $4.6 million, respectively, was available, subject to existing terms and advance rates.
 
Our operating activities provided cash of $19.9 million for the three months ended March 31, 2017, and our financing activities used cash of $13.4 million for the same period. Our operating activities provided cash primarily from principal payments received on our debt investments, partially offset by investments made in portfolio companies. Our financing activities used cash primarily to repay the Key Facility and pay distributions to our stockholders.
 
 	40	 	

 
Our operating activities provided cash of $6.3 million for the three months ended March 31, 2016, and our financing activities used cash of $9.8 million for the same period. Our operating activities provided cash primarily from principal payments received on our debt investments partially offset by investments made in portfolio companies. Our financing activities used cash primarily to pay down our Asset-Backed Notes and pay distributions to our stockholders.
 
Our primary use of available funds is to make debt investments in portfolio companies and for general corporate purposes. We expect to raise additional equity and debt capital opportunistically as needed and, subject to market conditions, to support our future growth to the extent permitted by the 1940 Act.
 
In order to be subject to taxation as a RIC, we intend to distribute to our stockholders all or substantially all of our investment company taxable income. In addition, as a BDC, we are required to maintain asset coverage of at least 200%. This requirement limits the amount that we may borrow.
 
We believe that our current cash, cash generated from operations, and funds available from our Key Facility will be sufficient to meet our working capital and capital expenditure commitments for at least the next 12 months.
 
Current borrowings
 
The following table shows our borrowings as of March 31, 2017 and December 31, 2016:
 
 	 	March 31, 2017	 	 	December 31, 2016	 	
 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	 	Total
Commitment	 	 	Balance
Outstanding	 	 	Unused
Commitment	 	
 	 	 	 	 	 	 	 	(In thousands)	 	 	 	 	 	 	 	
Key Facility	 	$	95,000	 	 	$	53,000	 	 	$	42,000	 	 	$	95,000	 	 	$	63,000	 	 	$	32,000	 	
2019 Notes	 	 	33,000	 	 	 	33,000	 	 	 	-	 	 	 	33,000	 	 	 	33,000	 	 	 	-	 	
Total before debt issuance costs	 	 	128,000	 	 	 	86,000	 	 	 	42,000	 	 	 	128,000	 	 	 	96,000	 	 	 	32,000	 	
Unamortized debt issuance costs attributable to term borrowings	 	 	-	 	 	 	(356	)	 	 	-	 	 	 	-	 	 	 	(403	)	 	 	-	 	
Total borrowings outstanding, net	 	$	128,000	 	 	$	85,644	 	 	$	42,000	 	 	$	128,000	 	 	$	95,597	 	 	$	32,000	 	
 
We entered into the Key Facility with Key effective November 4, 2013. The interest rate on the Key Facility is based upon the one-month London Interbank Offered Rate, or LIBOR, plus a spread of 3.25%, with a LIBOR floor of 0.75%. The LIBOR rate was 0.98% and 0.77% on March 31, 2017 and December 31, 2016, respectively. The interest rate in effect was 4.03% and 4.00%, respectively, as of March 31, 2017 and December 31, 2016.
 
The Key Facility has an accordion feature which allows for an increase in the total loan commitment to $150 million. The Key Facility is collateralized by debt investments held by Horizon Credit II LLC, or Credit II, and permits an advance rate of up to fifty percent (50%) of eligible debt investments held by Credit II. The Key Facility contains covenants that, among other things, require us to maintain a minimum net worth, to restrict the debt investments securing the Key Facility to certain criteria for qualified debt investments and to comply with portfolio company concentration limits as defined in the related loan agreement. We may request advances under the Key Facility through August 12, 2018, or the Revolving Period. After the Revolving Period, we may not request new advances, and we must repay the outstanding advances under the Key Facility as of such date, at such times and in such amounts as are necessary to maintain compliance with the terms and conditions of the Key Facility, particularly the condition that the principal balance of the Key Facility not exceed fifty percent (50%) of the aggregate principal balance of our eligible debt investments to our portfolio companies. All outstanding advances under the Key Facility are due and payable on August 12, 2020.
 
 	41	 	

 
On March 23, 2012, we issued and sold an aggregate principal amount of $30 million 2019 Notes, and on April 18, 2012, pursuant to the underwriters’ 30-day option to purchase additional notes, we sold an additional $3 million of the 2019 Notes. The 2019 Notes will mature on March 15, 2019 and may be redeemed in whole or in part at our option at any time or from time to time at a redemption price of $25 per security plus accrued and unpaid interest. The 2019 Notes bear interest at a rate of 7.375% per year payable quarterly on March 15, June 15, September 15 and December 15 of each year. The 2019 Notes are our direct, unsecured obligations and (1) rank equally in right of payment with our future unsecured indebtedness; (2) are senior in right of payment to any of our future indebtedness that expressly provides it is subordinated to the 2019 Notes; (3) are effectively subordinated to all of our existing and future secured indebtedness (including indebtedness that is initially unsecured to which we subsequently grant security), to the extent of the value of the assets securing such indebtedness and (4) are structurally subordinated to all existing and future indebtedness and other obligations of any of our subsidiaries. As of March 31, 2017, we were in material compliance with the terms of the 2019 Notes. The 2019 Notes are listed on the New York Stock Exchange under the symbol “HTF”.
 
On June 28, 2013, we completed the 2013-1 Securitization. In connection with the 2013-1 Securitization, 2013-1 Trust, a wholly owned subsidiary of ours, issued $90 million in the Asset-Backed Notes, which were rated A1(sf) by Moody’s Investors Service, Inc. The Asset-Backed Notes were issued by 2013-1 Trust and were backed by a pool of loans made to certain portfolio companies of ours and secured by certain assets of such portfolio companies. The Asset-Backed Notes were secured obligations of 2013-1 Trust and non-recourse to us. In connection with the issuance and sale of the Asset-Backed Notes, we made customary representations, warranties and covenants. The Asset-Backed Notes bore interest at a fixed rate of 3.00% per annum and had a stated maturity of May 15, 2018. As of September 30, 2016, the Asset-Backed Notes were repaid in full.
 
Under the terms of the Asset-Backed Notes, we were required to maintain a reserve cash balance, funded through principal collections from the underlying securitized debt portfolio, which could have been used to make monthly interest and principal payments on the Asset-Backed Notes.
 
As of March 31, 2017 and December 31, 2016, other assets were $1.6 million and $2.1 million, respectively, which were primarily comprised of debt issuance costs and prepaid expenses.
 
Contractual obligations and off-balance sheet arrangements
 
The following table shows our significant contractual payment obligations and off-balance sheet arrangements as of March 31, 2017:
 
 	 	Payments due by period	 	
 	 	Total	 	 	Less than
1 year	 	 	1 - 3
Years	 	 	3 - 5
Years	 	 	After 5
years	 	
 	 	(In thousands)	 	
Borrowings	 	$	86,000	 	 	$	4,443	 	 	$	75,600	 	 	$	5,957	 	 	$	-	 	
Unfunded commitments	 	 	11,500	 	 	 	4,000	 	 	 	7,500	 	 	 	-	 	 	 	-	 	
Total	 	$	97,500	 	 	$	8,443	 	 	$	83,100	 	 	$	5,957	 	 	$	-	 	
 
In the normal course of business, we are party to financial instruments with off-balance sheet risk. These consist primarily of unfunded commitments to extend credit, in the form of loans, to our portfolio companies. Unfunded commitments to provide funds to portfolio companies are not reflected on our balance sheet. Our unfunded commitments may be significant from time to time. As of March 31, 2017, we had unfunded commitments of $11.5 million. These commitments are subject to the same underwriting and ongoing portfolio maintenance requirements as are the financial instruments that we hold on our balance sheet. In addition, these commitments are often subject to financial or non-financial milestones and other conditions to borrowing that must be achieved before the commitment can be drawn. Since these commitments may expire without being drawn upon, the total commitment amount does not necessarily represent future cash requirements. We regularly monitor our unfunded commitments and anticipated refinancings, maturities and capital raising, to ensure that we have sufficient liquidity to fund such unfunded commitments. As of March 31, 2017, we reasonably believed that our assets would provide adequate financial resources to satisfy all of our unfunded commitments.
 
In addition to the Key Facility, we have certain commitments pursuant to our Investment Management Agreement entered into with our Advisor. We have agreed to pay a fee for investment advisory and management services consisting of two components (1) a base management fee equal to a percentage of the value of our gross assets less cash or cash equivalents, and (2) a two-part incentive fee. We have also entered into a contract with our Advisor to serve as our administrator. Payments under the Administration Agreement are equal to an amount based upon our allocable portion of our Advisor’s overhead in performing its obligations under the agreement, including rent, fees and other expenses inclusive of our allocable portion of the compensation of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. See Note 3 to our consolidated financial statements for additional information regarding our Investment Management Agreement and our Administration Agreement.
 
 	42	 	

 
Distributions
 
In order to qualify and be subject to tax as a RIC, we must meet certain source-of-income, asset diversification and annual distribution requirements. Generally, in order to qualify as a RIC, we must derive at least 90% of our gross income for each tax year from dividends, interest, payments with respect to certain securities, loans, gains from the sale or other disposition of stock, securities or foreign currencies, or other income derived with respect to its business of investing in stock or other securities. We must also meet certain asset diversification requirements at the end of each quarter of each tax year. Failure to meet these diversification requirements on the last day of a quarter may result in us having to dispose of certain investments quickly in order to prevent the loss of RIC status. Any such dispositions could be made at disadvantageous prices or times, and may cause us to incur substantial losses.
 
In addition, in order to be subject to tax as a RIC and to avoid corporate-level tax on the income and gains we distribute to our stockholders in respect of any tax year, we are required under the Code to distribute as dividends to our stockholders out of assets legally available for distribution each tax year an amount generally at least equal to 90% of our net ordinary income and net short-term capital gains in excess of net long-term capital losses, if any. Additionally, in order to avoid the imposition of a U.S. federal excise tax, we are required to distribute, in respect of each calendar year, dividends to our stockholders of an amount at least equal to the sum of 98% of our calendar year net ordinary income (taking into account certain deferrals and elections); 98.2% of our capital gain net income (adjusted for certain ordinary losses) for the one year period ending on October 31 of such calendar year; and any net ordinary income and capital gain net income for preceding calendar years that were not distributed during such calendar years and on which we previously did not incur any U.S. federal income tax. If we fail to qualify as a RIC for any reason and become subject to corporate 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. In addition, we could be required to recognize unrealized gains, pay substantial taxes and interest and make substantial distributions in order to re-qualify as a RIC. We cannot assure stockholders that they will receive any distributions.
 
To the extent our taxable earnings for a fiscal year fall below the total amount of our distributions for that fiscal year, a portion of those distributions may be deemed a return of capital to our stockholders for U.S. federal income tax purposes. Thus, the source of a distribution to our stockholders may be the original capital invested by the stockholder rather than our income or gains. Stockholders should read any written disclosure accompanying a distribution payment carefully and should not assume that the source of any distribution is our ordinary income or gains.
 
We have adopted an “opt out” dividend reinvestment plan, or DRIP, for our common stockholders. As a result, if we declare a distribution, then stockholders’ cash distributions will be automatically reinvested in additional shares of our common stock unless a stockholder specifically “opts out” of our DRIP. If a stockholder opts out, that stockholder will receive cash distributions. Although distributions paid in the form of additional shares of our common stock will generally be subject to U.S. federal, state and local taxes, stockholders participating in our DRIP will not receive any corresponding cash distributions with which to pay any such applicable taxes. If our common stock is trading above net asset value, a stockholder receiving distributions in the form of additional shares of our common stock will be treated as receiving a distribution of an amount equal to the fair market value of such shares of our common stock. We may use newly issued shares to implement the DRIP, or we may purchase shares in the open market in connection with our obligations under the DRIP.
 
Related party transactions
 
We have entered into the Investment Management Agreement with the Advisor. The Advisor is registered as an investment adviser under the Investment Advisers Act of 1940, as amended. Our investment activities are managed by the Advisor and supervised by the Board, the majority of whom are independent directors. Under the Investment Management Agreement, we have agreed to pay the Advisor a base management fee as well as an incentive fee. During the three months ended March 31, 2017 and 2016, we paid the Advisor $1.4 million and $2.4 million, respectively, pursuant to the Investment Management Agreement.
 
 	43	 	

 
Our Advisor is 60% owned by HTF Holdings LLC, which is 100% owned by Horizon Technology Finance, LLC. By virtue of their ownership interest in Horizon Technology Finance, LLC, our Chief Executive Officer, Robert D. Pomeroy, Jr. and our President, Gerald A. Michaud, may be deemed to control our Advisor.
 
We have also entered into the Administration Agreement with the Advisor. Under the Administration Agreement, we have agreed to reimburse the Advisor for our allocable portion of overhead and other expenses incurred by the Advisor in performing its obligations under the Administration Agreement, including rent and our allocable portion of the costs of compensation and related expenses of our Chief Financial Officer and Chief Compliance Officer and their respective staffs. In addition, pursuant to the terms of the Administration Agreement the Advisor provides us with the office facilities and administrative services necessary to conduct our day-to-day operations. During the three months ended March 31, 2017 and 2016, we paid the Advisor $0.2 million and $0.3 million, respectively, pursuant to the Administration Agreement.
 
The predecessor of the Advisor has granted the Company a non-exclusive, royalty-free license to use the name “Horizon Technology Finance.”
 
We believe that we derive substantial benefits from our relationship with our Advisor. Our Advisor may manage other investment vehicles, or Advisor Funds, with the same investment strategy as us. The Advisor may provide us an opportunity to co-invest with the Advisor Funds. Under the 1940 Act, absent receipt of exemptive relief from the SEC, we and our affiliates are precluded from co-investing in such investments. On January 23, 2017, we filed an application for exemptive relief with the SEC which, if granted, would permit us more flexibility to co-invest with the Advisor funds, subject to certain conditions.
 
Critical accounting policies
 
The discussion of our financial condition and results of operation is based upon our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these consolidated financial statements requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues and expenses. Changes in the economic environment, financial markets and any other parameters used in determining such estimates could cause actual results to differ. In addition to the discussion below, we describe our significant accounting policies in the notes to our consolidated financial statements.
 
We have identified the following items as critical accounting policies.
 
Valuation of investments
 
Investments are recorded at fair value. Our Board determines the fair value of our portfolio investments. We apply fair value to substantially all of our investments in accordance with Topic 820,  Fair Value Measurement , of the Financial Accounting Standards Board’s Accounting Standards Codification as amended, or ASC, which establishes a framework used to measure fair value and requires disclosures for fair value measurements. We have categorized our investments carried at fair value, based on the priority of the valuation technique, into a three-level fair value hierarchy. Fair value is a market-based measure considered from the perspective of the market participant who holds the financial instrument rather than an entity specific measure. Therefore, when market assumptions are not readily available, our own assumptions are set to reflect those that management believes market participants would use in pricing the financial instrument at the measurement date.
 
The availability of observable inputs can vary depending on the financial instrument and is affected by a wide variety of factors, including, for example, the type of product, whether the product is new, whether the product is traded on an active exchange or in the secondary market and the current market conditions. To the extent that the valuation is based on models or inputs that are less observable or unobservable in the market, the determination of fair value requires more judgment. The three categories within the hierarchy are as follows:
 
 	Level 1	Quoted prices in active markets for identical assets and liabilities.	
 
 	Level 2	Observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities in active markets, quoted prices in markets that are not active and model-based valuation techniques for which all significant inputs are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.	
 
 	44	 	

 
 	Level 3	Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.	
 
Our Board determines the fair value of investments in good faith, based on the input of management, the audit committee and independent valuation firms that have been engaged at the direction of our Board to assist in the valuation of each portfolio investment without a readily available market quotation at least once during a trailing twelve-month period under our valuation policy and a consistently applied valuation process. The Board conducts this valuation process at the end of each fiscal quarter, with at least 25% (based on fair value) of our valuation of portfolio companies that do not have a readily available market quotations subject to review by an independent valuation firm.
 
Income recognition
 
Interest on debt investments is accrued and included in income based on contractual rates applied to principal amounts outstanding. Interest income is determined using a method that results in a level rate of return on principal amounts outstanding. Generally, when a debt investment becomes 90 days or more past due, or if we otherwise do not expect to receive interest and principal repayments, the debt investment is placed on non-accrual status and the recognition of interest income may be discontinued. Interest payments received on non-accrual debt investments may be recognized as income, on a cash basis, or applied to principal depending upon management’s judgment at the time the debt investment is placed on non-accrual status. For the three months ended March 31, 2017 and 2016, we did not recognize any interest income from debt investments on non-accrual status.
 
We receive a variety of fees from borrowers in the ordinary course of conducting our business, including advisory fees, commitment fees, amendment fees, non-utilization fees, success fees and prepayment fees. In a limited number of cases, we may also receive a non-refundable deposit earned upon the termination of a transaction. Debt investment origination fees, net of certain direct origination costs, are deferred, and along with unearned income, are amortized as a level yield adjustment over the respective term of the debt investment. All other income is recorded into income when earned. Fees for counterparty debt investment commitments with multiple debt investments are allocated to each debt investment based upon each debt investment’s relative fair value. When a debt investment is placed on non-accrual status, the amortization of the related fees and unearned income is discontinued until the debt investment is returned to accrual status.
 
Certain debt investment agreements also require the borrower to make an ETP that is accrued into income over the life of the debt investment to the extent such amounts are expected to be collected. We will generally cease accruing the income if there is insufficient value to support the accrual or if we do not expect the borrower to be able to pay all principal and interest due.
 
In connection with substantially all lending arrangements, we receive warrants to purchase shares of stock from the borrower. We record the warrants as assets at estimated fair value on the grant date using the Black-Scholes valuation model. We consider the warrants as loan fees and record them as unearned income on the grant date. The unearned income is recognized as interest income over the contractual life of the related debt investment in accordance with our income recognition policy. Subsequent to origination, the warrants are also measured at fair value using the Black-Scholes valuation model. Any adjustment to fair value is recorded through earnings as net unrealized gain or loss on investments. Gains and losses from the disposition of the warrants or stock acquired from the exercise of warrants are recognized as realized gains and losses on investments.
 
Realized gains or losses on the sale of investments, or upon the determination that an investment balance, or portion thereof, is not recoverable, are calculated using the specific identification method. We measure realized gains or losses by calculating the difference between the net proceeds from the repayment or sale and the amortized cost basis of the investment. Net change in unrealized appreciation or depreciation reflects the change in the fair values of our portfolio investments during the reporting period, including any reversal of previously recorded unrealized appreciation or depreciation, when gains or losses are realized.
 
 	45	 	

 
Income taxes
 
We have elected to be treated as a RIC under Subchapter M of the Code and operate in a manner so as to qualify for the tax treatment applicable to RICs. In order to qualify as a RIC and to avoid corporate-level U.S. federal income tax on the income distributed to stockholders, among other things, we are required to meet certain source of income and asset diversification requirements, and we must timely distribute dividends to our stockholders out of assets legally available for distribution of an amount generally at least equal to 90% of our investment company taxable income, as defined by the Code and determined without regard to any deduction for dividends paid, for each tax year. We, among other things, have made and intend to continue to make the requisite distributions to our stockholders, which will generally relieve us from U.S. federal income taxes.
 
Depending on the level of taxable income earned in a tax year, we may choose to carry forward taxable income in excess of current year distributions into the next tax year and incur a 4% excise tax on such income, as required. To the extent that we determine that our estimated current year annual taxable income will be in excess of estimated current year distributions, we will accrue excise tax, if any, on estimated excess taxable income as taxable income is earned.
 
We evaluate tax positions taken in the course of preparing our tax returns to determine whether the tax positions are “more-likely-than-not” to be sustained by the applicable tax authority in accordance with ASC Topic 740,  Income Taxes , as modified by ASC Topic 946,  Financial Services  -  Investment Companies . Tax benefits of positions not deemed to meet the more-likely-than-not threshold, or uncertain tax positions, are recorded as a tax expense in the current year. It is our policy to recognize accrued interest and penalties related to uncertain tax benefits in income tax expense. We had no material uncertain tax positions at March 31, 2017 and December 31, 2016.
 
Item 3.  Quantitative and Qualitative Disclosures About Market Risk
 
We are subject to financial market risks, including changes in interest rates. During the periods covered by our financial statements, the interest rates on the debt investments within our portfolio were primarily at floating rates.
We expect that our debt investments in the future will primarily have floating interest rates. As of March 31, 2017 and December 31, 2016, 100% and 96%, respectively, of the outstanding principal amount of our debt investments bore interest at floating rates. The initial commitments to lend to our portfolio companies are usually based on a floating LIBOR index.
 
Based on our March 31, 2017 consolidated statement of assets and liabilities (without adjustment for potential changes in the credit market, credit quality, size and composition of assets on the consolidated statement of assets and liabilities or other business developments that could affect net income), the following table shows the annual impact on the change in net assets resulting from operations of changes in interest rates, which assumes no changes in our investments and borrowings:
 
 	 	Interest
Income	 	 	Interest
Expense	 	 	Change in
Net Assets (1)	 	
Change in basis points	 	(In thousands)	 	
Up 300 basis points	 	$	4,151	 	 	$	1,612	 	 	$	2,539	 	
Up 200 basis points	 	$	2,801	 	 	$	1,075	 	 	$	1,726	 	
Up 100 basis points	 	$	1,371	 	 	$	537	 	 	$	834	 	
Down 300 basis points	 	$	(1,222	)	 	$	(32	)	 	$	(1,190	)	
Down 200 basis points	 	$	(1,002	)	 	$	(32	)	 	$	(970	)	
Down 100 basis points	 	$	(781	)	 	$	(32	)	 	$	(749	)	
 
 	(1)	Excludes the impact of incentive fees based on pre-incentive fee net investment income.	
 
While our 2019 Notes bear interest at a fixed rate, our Key Facility has a floating interest rate provision, subject to a floor of 0.75%, based on a LIBOR index which resets monthly, and any other credit facilities into which we enter in the future may have floating interest rate provisions. We have used hedging instruments in the past to protect us against interest rate fluctuations, and we may use them in the future. Such instruments may include caps, swaps, 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 the investments in our portfolio with fixed interest rates.
 
 	46	 	

 
Because we currently fund, and expect to continue to fund, our investments with borrowings, our net income is dependent upon the difference between the rate at which we borrow funds and the rate at which we invest the funds borrowed. Accordingly, there can be no assurance that a significant change in market interest rates will not have a material adverse effect on our net income. In periods of rising interest rates, our cost of funds could increase, which would reduce our net investment income.
 
Item 4.  Controls and Procedures
 
(a) Evaluation of disclosure controls and procedures
 
As of March 31, 2017, we, including our Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). Based on that evaluation, our management, including our Chief Executive Officer and Chief Financial Officer, concluded that our disclosure controls and procedures were effective and provided reasonable assurance that information required to be disclosed in our periodic SEC filings is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. 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 such possible controls and procedures.
 
(b) Changes in internal controls over financial reporting.
 
There have been no material changes in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during our most recently completed fiscal quarter, that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
 
 	47	 	

 
PART II
 
Item 1: Legal Proceedings.
 
Neither we nor our Advisor is currently subject to any material legal proceedings, nor, to our knowledge, is any material legal proceeding threatened against us or against our Advisor.
 
Item 1A: Risk Factors.
 
In addition to other information set forth in this report, you should carefully consider the “Risk Factors” discussed in our annual report on Form 10-K for the year ended December 31, 2016, which could materially affect our business, financial condition and/or operating results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially affect our business, financial condition and/or operating results. There have been no material changes during the three months ended March 31, 2017 to the risk factors set forth in “Item 1A. Risk Factors” of our annual report on Form 10-K for the year ended December 31, 2016.
 
Item 2: Unregistered Sales of Equity Securities and Use of Proceeds.
 
None.
 
Item 3: Defaults Upon Senior Securities.
 
None.
 
Item 4: Mine Safety Disclosures.
 
Not applicable
 
Item 5: Other Information.
 
None.
 
Item 6: Exhibits.
 
EXHIBIT INDEX
 
Exhibit
No.	 	Description	
31.1*	 	Certifications by Chief Executive Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended	
31.2*	 	Certifications by Chief Financial Officer pursuant to Exchange Act Rule 13a-14(a), as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002, as amended	
32.1*	 	Certification of the Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended	
32.2*	 	Certification of the Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, as amended	

*	Filed herewith	

 	48	 	

  
SIGNATURES
 
Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this Quarterly Report on Form 10-Q to be signed on its behalf by the undersigned, thereunto duly authorized.
 
 	HORIZON TECHNOLOGY FINANCE CORPORATION	
 	 	 	 	
Date: May 2, 2017	By:	/s/  Robert D. Pomeroy, Jr.	
 	 	Name:  	Robert D. Pomeroy, Jr.	
 	 	Title:	Chief Executive Officer and Chairman of the Board	
 	 	 	 	
Date: May 2, 2017	By:	/s/  Daniel R. Trolio	
 	 	Name:  	Daniel R. Trolio	
 	 	Title:	Chief Financial Officer	
 
 	49	 	

 
EXHIBIT 31.1
 
CERTIFICATION PURSUANT TO EXCHANGE ACT
RULES 13a-14 AND 15d-14, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
CHIEF EXECUTIVE OFFICER CERTIFICATION
 
I, Robert D. Pomeroy, Jr., as Chief Executive Officer and Chairman of the Board of Horizon Technology Finance Corporation, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Horizon Technology Finance Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 2, 2017
 
By:	/s/ Robert D. Pomeroy, Jr.  	 	
 	Chief Executive Officer and  	 	
 	Chairman of the Board  	 	

 
EXHIBIT 31.2
 
CERTIFICATION PURSUANT TO EXCHANGE ACT
RULES 13a-14 AND 15d-14, AS ADOPTED PURSUANT
TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
 
CHIEF FINANCIAL OFFICER CERTIFICATION
 
I, Daniel R. Trolio, as Chief Financial Officer of Horizon Technology Finance Corporation, certify that:
 
1. I have reviewed this quarterly report on Form 10-Q of Horizon Technology Finance Corporation;
 
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
 
a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
d) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
 
5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
 
a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
 
Date: May 2, 2017
 
By:	/s/ Daniel R. Trolio	 	
 	Daniel R. Trolio	 	
 	Chief Financial Officer	 	

 
EXHIBIT 32.1
 
CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
 
In connection with the Quarterly Report on Form 10-Q of Horizon Technology Finance Corporation (the “Company”) for the quarterly period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Robert D. Pomeroy, Jr., as Chief Executive Officer and Chairman of the Board, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002, as amended, that to my knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Robert D. Pomeroy, Jr.	 	
Name:	Robert D. Pomeroy, Jr.	 	
Title:	Chief Executive Officer and
Chairman of the Board	 	
 
Date: May 2, 2017

 

EXHIBIT 32.2
 
CERTIFICATION OF CHIEF FINANCIAL OFFICER
Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. Section 1350)
 
In connection with the Quarterly Report on Form 10-Q of Horizon Technology Finance Corporation (the “Company”) for the quarterly period ended March 31, 2017 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Daniel R. Trolio, as Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of Sarbanes-Oxley Act of 2002, as amended, that to my knowledge:
 
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and
 
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
 
/s/ Daniel R. Trolio	 	
Name:	Daniel R. Trolio	 	
Title:	Chief Financial Officer	 	
 
Date: May 2, 2017